David's big year for elections across the world, and also there is one here in the UK.
The polls seem to be narrying though turn on with labor, maybe it's not going to be as massive a landslide the laborers as we were thinking, and.
Then has all sorts of implications. Now the City of London is also trying to figure out now what they've gained from fourteen years of Conservative leadership and what.
Might happen if we're do in you get a change of administration in the coming months.
Welcome to In the City, Bloomberg's podcast, connecting you to the conversations and the stories shaping the world of finance.
I'm David Merritt and I'm Fronci lack One and this week we have with us Miles sell It, the chief executive officer at the City UK. That's the trade body which represents financial professional services here in the UK.
Miles, thank you for joining us, Thanks very much for inviting me. I mean, this is a big year for UK business as they try and figure out what a possible labor government means for them. How have the Tories done so far?
The Tories clearly are struggling the polls. We had a dinner with some Conservative candidates last night. I think they were determined. You know, they followed the mooded well, determined. They felt that the mood in their patch was you know, it was not reflective of where the polls were, but you know, or well, I mean, it was certainly not for me to just determine whether or not they're own
denial or not. But there was a sense of, look, they've got a you know, they've got a tough mountain to climb, but they are clearly on the in Westminster and Whitehall and in the constituencies. They are moving towards election mode. They're moving towards knocking on doors. From our point of view in industry, really whoever wins the next
general election. From the point of view of financial and professional services, there's a lot of continuity about That was one of the big things that Labor pushed at their recent business conference. There's a lot of consistency in policy and certainly what we're hearing from international investors. I was in Hong Kong and Shanghai a couple of weeks ago is is actually there's it seems to be pretty much business as usual from the point of view of sort of macro policy in this kind of space.
I mean, all the wobbles this week with labor polls narrowed quite a bit, I do wonder a little bit at how much of this really breaks through. I'm a little bit more uncertain.
I don't know, as I say, at the stinner with the Tory PPCs. The start of it was all, you know, it's all right on my patch, that doesn't fit with the polls. By the end of it was a slightly different, Yeah, slightly different equation. I think they're expecting quite a few of them are expecting a bit of a battery.
If we get But the landslide scenario is well, that's okay, we flip to labor, but at least it's secure and stable. But there's another outcome potentially, which is it's a bit closer and we have a hung parliament.
This is the thing that worries industry and investors, which is that if you end up with a narrow labor majority, or no majority at all, or maybe king makers, you're back to the political risk and the political instability. So if there is going to be a decision, I think certainly the members we speak who would rather that it was a decisive result. So you end up with Labor with fifty sixty or more in a majority, or if it's the Tories with fifty or sixty more. But that
doesn't look likely. So it's much much better to have consistency, clarity and a direction of travel. And as I say, genuinely, most of the people we speak to don't see that much of a difference in the big picture stuff. Carrie will be there to a certain degree. We'll see how that happens. The non dom things will be there to a certain degree. We'll see how that plays through.
But prival private school fees, you know what, private.
School fees get so much cut through. So genuinely, I was talking to this businessman in Hong Kong who sent his kids to UK private schools and then UK universities, and he said, you guys are getting complacent because this is substantially increasing the cost. So it would would have made me think twice, he said about sending the kids to a private school. So now I think that one's going to get more I think more difficult.
It's the one policy that Rachel they're sticking. I mean they talk about it all the time, because obviously it has political cut through, yes, and domestically and fiscally, it's not going to make a huge amount of difference, yeah, but it won't be.
As huge, won't be making what I can't see that makes a huge amount of money. I suspect you end up with a bunch of people dropping out of dropping their kids out of the private schools, the ones you'll throw on the edge of afford of But it doesn't raise a life changing amount of money from a government's perspective.
But I think it does have a potential impact just from the conversations we've had at least with some people in terms of how they look at the UK, and I think that sort of sense of the political driver on that being it's one of those things that plays well to the labor base, but also plays well to the sense that people at the upper end of the income scale have done very well over recent years and if there are going to be tax changes over the coming years, I suspect the polling would show that they
support that lands on those with a ship with the broader shoulders.
