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Three ideas for unlocking the UK’s economic potential
Author: C.S. Venkatakrishnan, Barclays Group Chief Executive
Last week’s general election not only underscores the political stability of the UK, it also exemplifies its economic strengths. Compared to polarisation in the US and a vanishing political centre in Europe, the UK stands out as a place to do business and a secure base from which to engage the world.
As the chief executive of a UK-based global bank, I know the data on the country’s consumer strength and stability is compelling. I hear supportive opinions from sophisticated international financial counterparties. In February, I announced Barclays' largest ever investment into the UK with the acquisition of Tesco’s banking arm and a significant increase in lending appetite within our UK consumer and corporate businesses.
My interactions with chancellor Rachel Reeves and her team lead me to believe that the new government is ambitious about securing growth and investment to strengthen the industrial, technological and financial prowess of the UK. Reeves has indicated her intention of boosting economic growth before committing to public spending increases. With limited fiscal room given a debt-to-GDP ratio of 98, however, and with sterling no longer a reserve currency, it is vital that the UK harness private finance to support investment and growth.
This is simple to say, but challenging to achieve. I have three suggestions which may help. First, the UK needs to view its financial services sector as a strategic asset held in the national interest, as the US does. Our banks, asset managers and private equity companies project hard power on the global stage as enablers of finance and investment flows. Equally, the concentration of foreign owned financial firms in London speaks to the importance of the City as a source of expertise and a haven of transparency and strong regulation. The recent acquisition of Preqin, a financial data provider, by the US behemoth BlackRock for £2.55bn shows the strength of financial innovation here.
The UK must be clear-eyed about its interests and know how best to further them. We should be proud of our financial regulatory regime. Equally, it is important to signal the stabilisation of capital rules (Basel 3.1) and consumer regulation, particularly in its scope, retrospective application and the role of the Financial Ombudsman. Not only do financial services account for 12 per cent of GDP and over 2mn jobs but the sector drives UK economic growth. Moving on from the post-crisis regulatory focus on stability, which was and remains economically essential, enabling growth must now be the focus of regulators as well as business.
Second, we need to recover our equity culture. Over the last 20 years emerging UK technology companies such as Darktrace have been acquired by private equity, or lured to list in New York. The LSE is populated by older, dividend-paying value stocks — such as Barclays — when we should be fighting for our place with climate tech, meditech and other growth sectors. Pensions reform to support investment in growth equity, together with streamlining listing requirements, could unlock institutional money — and would be boosted by removing stamp duty on share purchases over £1,000 and reducing taxes on dividend income.
Third, the benefits of a revived equity culture must not be limited to the corporate world but unlocked to serve individual savers. We estimate over £430bn of investible cash savings, including cash Isas, are held by 13mn bank customers. Resuming the sale of government shares in NatWest would be an important signal on public share ownership; the new government should get behind mobilising surplus liquidity in deposit accounts into share ownership. Bold regulatory reform is required to enable the provision of guidance to consumers whose money should be put to work for them.
The current regulatory approach perversely increases the risk of mis-selling from unregulated advice, including self-appointed ‘experts’ on social media, leaving consumers vulnerable to fraud and scams. New investors need to be able to turn to trusted advisers, including banks. Modernisation and simplification of the confusing Isa landscape should prioritise focusing tax incentives on the products that deliver the best investor outcomes. Successful UK capital markets should deliver higher returns for consumers as well as boost investment in the economy.
The economic potential of the UK is strong. With the combined efforts of the public and private sector — and some modest changes in mindset and regulatory strictures — this country will enhance its reputation as a beacon of stability and growth in a world that is looking for one.
This was first published on FT.com on Thursday 11 July