← Leaders with Francine Lacqua
Leaders with Francine Lacqua
In the City: Mansion House Debrief: What's Next for UK Financial Services?
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- [01:56]
Kathryn Griffiths
Welcome to the City of London the City of the City the City of
- [01:59]
Francine Lacqua
London the next station is Bank. Please mind the gap between the train and the platform.
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Kathryn Griffiths
The Financial heart of the country. The City the City welcome to in the City. Stand clear of the doors, please.
- [02:22]
Francine Lacqua
Each week we unpack a story that's crucial to the world's financial capitals. Francis I'm Francine Lacqua. Tuesday night, the Chancellor, Rachel Reeves gave her second Mansion House speech to the key players in London's financial sector. Given annually, it's an opportunity for the Chancellor to speak directly to the City and communicate their plans for growth, financial regulation, deregulation and the general direction of travel. While joining us now in the London studio, which is actually just a stone's throw from Mansion House is Bloomberg's City editor, Kathryn Griffiths. Catherine covers the UK finance and regulation here in London and was also in attendance at the speech. Welcome to the City, Catherine. I'm always so happy to speak to you.
- [03:01]
Kathryn Griffiths
I'm very happy to be here. Thank you.
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Francine Lacqua
You always have great color in kind of, you know, explaining some of maybe the tricky things on regulation and deregulation. But what was the vibe like in the room?
- [03:12]
Kathryn Griffiths
I thought there was a particularly strong turnout last night and I felt that people did that quite deliberately. So it really is a key event in the calendar of sort of City folks. They don't have to wear any kind of fancy black tie, white tie anymore. They can go in their casual lounge suits. But I felt like there were really quite a lot of chief execs and chairs there particularly so last night. And the vibe was very much. And obviously I'm a journalist, so you know, people will be filtering themselves when they sort of mill around and speak to me. But I did think people wanted to present quite a positive and constructive image and message about the Chancellor and wanted to get behind her announcements.
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Francine Lacqua
This is not to lobby the Chancellor, is it to show face that actually they've had demands or is it really to listen to what she has to say?
- [04:07]
Kathryn Griffiths
So I think it's kind of the result of the lobbying. So these folks, the bosses of these various different financial services firms, all the kind of the lawyers and the advisors have been in to see her and the treasury team, I think were pretty pleased with the content of her speech. And that is quite unusual because last year's Mansion House, many other of these set piece events are a bit of a damp squib. There isn't there much there and there's quite a lot of skepticism about what is there actually turning into real changes. People definitely felt like she was announcing some big things. They certainly had the caveat of them needing to be delivered, but they felt like they actually maybe finally might make a difference.
- [04:54]
Francine Lacqua
And Catherine, would it make a meaningful difference to growth or does it make some difference to growth?
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Kathryn Griffiths
I think it will make in the round some difference tending towards a bit more than some difference to growth. But I also think there'll be people out there in the wider world who will be a bit concerned because of course the flip side of taking on more risk is potential for there being losses and those losses ending up at the door of ordinary people. And of course that won't be the intention or the plan for this Labour government, but it is inevitable that that risk is increasing as a result.
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Francine Lacqua
So I guess some of the most significant changes or proposals is ring fencing. How welcome was that from banks?
- [05:41]
Kathryn Griffiths
Banks actually have different views about ring fencing. Some have been definitely pushing for there to be changes for this construction that the UK was really alone in bringing in to sort of ring fence pots of money in the sort of safe high street banking side and leave the riskier investment banking side more to the vagaries of what might happen to them. And if they fail, they fail kind of thing. Of course, we haven't actually seen the regime in operation. It hasn't really been tested since it came into force. Banks have spent millions and millions of pounds setting up their ring fencing structures and some wanted to see them reduced or done away with. Others actually kind of felt like, well, now they're here, maybe it's best for them to stay. It's a bit of a mixed view on ring fencing. I think that there probably is a view among the banks and of course, when we think about the kind of audience of people sitting there at the Mansion House last night, they have slightly different interests and priorities. But I think there was certainly a few among the banks and the asset managers and those who are interested in seeing valuations of stocks rise, that more money does need to be put into stocks and shares and riskier assets. So whether that's through pensions, through people's own cash savings, it's a sort of a big chewy topic that the government has gone some way towards, but actually stopped short of making some, some big changes there. And that was because of opposition from certain parties that it wouldn't have suited.
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Francine Lacqua
Catherine, where do you see risk in the City? Is it the banks or is it actually the private markets? And so how much is the landscape also changing?