I guess the question is we don't really have the policies right in terms of corporate taxation from labor. Yet we don't really know what they do with carried interest. So at the moment there's been a big push and we've seen that through all of our reporting day that their labor wants to woo business without giving too much details.
Yeah, it's a bit thin, isn't it.
I thought the Business conference was interesting, so I think the big headline from that was Rachel Reeves's commitment corporation tax. So she said headline rate will remain at twenty five percent and they're going to go for the stability piece.
One of the things we've been saying to government and to the opposition for a while is actually when George Osborne was Chancelly, he had this commitment that the UK would always be in the bottom quartile of the G eight on corporation tax and that just helped with tax planning. You kind of knew which direction things were going in. It just made life a little bit easier in terms of anticipation. But the reality is you've got debt at high levels. Although I think sometimes the UK story is
slightly overdone. I think we are the second lowest debt GDP ratio in the G seven, but it's clearly pretty high by historical standards. There's whoever wins the next general election, there's going to be a demand to invest in infrastructure, in public services, so health, in schools. There's the need to re arm which seems to be a cross party basis. And this isn't just something that we're seeing in the UK, this is across the West. So what gives There's not
much room really to increase debt. They seem to have closed off increases in taxation. Our senses there will be a dash for growth and that certainly seems to be the approach that Labour's taking. I suspect that will be what the Tories will have to go for as well,
and that brings it industries like ours into play. So what can you do in terms of unlocking the investment that potentially sits in the private sector on things like green finance and the shift to net zero, but also potentially on driving things such as reinvestment and infrastructure and elsewhere.
So there's not much space, is that? I mean you talked about the pro going for greath We can't slash taxes and ramp up spending in those ways. So there's not much in it, is there? Yeah?
I mean, what one thing I'd say is, and full credit to the Prime Minister and the Chancellor. I think they have to a certain degree, to a very large degree, sort of reclaimed the UK's reputation for stability. And you know, one of the things the UK is sort of historically had is this sort of sense of you know, we're a bit boring and predictable and you'll get a slight, yeah, slightly better return here than elsewhere.
And they call it the more on premium. That was it, yea, And many talks to people in Singapore, I mean, do you think the more the more on premium is gone.
I think there is definitely a that the UK is back into a more stable, more predictable place. And I think it's also it's not just what happened over that summer, that sort of quasi qua tengles trust summer. There is no getting away from the fact that Brexit created a space where the UK was seen as politically, you know, much too exciting and unpredictable. You then had the twenty seventeen general election, which brought the possibility of a Corbin
government into play. You could even go further back and say you look at twenty fourteen in the Scottish independence referendum. The UK has been historically unusually politically interesting. We did a dinner with some Italian counterparts a couple of years ago, and at the end of the dinner, one of the Italians stood up and he said, I'd like to propose a toast of thanks to our British friends for swapping their politics with ours.
And it was the economist. Did that covered the upset.
Upset all Italians.
And I think everyone's.
I'm sorry you don't have you know, as good as pastors or the weather Franklinbridge. But I guess the question is when you look at the numbers, if you look at what happened to servicing debt pre COVID and then because of inflation, I think debt servicing costs are about fifty billion pounds higher than pre pandemic days. So to your point, I don't see how any party can actually cut taxes unless you go into austerity again.
Yeah, I think it's very difficult to see where tax cuts come from, and certainly I don't think that growth can only be driven by tax cuts. In any case, I think what's interesting is actually if you look at the United States, where you've had the Chips Act and you had the Inflation Reduction Act. You know, the US is going gangbusters in terms of economic growth at the moment, and that is a very active utilization of the state.
And it was the same in many ways, actually, ironically enough under Trump, very similar approach under.
We can't do that here, can we. And we've just seen this with labor having to row back their green spending because sums don't add up here. We can't you know, we're not the United States. We can't lurge the cash.
