Labour unveils plans for UK financial services

British businesses are keen for detail on what a possible Labour General election victory would mean. We took a look at the Party’s recent policy document.

With a UK general election due this year and the opposition Labour Party well ahead in the polls, the financial services sector is considering what changes a new government could bring. It’s normal to plan for change, so interest in Labour’s plans doesn’t indicate preference. But in more and more conversations, we are hearing people ask ‘what will Labour actually do if elected?’.

Labour recently published a document called Financing Growth: Labour’s plan for financial services. This was notable because the Party has been reticent about setting out its plans too early, or indeed at all, for fear that this would provide ammunition for opponents. While that is arguably understandable from a political point of view, it does not help build the relationship with business Labour needs to secure if it is to return to government. So the publication was welcome, and we took a look at what it said.

The document was drawn up with input from the Party’s Financial Services Review Advisory Panel. The panel, all of whom acted in a personal capacity, comprised;

  • Susan Allen, Chief Executive Officer of Yorkshire Building Society;
  • Sir Douglas Flint, Chair of abrdn, IP Group, and UK Digitisation Taskforce;
  • Nigel Higgins, Group Chair of Barclays;
  • Sir John Kingman, Chair of Legal & General Group;
  • David Schwimmer, Chief Executive Officer of LSEG;
  • Dame Elizabeth, Corley Chair of Schroders and Impact Investing Institute;
  • Anne Glover, Chief Executive and Co-Founder of Amadeus  Capital Partners;
  • Sir Ron Kalifa, Senior Independent Director, Bank of England and author of Kalifa Review of UK Fintech;
  • Charles Randell, Member of the Financial Inclusion Commission and former Chair of the Financial Conduct Authority;
  • Shriti Vadera, Chair of Prudential.

As could perhaps be expected, the document contains much aspiration, and many general statements about the need to work together with a range of bodies. But there are some specifics, and we’ll try to focus on those here.

Labour says it wants to form “an active government prepared to work in partnership with business to remove the barriers to economic success”. It goes on: “We will unashamedly champion our financial services sector as one of the UK’s greatest assets,” and says: “Labour’s ambition is for the FS sector to be the engine of growth in the UK economy.”

In an attempt to present itself as a force for change, it says the current government “has failed to provide a stable and consistent policy environment to give financial services firms the certainty they need to grow” and insists, “The defining economic mission of the next Labour government will be to revive strong economic growth”.

That’s all clear, but still pretty macro. So let’s look at the detail. Labour identifies six policy priorities for its work in the sector.

  1. Deliver inclusive growth of the UK’s financial services sector.
  2. Enhance the international competitiveness of the UK’s financial services sector.
  3. Reinforce consumer protection and financial inclusion.
  4. Lead the world in sustainable finance.
  5. Embrace innovation and fintech as the future of financial services.
  6. Reinvigorate our capital markets.

All of this is to be delivered according to “four guiding principles”.

  1. Promote our financial services sector as one of our competitive advantages.
  2. Balance consumer protection, competitiveness, and financial stability.
  3. Support the independence of the UK’s financial institutions.
  4. Maintain our commitment to fiscal responsibility.

So that’s six priorities and four principles. What does that actually mean in practice?

Delivering inclusive growth

This centres on enabling the growth of regional financial centres outside London and Edinburgh, working with local government pension schemes to achieve better returns and create new jobs, exploring setting KPIs for the British Business Bank’s regional funds, supporting the goals and ambitions of the Harrington Review of Foreign Direct Investment and establishing a body called Skills England to “support deeper talent pools in regional financial centres”.

Laudable ambitions, but little detail as yet on how they are to be achieved. What, for example, would those KPIs be for the BBB? There is a specific pledge attached to the commitment to use the mutuals sector to support regional development, with the document committing clearly to “double the size of the UK’s co-operative and mutual financial services sector”. This will be achieved by allowing credit unions to offer more products, requiring regulators and policymakers to report specifically on how they have considered the needs of mutuals, modernising the Building Societies Act “to change which fund sources count towards building societies’ retail funding limits”, and strengthening the SME bank referral scheme.

On the diversity front, the document mentions backing various guidance and recommendations to improve gender and ethnic diversity in the City without going into specifics.

Enhancing international competitiveness

Again, the aspiration shines through, but specifics – other than the setting up of a new Regulatory Innovation Office – are harder to come by. Even here it is not clear how the new Office would achieve the objective of “improve accountability and promote innovation in regulation across sectors”. Upholding the ring-fencing regime is one of the more tangible commitments.