- [07:30]
Kathryn Griffiths
Yeah, I mean, I suppose risk is across all of those things, private markets, given the sort of their enormous ballooning growth. But I suppose if we think about direct risk to consumers and, you know, private market risk may well filter through to the real economy and real people's lives and jobs. But it's interesting. One of the most very, very interesting things the government has said it's going to do is make some quite big changes to the Financial Ombudsman Service. So this was set up to make it easier for ordinary people to make a complaint if they feel they've been unfairly treated by their financial services provider. And it was seen as a good idea and as sort of a powerful tool for people who couldn't really go through the courts. But it's come to be this sort of, you know, Everyone loves to hate the Financial Ombudsman Service, certainly in the City of London. And I think it is undoubtedly the case out there that when investors, especially other parts of the world that are slightly removed from the uk, they do ask, well, what's going on with the foz? And when I say fos, I mean the Financial Ombudsman Service. How can the FOS suddenly intervene in, say, the banking market and say that car finance in this really huge way is wrong and is going to cost the banks lots of money to compensate customers. But on the other hand, I think it's definitely the case that these changes that may well come in to the FOS in really restricting its role and for example, really sort of cutting the interest rate that it will pay on compensation to people, it could have a real effect. And critics would say banks are quite good at, if not gaming the system, certainly being very, very aware of where all the limits lie. So if you take away protections from people, it is not that unlikely that at some point in the coming years there will be some big consumer scandal, there won't be as much protection for people and that actually will be a bad outcome and overall not that good for the uk.
- [09:41]
Francine Lacqua
Catherine, how is the City, you know, overall responding to Labour? I know there's been a couple of like, ups and downs in terms of guilts and concerns over non doms and taxes, which is now filtering through inflation. But was the Mansion House beach a way to reset that relationship?
- [09:57]
Kathryn Griffiths
Yeah, absolutely. I think that's very much the case. I think, as we know very well, Labour went on its prawn cocktail circuits and really tried to schmooze people. And then people felt very disappointed in the City with a whole range of things, the kind of downbeat message from Keir Starmer, just the lack of action from Rachel Reeves, a pretty terrible budget in their view, and then some sort of lack of, kind of reversing of some of those measures. So one of the big topics for people in the City is non doms and an expectation that Labour will have to reverse some of its non dom changes, but hasn't really yet done that, so that may well still be coming. But that said, the message loud and clear is the City would much prefer Rachel Reeves as Chancellor to anyone else they think is a possible replacement for her from the Labour benches. And we saw that in the market reaction in Parliament when it looked slightly dodgy for Rachel Reeves last week. And it certainly is what people were talking about last night. They want Rachel Reeves to stay in that job.
- [11:09]
Francine Lacqua
So the other thing that's of note, especially to younger listeners and first time buyers, is the changes to mortgage borrowing. Allowing people to borrow at a higher multiple of their income encourage them onto the housing ladder. I mean, is she trying to keep the city happy whilst at the same time trying to take care of their base?
- [11:27]
Kathryn Griffiths
Yeah, I think she very much is trying to keep the city happy while sort of, yeah, having measures that for people out there in the country can actually mean something. And yeah, so crucial for younger people to be able to have a realistic hope of getting on the housing ladder. Of course we know full well that people will say, well, we also need to see actual meaningful changes to planning so that there can be building and the sort of thorny issues of where that building can take place to create much more housing stock.
- [12:00]
Francine Lacqua
What do you think will be significant in the weeks and months to come? Again, what is the city looking for? Again, it's execution of some of the things that she announced because it's all nice and well to put it in a speech, but then it depends in practice what happens.
- [12:15]
Kathryn Griffiths
She really has actually announced this time quite a lot of big meaty either changes or in the large part areas that will be changed. So of course it will be where those changes actually land the actual details. So, you know, she's talked about supposedly meaningful changes to ring fencing. You know, we don't yet know what they mean by meaningful and I think there's a distinct chance that what they mean by meaningful could change over time. But I mean, I do think what people in the city would like to see and would argue, I think with some reasonableness is that this sort of flows of money coming into investments, into the stock market and into growth assets. Because if that can be solved, if that liquidity problem can be solved, we really could see some revaluing of UK assets and that could be really fundamental to the economy, to choices of, you know, where do exciting young companies list their shares. Can we create that buzz and vibe? Can we get more people, you know, really promising entrepreneurs coming to this country?
- [13:24]
Francine Lacqua
Can it? Catherine? Is there an understanding that, you know, we could be there and I don't know how much weight to put on. There's a lot of noise about non doms, right. That you're basically not only alienating, alienating some wealthy people, but that the image of the UK that's given to abroad is actually of a much, you know, left wing socialist government than maybe they want to be perceived as?