Although whenever we raise this government government makes the point that if you look at the overall level of subsidies and support across the piece on green that actually it's a comparable amount of GDP. Now that's fine, but it's a GDP of two point eight trillion versus a GDP of nearly ten times that, so the impact is different. That's also had an impact on capital markets. It's sort of dragged a huge amount of investment into the US
and a huge amount of business into the US. But I think there is this point about the role of the state as we move forward. We were talking to one of the people advising labor a little while ago, and he said we're moving towards something that he termed
the fourth Way. So we've kind of had Tony Blair's Third Way, and he I don't think this is a sort of trademark Keir Starmer moment where he put it was that this is the fourth way, which is an active interventionist state working in partnership with dynamic free markets.
They've just dialed it back. I mean, were you disappointed to see that ambition scaled back?
So? I think I think that was a very sensible approach, that it was the boring approach. Rachel Reeves turned around and said, we made this commitment under a different set of circumstances to your point, France, seeing the debt servicing levels were very different, where therefore having to look at what we do in terms of how we move forward. I don't think that there is a reduction in the commitment to net zero from that. I think it's just they're looking at how they do that in different ways
comes work. But I think it also therefore points to what do you do in terms of blended finance. You know, I was at COP twenty eight in November, as I'm sure you guys were One of the big things that came out of that discussion was how do you utilize how do you harness the private sector in service of driving green and sustainable finance, the move to net zero adaptation, et cetera.
But isn't there a bigger concern here of what the city of London becomes? So you know, at your annual dinner the chanswer was saying, well, the UK and actually the City of London needs to become the next Nasdak. We're going to focus on technology. I mean, he may not be transfer for much longer. I don't know whether technology and green bond is going to be the thing that labor Wan to harness.
So that's absolutely where I think we're heading towards. It is this sort of sense of a high tech economy based on high amounts of innovation that'll require, in our view, a different approach on regulation. So the regulatory approach historically on tech, on data, as before in migration and potentially on migration. We've got to be able to attract the best in the world here, and we've also got to be able to recruit from the best in from the best in the UK as well. So it's not just
about bringing people in. It is about to use the term growing our own timber.
Can we really compete though? Here? I mean it's good to hear the chance to talk about the focus on tech. We've been looking at the results we've been seeing from the tech for you know, the massive numbers coming out in the United States. And the one that really struck me was looking at arm which so doubled in price. Now this is a British company, British founded and chose to list in America and it's ripping the rewards now
the share price. I think it's now worth something like one hundred and fifty or so billion dot it's one of the biggest capped companies now Britain. It chose to go and list in America. It made that decision. I mean, how can we capture the talent that's here, capture the potential and stop it flowing over it?
So I'm a little more positive actually on that. So firstly, if you look at fintech, there are three major fintech industries globally, It's the US, It's China, It's the UK. It's the same with AI US China, UK. And if you look at the lead the UK's got in Europe, it's often way ahead most years in terms of investment, it's way ahead of France.
Germany would push back against that.
The French wood and you can point to certain surveys about the number of companies and technology and also the number of investments they've had, but the amount, the actual quantum that the UK continues to be ahead, and I think the UK is still a much more attractive place. It has the advantage of the university, so we are the second biggest number of top one hundred universities anywhere in the world, which for a country of fewer than
seventy million people is still pretty impressive. You can look at the number of people who are coming in as foreign students. The UK continues to be a really attractive place to come as a foreign student, second only to the US and arguably in some ways ahead. So I think the talent piece is absolutely critical. You've raised a really important point on value. I think ARM is a
fantastic success story. I mean full credit to the guys there, but actually if you look at UK companies that operate predominantly in the UK who list in the US, typically eighteen to twenty four months after initial listing, their valuation is below that of their American counterparts. So it's a more complex story than I think is sometimes pointed to males.
What does the City of London financial Services actually want from labor right now? Is there a danger that if you know, a Chancellor and then a Prime Minister that understood hedge funds, that understood Wall Street couldn't get it right, that whoever comes next, you know, has even less of a chance.
So I said, the first thing we wanted we'd got, which was continuity on the Financial Services Markets Act and the Edinburgh Reforms and the Mansion House reforms. And every time you know, we at City UK or our members see Rachel Reeves or Tulip Cidik or Darren Jones, they are at pains to stress. And their Financial Services Report that came out a couple of weeks ago said the same thing. This is about continuity on the Findinancial Services and Markets Act on a more specific basis for.
