UK Financial Services

I beg to move, That this House has considered the future of UK financial services. It is a pleasure to serve under your chairmanship, Mr Twigg. Before turning to the topic of this debate, I congratulate the Economic Secretary to the Treasury, my right hon. and learned Friend the Member for Northampton North (Lucy Rigby), on her reappointment. In her first spell in the position, she was a formidable advocate for UK financial and professional services, so we are all very fortunate that we have her back for a second act. I wish her well for the time ahead. Today, I want to make a positive case for the future of the UK’s financial services sector. I will say why it should lie at the very heart of this Government’s strategy for backing Britain’s wealth creators, standing behind the entrepreneur with a bright idea and ensuring that we channel capital toward the innovators and builders who will drive growth in every part of this country, while also ensuring that the sector provides people, wherever they live and whatever their circumstances, with the tools to participate fully in a modern economy and a modern society through a bank account that works, savings and investments that build real financial security, and insurance that protects families, homes and businesses when life throws its inevitable curveballs at them. With financial and professional services employing around one in every 13 workers across the UK, two thirds of them outside London, they are no longer a niche interest in the UK or a City of London story alone. They are a genuine national endeavour. When I meet in Parliament the people I represent from Buckingham and Bletchley—from the owners of small businesses to the families who I also meet on the doorstep and the staff at Allica Bank or Santander UK, both of which have their headquarters in Milton Keynes while serving customers the length and breadth of Britain—I see the same thing: a national industry built for all of us. In the time available, I will set out five challenges and opportunities facing the sector in the years ahead. First, there is the need to go even further in mobilising a greater share of domestic capital toward domestic assets, in particular high-growth businesses and especially those aligned with the eight sectors set out in the industrial strategy and infrastructure development. I welcome the Mansion House speech in July by the former Chancellor, my right hon. Friend the Member for Leeds West and Pudsey (Rachel Reeves), and the progress that this Government have made against the financial services growth and competitiveness strategy one year after its publication, building on the progress made by the previous Government. We have seen that £28 billion of equity capital has been raised in London since the start of last year. The Pension Schemes Act 2026 was also passed in the last parliamentary Session, which is expected to deliver an additional £29,000 in pension savings over an average career. Eight firms have now been authorised to provide targeted support to savers, benefiting around 18 million consumers—our constituents—over the coming decade. All of that is welcome progress in turning the overly cautious British saver into the responsible investor, but I believe that we can—indeed, must—go even further in unlocking our largest pools of pension, insurance and retail capital. When we were debating the Pension Schemes Act earlier this year, the case against mandating UK investment rested on two grounds: first, the principle that Government should not tell institutions or individuals where and how to invest; and, secondly, that if UK investments were good enough, funds would already be backing them. However, what I think that argument missed is the trend towards passive global indexing that we have seen over the last few decades, which has mechanically reduced UK equity allocations to around 4%, regardless of the underlying fundamentals. I suspect that without further intervention, that trend will increase, leading to further declines in the years ahead. That risks creating a self-reinforcing cycle of declining investment in British companies by funds, regardless of where they are domiciled, depriving UK plc of domestic patient capital, and it would ultimately weaken our public equity markets and the strength of the London stock exchange. In the light of that, I encourage the Government to look again at how they can actively incentivise our largest pools of domestic capital. For instance, we could build on the Pension Schemes Act by requiring default pension funds to adopt a UK-weighted approach to listed equity, with UK equities making up, say, 20% to 25% of listed holdings in order for them to continue enjoying the various tax reliefs on offer, but giving funds and individual savers full agency to opt out. According to the New Financial think-tank, that could unlock as much as £75 billion of additional investment into UK companies. I am aware that this idea is held by a number of right hon. and hon. Members in this House, as well as Members of the House of Lords. We could also scale up the British Business Bank’s British growth partnership so that it is more in line with the scale of France’s Tibi initiative, while giving the British Business Bank and the National Wealth Fund complementary mandates to crowd in capital for the larger funding rounds. We could support UK scale-ups—which my right hon. Friend the Prime Minister just mentioned in his statement in the main Chamber—with the British Business Bank focusing on those companies from series B to C, and the National Wealth Fund acting as a direct investor in later-stage companies. Finally, we should maintain our focus on unlocking some proportion of the £600 billion of retail capital currently held in cash, in individual savings accounts or other savings accounts. With the right mix of financial education, a simpler ISA product framework, tax incentives and, crucially, accessible investment research, we can ease access to capital from growing domestic companies while enabling British people to own a greater share of our economy’s future success.

