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It's a tale of two cities or two
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economies really as the chancellor
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lavished praise on the roaring financial
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services sector on Tuesday before grimly
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apologizing to the rest of the country
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on Wednesday when inflation surged
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higher. And today's jobs numbers provide
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the latest evidence that all is not well
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out there. So is the gap opening up
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between the city and the rest of the
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country? Welcome to the week in business
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with me, Christian May.
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It's no secret that the financial and
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professional services sector here in the
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city of London is a powerhouse
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contributor to the UK economy. And it's
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true that jobs in this sector are not
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confined to the capital. That's why the
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chancellor called her new approach to
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financial services the leads reforms, a
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city with thousands employed in finance
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just as they are in Brighton,
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Birmingham, and Edinburgh. But they are
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satellites to a mother ship and the
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mother ship is London. Rachel Reeves was
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right when she said this week that the
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financial services sector is critical
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for our country, worth nearly 10% of our
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total economic output and supporting
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well over a million jobs. Now, I was at
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her mansion house dinner this week in
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the city, the annual event where the
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chancellor and the governor of the Bank
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of England are invited to come and set
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out their stall to the assembled chief
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executives, investors, and industry
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titans. And the odd journalist Reeves
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told us all that she'd placed financial
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services at the heart of the
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government's growth mission. And talking
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to bosses in the room, they did feel the
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love. They appreciated the fact that the
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sector has been formally identified by
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the government as vital and strategic,
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singled out for special attention. As
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I've said before, most of the pro-
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Reeves sentiment you can find in the
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business community is to be found here
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in the city among the big insurance,
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pension, and asset management firms. The
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banking sector is now also a fan with
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the chancellor boldly cutting the burden
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of post208 rules and regulations. She's
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lowering the capital requirements on
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banks in a bid to encourage more lending
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into the economy. She's shaking up the
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ring fencing rules where investment
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banking has to be separated from retail
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banking. She's changing the
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authorization and certification regime
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for senior managers and scrapping
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entirely some of the regulations that
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have amassed in the sector since the
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financial crisis. Simply put, banks got
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quite a lot of what they asked for from
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the chancellor. I happen to think this
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is all quite sensible, but it has raised
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alarm bells among some commentators and
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some former regulators that the
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chancellor is playing a bit fast and
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loose with the rules that govern our
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banking system. The cry has gone up that
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this is all too risky, too much risk,
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not enough prudence. And to that I say,
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well, yes, risk is back in fashion after
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a prolonged period where risk aversion
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became the default. And I commend the
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chancellor for whipping the financial
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regulators into a more risk mindset. New
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rules that make it easier to get a
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mortgage, new rules that make it cheaper
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to raise capital on the stock exchange.
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New rules that limit the power of de
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facto bank regulators. New rules that
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aim to encourage more of us into riskier
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stock market investments. I say bring it
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on. Risk is good. But let's be clear,
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nobody's talking about recklessness.
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Nobody could look at the chancellor's
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reforms of this week and say they amount
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to a radical free market experiment or a
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freefor-all. It's about a sensible
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recalibration of risk, moving the dial
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so that over time an instinct to
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regulate could become an instinct to be
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bold. So the city of London felt the
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chancellor's love this week. What did
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the rest of the economy feel? pain
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mostly inflation up, unemployment up,
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business confidence down, and taxes set
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to surge. Of course, financial services
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are woven into the rest of the economy.
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It's not the case that we have the city
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down here making its own money, doing
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its own thing, and other unrelated
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businesses out there doing something
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else. All businesses benefit from a
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robust and dynamic banking sector. And
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the same goes for the insurance sector,
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investment industry, pensions, and asset
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management sectors. Reeves made that
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very point this week and she was
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absolutely right to do so. But I'm
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struck by the words of the CEO of a
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Canary Warf based banking giant who said
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to me that the only reason he is
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optimistic about the UK as a whole is
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because he's optimistic about the city.
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Just think about that. He told me that
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without the city, the UK would be a
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basket case. And he may have a point.
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Too many parts of our country are
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blighted by low productivity, low
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incomes, low levels of investment, and a
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decline in living standards that is set
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to last to the end of this decade.
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Pockets of power, including London and
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other parts of the Southeast, mask a
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more worrying story about the state of
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our country. I'm not writing off the
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rest of the country, of course, I'm not.
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And I'm not suggesting that there aren't
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incredible people and businesses all
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over the country. But when it comes to
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our overall economy, London does the
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heavy lifting and it's financial
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services that does the heavy lifting in
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London. So, it's no surprise that the
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chancellor devoted so much time and
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energy to supporting financial services,
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given how much financial services
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supports the rest of the country. But as
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we raised our glasses to the chancellor
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at Mansion House and as we were invited
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to toast the health of the UK economy, I
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couldn't help but think about how much
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damage has been inflicted on that
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economy by this chancellor. And it's a
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funny old world when the chancellor can
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be cheered in the city while heaping so
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much pain on so many businesses in other
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parts of our country and other parts of
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our economy. That's it from me this week
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and I'm off on holiday tomorrow. So stay
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up to date and in the know with the city
5:37
app and on city.com and I will see you
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in a couple of weeks.
