Over the past few months some have suggested that a number of the UK coalition government’s policies could damage the country’s position as a global centre for financial services. They are wrong. We should not be complacent about the challenges the country faces, but rather have faith in the government’s plans to strengthen the status of London – and indeed the UK – as a leading global financial centre.
London will always be the international centre for financial services. At its best, it embodies the entrepreneurial energy, quest for innovation and global outlook needed to drive forward in the years ahead. The reduction in corporation tax announced in the Budget will help the City and its trading partners, while the regulatory reforms the government is putting in place will make the Square Mile a safer place to do business.
The government is committed to ensuring that London and the UK remain competitive locations for financial services. But that means reducing the systemic risk that the financial services sector poses to the wider economy, and ensuring that consumers get the services they deserve.
Strong regulation and effective supervision will not hinder financial services companies headquartered and operating in the UK. On the contrary, they will increase certainty and confidence.
Regulatory reform, by its very nature, means change. And no one really disputes that change is needed. The UK’s financial services industry has been generally supportive of the regulatory position adopted by the UK in favour of robust, globally consistent standards that are designed to protect the international economy over the long term. But the industry needs to speak out in favour of effective, proportionate regulation rather than fear that by doing so it will encourage policymakers to go further.
The government is fully engaged in the EU and international process of creating proportionate and well-argued regulation that will make the financial services industry more stable. Higher regulatory standards are vital both to the stability of the sector and to the economy as a whole.
The case for higher standards is based on robust analysis. The government is against ill-thought-out regulation that could damage the UK’s competitiveness. But it also reserves the right to impose higher standards in this country if that is what is required to maintain stability and enhance its standing as a safe place to do business. A world-class financial centre would expect nothing less.
A stable and predictable tax and regulatory system is vital to ensure that London and the UK remain attractive in the decades ahead.
Just as regulation and supervision are being upgraded, so the tax system has been adjusted to meet the needs of the economy.
A competitive taxation system is not just about the level and incidence of tax, but also concerns the quality of the country’s taxation law and the way in which the government determines tax policy. This is why it set out in the Budget a commitment to a predictable, stable and simple tax system by establishing the new Office of Tax Simplification.
It also took immediate action to restore tax competitiveness with a phased reduction in the main rate of corporation tax from 28 per cent to 24 per cent over the next four years.
The aim is to create the most competitive corporate tax regime among the developed nations; by 2014, based on current plans, the UK will have the fifth-lowest rate of corporation tax in the Group of 20. The government will also discuss with business how the country’s competitiveness can be enhanced, and in the autumn it will set out more detail of its approach to corporate tax reform.
But the UK has much more to offer. It has an efficient and stable legal framework, high standards of transparency and corporate governance, a cluster of professional businesses to support the financial services industry, a deep and highly skilled talent pool, a multicultural society that can meet the language needs of companies, world-class educational institutions, and a fantastic quality of life.
Away from London, the UK’s regional city centres are also an integral part of the country, contributing to its depth and diversity.
The coalition government’s policies are open and transparent. Working with, rather than against, those who contribute to the economy remains its key objective. The UK must continue to be the easiest place in Europe to set up and run a business, and the government welcomes the fact that companies across the globe see the country as an ideal base from which to build their international ambitions.
The government is upholding, rather than undermining, the UK’s competitiveness. Its regulatory reforms aim to improve the resilience, stability and sustainability of the financial services industry, not damage it by piling on regulation regardless of its cost or impact.
The government wants its competitors to adopt the same high standards that it believes are necessary to safeguard the future of the financial services sector and the global economy. This is why securing international agreement to ensure regulatory cooperation is vital.
The writer is financial secretary to the Treasury