The finance community faced antagonism from Conservative former prime minister Boris Johnson, who before he became leader dismissed companies’ concerns about leaving the European Union.
Relations between the City of London’s finance sector and government have since improved but Brexit, political turbulence and economic uncertainty have all taken their toll on an industry that contributes about 12% of all UK tax receipts.
The disastrous ‘mini-budget’ in September 2022 under Prime Minister Rishi Sunak‘s Conservative predecessor Liz Truss, which sent government bond yields soaring, has not been forgotten.
The UK remains a top global destination for investment into finance, but foreign investment in its financial and professional services halved last year, and the London stock market is struggling to attract new listings. “It’s encouraging that the huge value of the City to the UK economy is recognised on a cross-party basis, as is the need to proactively ensure that the UK retains its status as one of the world-leading capital markets,” said Matthew Ponsonby, UK head of global banking for BNP Paribas. Finance industry bosses hope a new government will prioritise reforms that boost the City’s competitiveness and draw more global interest as it battles to keep pace with rivals, while also moving to unlock pension cash for much-needed long-term investments.
Ponsonby said that “whoever wins in July, they must not take their foot off the pedal of constructive reform”, citing as an example stamp duty on UK equity trades, a long-standing City bugbear.
Opposition leader Keir Starmer, far ahead in opinion polls, has filled his top ranks with politicians receptive to the industry’s goals, executives and lobby groups said.
Labour has courted the City, describing it as Britain’s “crown jewels” and has struck up a regular dialogue with banks and investors on the reforms put forward by the Conservative government to bolster the sector’s competitiveness post-Brexit.
Labour’s blueprint for the City appears to have taken on board some of the government’s reforms, though much can still change as campaigning gathers pace.
A Labour government would face the same cash-strapped public finances as the present administration, and would need private investors to help fund the huge investments required to meet targets on housing and energy transition.
“It’s about recognising the really important role that financial services play in the economy,” said Amanda Blanc, CEO of insurer Aviva. “We have a real vested interest in the future success of the UK and long-term investment, and that is what we just want, respect for financial services.”
Taking on risk
A renewed push to enable British institutional investors to direct more of their cash into domestic infrastructure and enterprise is at the top of executives’ wishlist for a new government.
Aviva has promoted reforms to dismantle the European Union’s Solvency II rules, which have stunted investment by UK insurers in infrastructure projects like airports and roads.
The company has piled 9.5 billion pounds ($12.1 billion) into UK infrastructure assets in the last four years but this was just the start, Blanc said.
Nicholas Lyons, chair of British insurer Phoenix and a former Lord Mayor of the City of London, said encouraging pension sector cash into infrastructure should be a priority.
“The important thing is to make a positive commitment to enabling financial services companies to do what they are designed to do, which is to take on risk,” he told Reuters.
British banks and their investors are also broadly sanguine about a possible change of government, with early speculation on windfall taxes failing to gather momentum.
A new finance minister will also inherit a plan to raise billions of pounds from selling taxpayer-owned shares in NatWest .
“While we await the party manifestos, the early commentary from Labour suggests the risk of a major shock to the industry is limited and that any announced taxes and surcharges will be manageable,” said Chris Weston, head of research at financial services group Pepperstone.
“The fact that UK banks have largely been a good place for investors to hide out through Q2, notably as the polls show such a sizeable lead for Labour, suggests equity investors have limited concerns about a change in government.”