Labour wants to “streamline the regulatory rulebook” but will achieve this through backing the FCA’s current drive to review its rulebook, and by directing the regulator to “issue an open call to industry to identify rules which have been made redundant by the Consumer Duty”. There is much talk of “strengthening engagement” with international bodies, and to “make Brexit work” by adopting “a more pragmatic and cooperative approach to working with the EU”.

Reinforce consumer protection and financial inclusion

There are more specific commitments in this section, but even those which have attracted headlines come with caveats. For example, the pledge to get longer fixed-rate mortgages onto the market is in fact “partnering with the sector to encourage the offering of …”. Similarly, we are told Labour has “laid out a plan” for regulation of the BNPL sector, but are given no detail of what that plan is.

Elsewhere, there are commitments to set up a Treasury-led national financial inclusion strategy, to roll out 350 ‘banking hubs’ to help with free access to cash and other banking services, and to reform the advice and guidance boundary.

Lead the world in sustainable finance

Labour is basing its approach on seeing climate change as “one of our greatest challenges, but also one of our greatest opportunities for economic growth” – noting that the global green economy’s market capitalisation was more than $7 trillion in 2021.

So there’s a pledge to “Require financial institutions and FTSE 100 companies to publish their carbon footprint and adopt credible 1.5-C aligned transition plans.” Plans for a UK Green Taxonomy will be “advanced” and the UK’s commitment to the Sustainability Disclosure Requirements will be “fulfilled”. Work will be undertaken to track green finance flows, and the potential to issue covered bonds secured against a green infrastructure explored. Work with banks to incentivise the ‘greening’ of the housing stock will be undertaken.

Embrace innovation and fintech

What catches the eye here is that “Labour recognises the growing case for a state-backed digital pound”. But this isn’t the ‘backing for CBDCs’ that has been reported, simply a statement that a Labour government would “back ongoing work” in the area.

There are commitments to “set international standards for the use of AI in financial services” and to “deliver the next phase of Open Banking”. Labour wants the UK to be “a global hub for securities tokenisation” and to “establish a regulatory sandbox to test financial products to reach underserved communities”.

Reinvigorate our capital markets

There will be a wide review of pensions and savings, with enabling greater consolidation across regimes high on the agenda. A scheme modelled on the French ‘Tibi’ scheme will be set up to enable DC funds to invest in UK growth assets. The British Business Bank will be given “a more ambitious and targeted remit”.

The Party quotes research by the Association of British Insurers showing that “The adoption of Solvency UK reforms will unlock up to £100 billion in capital from insurers to invest in productive assets”. Investment of that unlocked capital into British infrastructure and green industries will be “encouraged”. And Labour “will look to simplify” the ISA landscape.

Overall, there is a positive tone to the document, and one that will be welcomed by those within financial services seeking much-needed guidance on how to plan for the future. One industry insider described it to us as “compelling stuff and such a refreshing contrast to the Tory disdain for the financial services sector”.

“The report is broadly aspirational and light in detail on how the six priorities might move the needle.”

Rob Mason, director of regulatory intelligence, Global Relay

But that positive reaction may be more to do with the previous almost complete absence of any indication of what a change of government might bring than enthusiasm for specific initiatives. The document relies heavily on words such as partnering, establishing, requiring and aiming and less on specific commitments. As we said, this may be understandable because of the realities of the political campaign trail, but if the party is to inspire confidence in its plans, voters and businesses – who, let’s not forget, are voters too – are going to need more.

There’s also the worry that Labour itself is not as united as it could be even on what it has identified as a key area. Writing in the New Statesman (£) recently, political correspondent Freddie Hayward identified tensions between the offices of leader Sir Keir Starmer and Shadow Chancellor Rachel Reeves over green finance plans. Those tensions resulted last week in what was widely seen as a u-turn on implementing those plans, something that hasn’t done much to convince business Labour is offering any certainties or voters that it is offering any change.

Sector reaction

But one real positive, as Mark Bailey of City law firm Charles Russell Speechlys told The Fintech Times is that: “A critical aspect highlighted in the paper is the importance of regulatory consistency, which is essential for both fintech companies and suppliers of technology to regulated firms.”

Rob Mason, director of regulatory intelligence at Global Relay, said: “The report is broadly aspirational and light in detail on how the six priorities might move the needle, but nevertheless there is no reason to think that this will damage the Labour Party’s ambitions.”

He went on: “It’s not radical nor a material contrast to existing policy. However, UK financial services is a success story and continues to actively compete in many areas even despite Brexit. If some general themes succeed in helping the UK to increase competitiveness there is the potential for revenue, and for UK plc to benefit.”

“Rachel Reeves’s credentials are sound as a former Band of England economist and it may be that the City may relish at least some political comfort as opposed to criticism.”