Painful new taxes were introduced under the Conservatives. The bank levy brings in around £1.5 billion a year to the Treasury. The bank surcharge, introduced to prevent lenders benefiting from corporate tax cuts, has raised £2.5 billion in the 2022-2023 period, although that revenue is declining now that corporation tax has risen again.
Matthew Lesh of the Institute for Economic Affairs says all this is driving up the cost of capital in the city, which is impacting the real economy.
“The result you’re going to have is less economic growth, lower productivity, lower wages and higher prices,” he says.
Labor promises in its manifesto to “create the conditions to support innovation and growth in the sector, by supporting new technology, including Open Banking and Open Finance, and by ensuring a pro-innovation regulatory framework”.
It certainly sounds optimistic. Still, cutting red tape has not historically been the party’s natural preference, so the question is whether or not warm words will be accompanied by action.
Many believe Labor wants to shake things up, but it will be difficult.
The Telegraph has spoken to a dozen people who have met party officials in recent years, as well as other leading voices from the City. They collectively believe that those hoping for major change under Labor are likely to be disappointed.
Lord O’Neill, who has been Chancellor of the Exchequer and advised Labor on its start-up strategy, warns that the government cannot legislate for growth.
“Anything that tries to force investors to do something artificial that the fundamentals don’t support could create a new performance problem,” he says.
Labor is “certainly listening”, says Lord O’Neill, even though the party may not have the financial firepower to match some of its bold ideas.
Reduce administrative burden… while you come up with more
One of Labour’s ideas is to give the British Business Bank a greater role in investment and open access to government contracts for small and medium-sized businesses.
It has also promised to accelerate planning for gigafactories, digital infrastructure and laboratories – examples of the real assets the city wants to finance, if only the rules would allow companies to build.
Yet there are also big promises for more regulation, including on ESG, the environmental, social and governance campaigns favored by political activists.
“Labor will make Britain the green financial capital of the world, by requiring UK-regulated financial institutions – including banks, asset managers, pension funds and insurers – and FTSE 100 companies to develop and implement credible transition plans that align with the 1 ,5C crisis. purpose of the Paris Agreement,” the party says.
Lesh warns: “This is yet another huge cost for institutions.”
Other industries are also facing more red tape, with a promise for “much stricter regulation” of energy.
A policy to “work with the private sector, including banks and building societies, to provide further private finance to accelerate home renovation and low-carbon heating” sounds like another plan to tell banks what to do.
The party also wants to establish a new Regulatory Innovation Office, which will “help regulators update regulations, accelerate approval timelines and coordinate issues that cross existing boundaries,” the party has promised.
While this could help streamline the rules, a department called “Regulatory Innovation” could be coming up with new red tape.
Lesh adds: “The regulators themselves are constantly pumping out codes of conduct, guidelines and consultation. It’s really tough.”
Civil service officials
Some warn that Britain’s safety-first culture is entrenched at the heart of Whitehall. It means that Labour’s traditional regulatory instincts could be enabled by civil servants eager to create new rules.
“The civil service is designed to eliminate the risk of the government having an accident that ends up in the press,” says the leader of a private sector company that works with civil servants on a weekly basis. “And that is a fundamental problem. The majority wants to make the country better, but we have ended up in a system where everyone only worries about ministers who will put their foot in it.”
James Palmer, senior partner at Herbert Smith Freehills, suggests that a large Labor majority could at least bring more stability, which would be beneficial for the city. He says: “The ministerial developments in recent years have been a disaster for long-term thinking.”
Anne Glover, CEO of Amadeus Capital Partners, a venture capital firm that has invested in almost 200 companies, believes Labor is listening.
Glover, one of 10 city advisors on the party’s review of the Square Mile, said:[There is an] intellectual understanding of the importance of entrepreneurship and growth, absolutely.”
However, Glover is even more disappointed with the party’s desire to close what she calls a “tax loophole.”