I agree with many of the hon. Member’s potential solutions to increase investment. Does he agree with the Treasury’s assessment that the Financial Ombudsman Service is not fit for purpose? Does he agree with the Opposition’s suggestions that a new independent body to replace the Financial Ombudsman Service would probably increase legal certainty and encourage investment into the UK?

I confess I have not read the Conservative party’s full recommendations in this regard. The Government are clear that the Financial Ombudsman Service needs reform; it is not working for the sector, consumers or the UK’s international competitiveness. The Conservative party will put forward its recommendations, and the Government will make their considerations as part of the Financial Services and Markets Bill, which will be debated in the House of Commons Chamber in October. I recognise the downsides that the hon. Gentleman identified in his intervention, so I thank him for it. The Minister already knows my views on retail capital. There is an excellent opportunity in the months ahead—certainly, in the run-up to the Budget in October—for the UK to establish a long-term retail investment strategy that is co-designed by industry, Government, civil society and regulators to be the best mechanism to realise the full potential of UK investors’ savings. The second challenge that I want to turn to lies in how we manage artificial intelligence, which I became very familiar with when I was Parliamentary Private Secretary at the Department for Science, Innovation and Technology, and the broader digital revolution in financial services. Distributed ledger technology and tokenisation are having an ever-increasing influence on the international financial ecosystem. The UK should continue to act as a global leader and embrace that change now so that regulators, industry, investors and consumers alike can benefit from lower costs, widen access to capital, deliver a more efficient industry and enjoy the benefits of more productive investment. At the same time, that requires us to fully build the infrastructure, regulatory framework and market confidence to allow innovators to scale safely and responsibly. I welcomed Chris Woolard’s first report as the UK’s wholesale digital markets champion. It marked an important step in delivering the Government’s wholesale financial markets digital strategy, but we now need to shift up a gear. I would focus on two immediate priorities. First, the Government should publish a clear road map for DLT-enabled capital markets. UK financial markets—and global financial markets more broadly—need certainty about the sequence of reforms, the regulatory framework that the UK proposes to put forward and how new infrastructure will connect with the systems that are already in use by market participants. Second, we should use DIGIT—the digital gilt instrument—to build momentum across the market by setting a clear timetable for regular, benchmark-scale digital sovereign bond issuance so that we are properly mainstreaming UK Government debt in the financial market system. On artificial intelligence, it is right that AI can transform productivity, investment management, fraud detection and customer service across the economy and society. But those opportunities also bring new and unfamiliar risks, from automated decision making that leads to unintended consequences to cyber-attacks by belligerent forces and operational disruption due to a greater dependence by industry on a small number of technology providers. With that in mind, I was proud to partner with Community trade union, which I should disclose that I am a member of, in May to launch its responsible AI charter for financial services; Zurich UK was its first signatory. The charter sets out practical principles for ensuring that AI is adopted responsibly, transparently and with people at the heart of its deployment. The Bank of England’s recent work makes it clear how quickly the risks that I just identified are growing. That is why we must maintain the urgent momentum on implementing the financial services AI adoption plan. The third challenge facing the sector, which I want to address briefly, concerns the clean energy transition. I will not discuss the benefits or otherwise of which energy sources we may like to prioritise, but in my view, net zero cannot be delivered by public investment alone, however committed the Government are to that mission—and rightly so. Long-term, patient private capital also has a crucial role to play in supporting tomorrow’s energy infrastructure, from onshore and offshore wind and grid upgrades to next-generation nuclear power. In order for that capital to be committed effectively, I would welcome an annual published pipeline of investable clean energy projects so that firms and asset owners can plan and deploy investment at the scale and pace that our net zero commitments demand.

My hon. Friend will not be surprised to hear that I very much agree with the point that he just made. We have some excellent, innovative businesses in Bristol that came up through the Science Creates innovation hubs and attracted private capital. They are flourishing, but they need signals from the Government that we are sticking to our net zero agenda so that there will be a market for their products in due course. Does my hon. Friend agree that those signals are important?

I could not agree more with my hon. Friend. In this space and across many policy areas, what business and investors require and demand from us as policymakers—regardless of which party happens to be in power—is policy certainty. When we risk lurching in various directions, with various priorities and changing timelines, the only result is that investors withdraw or deploy their capital in other countries. Frankly, with regard to the clean energy transition, that will ensure that other countries, be they our competitors or our foes, will have a massive, global competitive advantage over us. I do not think it is a good idea for us to enable that. Changing tack, the UK also faces the challenge of our constituents accessing affordable financial services and products. We need to honestly confront the barriers that still prevent too many of our constituents from opening a basic bank account, building even a very modest savings buffer for when times are hard, and accessing safe and affordable credit or securing the insurance that protects people from life’s shocks.