TheCityUK responds to The Queen’s Speech

Yesterday’s Queen’s Speech, at the opening of Parliament, discussed several areas of policy which will affect the financial and related professional services industry. Below is TheCityUK’s analysis of these key themes:

EU Referendum

TheCityUK believe that the referendum on the UK’s EU membership should be based on a constructive reform agenda and should be held without undue delay. We therefore welcome the Government’s emphasis on reform as it seeks to renegotiate the UK’s relationship with the EU. Our research has shown that there is strong support from businesses for the UK to remain in a reformed EU based on a broader and deeper Single Market. The EU is, after all, the UK’s biggest market for exports of financial services, generating a trade surplus of £19.9billion – over one-third of the UK’s trade surplus in financial services in 2013. The financial and related professional services industry is a crucial part of the EU economy, employing 11.5 million people across the 28 Member States.

The UK is not alone in calling for a reformed EU: other Member States have produced reform proposals and it is in the interest of all Member States that the EU works more effectively. We believe that reforms should result in an EU that is more dynamic, flexible and globally competitive. Reforms that strengthen the position of each of the EU’s 28 Member States would serve to facilitate potentially prosperity-enhancing trade and investment deals and would also support the UK’s specific goal of enhancing its partnership with India and China.

We also believe that the UK, as one of the bloc’s largest markets, has an important role to play in this regard. The UK accounts for nearly 50% of global euro-denominated foreign-exchange trading, and around one-third of EU wholesale financial services activity takes place in London.

Forthcoming new research from TheCityUK outlines detailed proposals to support the reform process; these proposals emphasise the principles of a deep and strong Single Market, better regulation, and fair and equal treatment of all Member States. Our research also recommends that the meaning of ‘ever closer union’ be examined, given the myriad economic and political changes that have occurred in the nearly 60 years since that phrase was first used in the context of European integration. Importantly, the recommendations made in this report do not require treaty changes.

In addition, we believe that prolonged uncertainty over the UK’s EU membership could harm the UK’s business environment and hinder the big economic decisions that are required to stimulate the growth in investment needed to ensure a sustained domestic economic recovery.

Decentralisation

Decisions about decentralisation of political and fiscal powers should likewise be prompt and clear, since policy uncertainty detracts from a strong business environment. We welcome the Government’s recognition, articulated by its stated intention to devolve powers to cities with elected metropolitan mayors, of the opportunity presented by an increased economic contribution of cities in the north of England and by other UK regions and nations. It is right, fair and urgent that all parts of the UK see job creation and economic growth.

The financial and related professional services industry is one of the most significant employers in the UK, with around two-thirds of the 2.1 million people employed by the sector working outside London. In the North East and North West of England, the industry employs more than 250,000 people, and cities in the north of England have particular strengths in areas such as asset management, banking, mortgage lending, accounting, management consulting and legal services. Indeed, the North West is the UK’s largest economic region outside London and the South East of England.

Development of the Northern Powerhouse will ultimately attract investment into northern cities and towns, boosting jobs and growth across the region. Scotland, meanwhile, is one of Europe’s leading financial centres in its own right, with particular strengths in banking, life insurance and fund management. Greater autonomy for the nations, regions and cities outside of London must not, however, come at the expense of the global competitiveness of the UK as a whole. Instead, the UK should benefit from the positive network effects that greater physical links (in the form of high-speed rail connections between the different parts of the country) and economic connectivity among its cities should bring.

Competitiveness

TheCityUK welcomes the planned introduction of new legislation to support small businesses as a demonstration of the Government’s desire to streamline regulation and cut the red tape that often stymies businesses—especially small businesses. Continued improvements to the regulatory environment are crucial for maintaining the UK’s competitiveness as an international financial centre, particularly given the clear desire of other countries to entice business away. Competition from an increasingly diverse range of emerging and established financial centres continues to increase, so ensuring that UK businesses enjoy a supportive policy and operating environment is of paramount importance. Retaining existing businesses and providing the right framework for new and additional inward investment is a vital task. The UK must remain a place in which and from which business choose to operate and can succeed.

Part of maintaining competitiveness involves ensuring that the UK has a skilled workforce. Apprenticeships, such as those the Government intends to encourage, could play an important role in early-stage training and development to fill future skills gaps, including those in the financial and related professional services sector. Any proposed new limits on immigration, however, risk exacerbating the skills shortage that many businesses already say they face. Since training and apprenticeships strengthen the labour force only over the medium term and cannot address existing shortages of skilled labour, it is important for immigration policies to support the competitiveness of UK businesses. In this way, policy will help to achieve the Government’s stated goal of raising the productive potential of the economy and increasing living standards.