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Kathryn Griffiths
Yeah, I mean, I think that's true. I suppose this is this is the kind of inherent conflict for Labour that that's undoubtedly the case and it definitely is the case that we hear from big, big British companies based here that when they go to, to see their investors or their prospective investors in other countries, they raise all these issues. But obviously on the other hand, you've got a Labour Party in power for whom their base do not like non doms, that when they are asked, they're quite happy with the idea that these supposed kind of rich foreigners would have to be taxable and not be given these advantages. And so that really is a problem for this government overlaid by just the fiscal reality being so tough. There's sort of a view, I think, that for example, one thing they might do is introduce whether it might be called an entrepreneur's visa or an investor's visa, so they keep the non dom rules but they introduce some kind of attractive thing that has a more positive message. So it might not enrage the base but effectively would unravel some of those damaging measures for non doms.
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Francine Lacqua
Why is the Chancellor so liked actually by the financial community? I mean, she's been absolutely unmovable when it comes to fiscal constraints.
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Kathryn Griffiths
Yes, I think they like her because they perceive her to be on the moderate writer side of the Labour Party with Keir Starmer, probably to the right of Keir Starmer. And they perceive her to understand how important it is to maintain fiscal discipline. They see that she's taking pain for that. I don't think they actually particularly think she's the most kind of inspired and you know, to be remembered in history Chancellor. But I think they have faith that if she is able to implement the measures she would like to, they will create more opportunity for growth and investment.
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Francine Lacqua
Are they worried about where she finds the money after the u turn on welfare and benefits?
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Kathryn Griffiths
I think they are worried about that. I think that they there'll be lots and lots of speculation ahead of the budget. I think they know people were talking last night a little bit about how you can't rule out a wealth tax. I don't think they think it's at all likely and I think they take the view that Rachel Reeves and the treasury do not want it. So it's of course then you know about how she gets buffeted by other people in the party. I think they definitely know there's a chance of a one off, possibly bank tax. Of course they're going to be against that, but I think they would be more pro a one off bank tax than some other measures. I think it's quite likely that, say, some of the big banking bosses would take a one off bank tax if they get these reforms through in a meaningful way, that changes the structure because
- [16:49]
Francine Lacqua
it kind of offsets the risk taking. Offsets maybe some of the money that they'd pay into the coffers.
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Kathryn Griffiths
Yes. And I think they'd be able to crucially sell that message to their investors too, that, well, you can see the state of the British economy. This is actually a chancellor who believes in taking tough measures. Of course we hate the idea of a bank tax, but we are in fact a very profitable sector. Which, by the way, investors, that's good for you. But look at all the ways in which the actual structure and the policies have changed and that's going to be good for the long term, in their view.
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Francine Lacqua
Was there anything else under the radar in terms of announcements at Mansion House that stuck out to you as being significant but maybe underreported?
- [17:28]
Kathryn Griffiths
I think one thing that's really interesting is that on the top table you have, of course, Rachel Reeves, you've got all these, you know, big cheeses from Finance, but then you've, you know, you've got the heads of the regulators sitting there, you've got Sam woods from the Prudential Regulation Authority, you've got Nicole Rasi from the Financial Conduct Authority. And they're, both of them actually are seen to be very, very smart and effective people, but they are also people who have implemented these much tougher regimes and they would say they are doing the bidding of politicians and, you know, they're doing what they believe to be right, but they are, they are. It's not their jobs to set the rules there, it's their jobs to implement the rules. But obviously these, this change of direction requires a very significant change for both of them and it does come down to personalities a bit. Both of them have come under quite a lot of scrutiny over whether they would be keeping their jobs and what the future holds. Well, Sam Wood's term is up next year, 2026. Sam has certainly personally been very, very associated with some of these tougher measures. He was very involved in creating the reforms after the financial crisis. He's a good public servant. He will no doubt say this is the change of wind, change of direction by the government, but I do think it will be very interesting to watch who they choose to put into those roles after the incumbents. So who will this Labour government see as an appropriate person to lead the Prudential Regulation Authority after Sam? It could be quite an interesting choice
- [19:06]
Francine Lacqua
so Catherine, after the Mansion House speech, what's next for the City of London?
- [19:11]
Kathryn Griffiths
It's looking at what will come with the budget. It's looking at whether the government will have to reverse some of its promises on no tax rises in certain key areas. And it is looking at whether we've obviously seen several big U turns on policies already. I think the city will be very focused on whether she does shift on non doms.
- [19:31]
Francine Lacqua
Catherine, thank you so much.
- [19:33]
Kathryn Griffiths
Thank you Fran very much.
- [19:39]
Francine Lacqua
Thanks for listening to this week's in the City from Bloomberg. This episode was hosted by me, Franci Lacqua, was produced by Samar Saadi, Moses Andam and Tala Ahmadi. Special thanks to Katherine Griffiths. Please subscribe, rate and review wherever you listen to podcasts.
- [19:58]
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