Reboot for the Square Mile
The global scale of the energy crisis and its impact on inflation and prosperity will clearly be the dominant early themes for the government of Liz Truss. Critics will immediately seize upon the weakness of sterling as a signal of why her bold pro-growth ideas are rash.
It is useful to reflect that it is not just sterling that has been in freefall, but the euro – at a 20-year low – and the Japanese yen – at a 24-year nadir.
The dollar is soaring because the Federal Reserve, the US central bank, has been more aggressive than its cohorts in raising interest rates and tightening credit conditions. If people hadn’t noticed, the US, along with Saudi Arabia and Russia, is an energy powerhouse, more than self- sufficient in gas and oil.
Indeed, it has become an exporter of liquefied natural gas (LNG) to Britain and other friendly states with capacity to bring it onshore.
Amid the current tumult, the Truss government needs to reaffirm speedily its commitment to the City.
When Boris Johnson’s government resolved to get Brexit done, it assumed (as it turned out rightly) that Britain’s financial services sector was robust enough to see off challenges from Paris, Frankfurt and Amsterdam. As membership body The City UK reminds us, there is still unfinished business in bringing the Financial Services and Markets Bill to fruition to reinforce London’s challenge to New York and increasingly muscular Pacific financial centres.
The City, with its fancy bonuses, eye-watering starting salaries and the cocaine fuelled antics of the traders depicted in the BBC series Industry, will always be regarded with disdain by a broader public. Yet it generates £200bn a year in output, exports £121bn when professional services are included and contributes £100bn in tax revenues.
It generates jobs far beyond the Square Mile, with 1.3m employed in financial and professional services. The financial services bill seeks to free the UK from onerous rules inherited from the european Union and to empower Britain as the best place in europe to float companies.
Labour describes Truss plans to scrap the rise in corporation tax next year as a ‘stealth tax cut for banks’, which will slash their bills to HMRC by 5pc. UK-based banks, including the mighty US and european investment banks with headquarters here, have other choices if taxes in Britain become uncompetitive.
A recent survey by PWC found that if the Treasury pressed on with the corporation tax rise, the total taxation rate for UK banks would rise to 50.5pc, against 36pc in New York, 38.6pc in Frankfurt and 37.5pc in Amsterdam.
DIFFERENTIALS on such a scale would be more than enough to see the forecast devastation of the City as a result of Brexit as a reality, making the whole country poorer.
None of this means that a culture of uninhibited and unfettered capitalism can be allowed to fester in the Square Mile.
Quite the opposite. The Financial Conduct Authority’s do- nothing decision against Andy hornby and other executives, who effectively collapsed halifax Bank of Scotland (HBOS) in 2008 and almost brought Lloyds Bank to its knees in the process, is one of the most outrageous outcomes of an official inquiry of our time.
Instead of acting like the fierce enforcer the City deserves, the FCA showed itself flaccid in the face of stiff legal resistance.
It sneaked out an announcement into the news black hole of a Friday evening and didn’t have the good grace to provide any formal background to its decision.
The ‘Fundamentally Supine Authority’ is still sitting on its investigation into the £3bn collapse of Neil Woodford’s investment empire in June 2019.
It failed to do anything to prevent the rise and fall of Greensill, which caused a tsunami of devastation not just here but around the globe.
When the FCA’s insouciance over the regulation of London Capital & Finance in 2019 was exposed in a scathing report by Dame elizabeth Gloster, the response of former chief executive of the FCA Andrew Bailey (now governor of the Bank of england) was to seek to have his name and those of other responsible officials erased from the report.
The UK needs a low tax and enterprising financial sector.
But the public needs to be reassured that in the case of wrong doing justice is delivered speedily and without pity.