The Mansion House Speech in Context
By Donna James, Research Director at Populus Select
The Chancellor, Rachel Reeves, delivered her Mansion House speech on Tuesday (15th July). The speech usually sets out government plans for the financial services industry, an industry that not only is an important one for the country in revenue and export terms, but also which underpins the wider economy.
With the Chancellor desperately pushing for growth in the UK economy, sluggish since the last financial crisis, what measures did she announce that might start turning the fortunes of this slowly sinking Titanic of an economy of which she has taken the helm?
The speech outlines a range of measures which the Chancellor hopes will increase investment and reduce red tape. With the UK struggling with homegrown investment and the London Stock Exchange losing ground to foreign competitors such as New York and Frankfurt, and businesses struggling against domestic and international headwinds, any measures to reduce red tape and encourage investment should be welcomed.
We have all seen great start ups with home grown technology and talent uproot to the USA to secure the investment needed to grow. The Confederation of British Industry (CBI) has reported that companies choosing to list elsewhere, private firms buying up public ones, and investors avoiding UK shares had resulted in over 213 firms leaving the London Stock Exchange since 2016 (BBC 9 July https://www.bbc.co.uk/news/articles/cz6g85qp0p6o accessed 17/07 9:18). The CBI therefore called for changes in regulation and better marketing and incentives to encourage investment in British firms.
Other ideas and policy reforms have been bounced around during the last year including reducing the cash ISA savings allowance from its current £20,000 limit, changing pension rules to ‘encourage’ pension funds to invest in British companies, and changing financial regulations to provide a more competitive environment both to attract foreign and support domestic investment.
The measures set out in the speech build upon the Government’s new Financial Services Growth and Competitiveness Strategy (2035), otherwise known as the ‘Leeds Reforms’ and include:
Regulatory change: faster regulatory approvals, streamlined regulation, bank capital framework reform, including lower capital requirements for domestically focussed banks from January 2027, ringfencing regime review.
The establishment of a new Listings Taskforce with the Office for Investment - to attract businesses to IPO in London plus a ‘concierge service’.
Marketing of investment to try to encourage the general public to invest in stocks and shares rather than in cash savings.
Changing of capital requirements -capital requirements to allow UK banks to lend more and release more capital for investment into UK infrastructure and businesses
Driving forward changes in blockchain technology including tokenised securities and stablecoins
These measures signal a significant rollback of the regulatory framework that was installed after the Financial Crisis and a step forward to encourage more risk-taking by regulators, consumers, and firms.
The reforms demonstrate a recognition by the Chancellor that the UK is reliant on effective financial services to support the wider economy but in some areas reforms don’t go far enough - e.g. encouraging investment in stocks and shares, and in others there are huge risks – i.e. ringfencing regime change, whose efficacy or otherwise will only be seen at the next financial crisis but under an economy currently at 100% Debt to GDP ratio compared to under 40% before the last crisis, when public funds were able to bail out the banks.