Five years, right, That's what they pledged.
So I think it was more that they will continue to push the reforms that have been set forward. I think that the key thing in terms of where the rubber hits the road on This isn't actually the legislation, it's the way that the regulators are now held to account on things such as the secondary objective on economic
growth and competitiveness. So recently, the Sexual State for Business and Trade, Kemmy Badnock, had an exchange of letters with the new CEO of the Financial Reporting Council, Richard Moriarty, talking about how they both wanted to hardwire competitiveness into the way the FRC works. We thought that was a critical element in terms of the Financial Services and Markets Act, that the FCA and the PRA are held to account on how they implement that secondary objective, because otherwise it's
just there on paper. It will always potentially fall by the wayside when something more urgent comes up. But if you're going to deal with the sort of things we were talking about earlier, which is economic growth, which is investment in public services, in preases, in defense spending, et cetera, et cetera, et cetera, and you're not increasing taxes and you're not increasing debt, the only way you get this is growth. And we are one of the you know,
there's just no getting away from this. Isn't me you know, sort of waving the flag for financial services. It's just an economic reality. Our industry's got to be a critical part of delivering that nationally and at sort of regional level as well. So the KPI is the key performance indicators that have been put forward on that are the critical element. The government's doing some work on that at
the moment. How labour then acts when they get in, the approach they take to those and the approach they take to the way that you incentivize risk and growth in the economy is going to be critical.
Are there any specific measures that you can see down the pipe that are going to really help that. How can the capital markets really expand in this country? How can the liquidity levels deepen, How can there be more appetite for risk? And the London Stock Exchange reverse this decline it's been in terms of the size of its market.
Yeah, and look, the sort of thing here is that you've got to make a different approach on risk and how that incentivizes growth. And one of the problems that we've got at the moment is that the regulator's fair play to the regulator. We have genuinely fantastic regulators here in the UK, but they are not incentivized to do anything other than prevent things from going wrong. So if you look at I'm probably not going to win myself for self any friends at the Treasury Select Committee on
this one. This may be my first and last appearance on your podcast. So the you know where nikkil Ratty or Sam Woods go to the Treasury Select Committee. Typically the questions they get from the members of the Treasury Select Committee aren't what are you doing to drive competitiveness? They aren't what are you doing to drive growth? They are my constituents just lost two hundred and fifty quid
on something, what are you going to do? In the subar Protect show, it's consumer and it's important, which is hugely important, and I am in no way denigrating that, but it is important that we strike the right balance between looking after consumers and the retail end of this and making sure that we are incentivizing and giving regulators the air cover to go in and actually drive growth.
And I think Nikil gets and I think the team around him get it, but that is not always the lived experience, if you like, If I can use that term in terms of the supervisory visits and the enforcement visits that companies get from their data dating centervizing.
I mean, is it through ices? Is it UK ices?
I know we have the UK isis this came up at your events, didn't it? This idea that most countries would give a tax break to people to invest in funds that might actually invest back into the UK. Yeah.
The Canadians are like the poster child on this. So the British er I think if we end up with something like a British icer, of which we would be hugely supportive, it could well be based on what they've done in Canada, which is exactly you say, there's a sort of different tax wrapper on those sorts of investments. And you've got to look also at what's happened in the UK. You touched on the sort of liquidity and
the depth of the capital markets. If you look at the proportion of British household assets that are in equities, it's about eleven percent in the UK, In the US, it's north of forty In France and Germany, which aren't considered great sort of shareholding democracies of thirty. The UK
has fallen behind on this. It's a point we've raised consistently and it's one of the reasons why you've got some companies looking at the UK and opening up in the UK from the point of view if there's an opportunity here, because it's at such a low base that you can sort of drive that forward. But absolutely, I think this is a potential opportunity.
So the Chancellor's making good noises about it. It's a great column out on Bloomberg by merin Somerset. We're really advocating for this. But you I only have a few months left like me, So do you think that's something that you would see Rachel Reeves picking up on.
I hope so.
And one of the things that I think we've certainly seen in this space over a number of years now is and full credit to John Glenn who is the City Minister who took this forward that leaving the European Union, and I don't turn this into a backward looking conversation, but leaving the European Union did mean we had to look at everything almost from sort of first principles, in terms of how regulation worked, in terms of the systems that were in place, in terms of how we compared
against other key markets. There were forty different consultations that John Glenn as City Minister took through. He worked very closely and kept his counterparts on the Labour side sort of cited on this. I think that's been done by his successors as well, so there is a degree of cross party consensus at least on the bigger pictures here. So I would very much hope that Rachel Reeves would take that forward. We would certainly urge Labor if they
win the next general election to take that forward. We think it's a it's a sort of win win scenario from a whole range of areas.
Can I talk about some of the numbers because Maren kind of laid it out in her column and that was really interesting. I mean she says, basically, the ISA cast the UK taxpayer around four billion pounds in tax revue for agune and of course there's no obligation for the recipients to have any incentives to invest back in the UK. I guess is the concern. I mean, this is a catch twenty two because you need growth for
companies to get bigger in the UK. Because if you look at what's been doing really well for example on the foot seat, it's the oil majors and that's not a proper UK play what comes first, like the chicken or the eggs.
So it's a tricky and this is the chan I think the answer the Chancellor gave you, you know, which was suitably delphic in terms of not giving away too much of his budget plans. But this is the point that he raised, you know. It is a complex picture. It has fiscal implications. I don't think it is a magic bullet. I think it is part of a set of solutions that we need to look at. So there's
a huge amount of work that we've been doing. Stock Exchange have been doing UK Finance, the Banking Organization of Doing and others on how do you revitalize capital markets now in the UK and how do you revitalize listings in the UK now? Some of this is stuff that you can put in place and government is seeking to put in place through initiatives potentially like the British ISA. There are other things we could do. We think that looking at taxation, stamp duty would be well.
Stock tradings have duty, yeah, yeah, which where the UK is where we don't where lots of places don't happen.
Exactly where making our own lives harder in terms of competitive position when we look at our major peers.
Loosen listing rules. I mean that was one of the problems with ARM or tech in general. Isn't it around that it's more beneficial for founders and startups or they view it is more beneficial in the American regime? Should we loosen those which are viewed by.
There have been proposals on the premium and the standard listing. The FRC has been looking at what you can do in terms of reporting requirements and streamlining all of this. But you know, we've got to We've got to recognize this is this is not something particularly for an international financial center. You know, we don't sort of stand here alone in splendid isolation. We have got to recognize the rest of the world is moving forward in these areas.
But what I don't understand, I mean ARM. You know, the chancer at the time, Rushie Sunek, was pitching himself for this to happen. So I guess my worry is that if he couldn't get the ARM listening right.
And the rules were stacked against him, So that was part of it.
But also, and I think there were sort of a variety of other factors in this, but also it's the way that government was organized. So Jerry Grimstone, who was the Minister for Investment at the time, did a lot of the heavy lifting on arm didn't quite manage to get it over the line. Obviously, if you compare the experience of an international investor who's interested in France versus an international investor or a potential listing in the UK,
very different. You know, you can't move to in any other part of the world practically seeing the corner shop. You'll pop in and they've got President macaron on speed dial on their mobile phone. In fact, I think it's probably easier to listen any business lobbies.
And he's coming in on the podcast.
Talk about a fantastic place for answers to invest, that the French do this phenomenally well, and we haven't, and we have rested on our laurels for far too long, and I think there's been a consequence to that. We've been way too slow on this, and I think Brexit has acted as a little bit of a wake up call that we can't simply keep relying on the kindness of strangers here. We need to make ourselves look a lot more attractive.
We need the red carpet like the French did. Look rouge right said, thank you so much, thanks.
Very much, and thank you thanks for listening to this week's in the City. We will be back.
Next week, but in the meantime, if you like our show, please head on over to wherever you listen to podcasts, rate, review, and subscribe. This episode was hosted by Me Francie Laqua and Me David Merritt, was produced by Summersadi.
And additional editing by Blake Mayple's and.
Special thanks to Miles selleg
H.