First 100 Days Series.
Finance Network: adapting to a financial revolution.
At the time of the 2010 election, the financial sector was still at a critical point post-crisis. The hoped-for global economic recovery was stuttering, international regulators were drafting a slew of new rules, and fundamental questions were being asked over the social cost of the bank bailout.
In the subsequent five years, the landscape has shifted significantly. A tentative recovery in the industry is underway, but uncertainty remains. Key issues span as broadly as the future of the Eurozone, with Greece’s position still precarious, to what further regulation may be needed for the sector, the impact of ongoing low rates, and how economic policy interacts with social mobility.
Subsequently, how any new government immediately addresses the financial sector is central to its overall success, given how closely interwoven it has become with the UK’s wider fortunes. International regulatory efforts have had a profound impact on many areas of the financial system and are a key starting point.
The Independent Commission on Banking (ICB) recommendations for bank ringfencing are due for implementation by 2019. However, fundamental questions remain over the future shape of the banking sector. The Parliamentary Commission on Banking Standards has pushed for clarity over how and when several of its recommendations will be implemented, including issues over remuneration and individual accountability within financial institutions. Following a parliamentary term which has included both the LIBOR and FX benchmarking scandals, restoring public confidence in the integrity of the sector and its ability to deliver a well-functioning market is crucial, which will require a co-operative effort between banking and business.
What’s more, the tsunami of new rules, including those at a European and international level, need examining to ensure they have not brought about the law of unintended consequences – misplacing financial burdens or disrupting the delivery of services. This includes initiatives such as the Retail Distribution Review (RDR), which removed commission-based incentives from financial products – ensuring that this created a truly transparent and fair market and that no individuals are missing out on financial advice because they cannot afford it.
The creation of the Prudential Regulatory Authority was intended to provide better and tailored protection for the consumer market. Any new government will need to ensure this is happening and that the most vulnerable in our society are being catered for, and that there is adequate protection for the estimated 3m adults in the UK who do not have their own bank account.
At a macro-economic level, the publication of Thomas Piketty’s Capital in the Twenty First Century in 2013 raised challenging questions about the impact of economic policy on equality of wealth. There is a central question to be tackled about the role of redistributive taxation, and the historic assumption that a rising tide will lift all boats. Finding a sustainable way to achieve the much-needed growth to alleviate the deficit and push the UK forward will be crucial, but this needs to be a fairer, more equitable growth which can genuinely incorporate the ‘trickle-down’ philosophy that previous governments have aspired to.
Part of this process also involves considering the intergenerational distribution of assets. According to recent media reports, there is debate over whether millennials may be the first generation to be worse off than their parents. This calls for a root and branch review of considering how economic policy is affecting younger people. Simultaneously, this government has implemented pensions reforms, which from the beginning of April could potentially change the face of the sector. A new government will need to take a hard and honest look at whether these reforms have been effective in delivering on their objectives, so that we do not risk creating insecurity and poverty for the generation entering their retirement.
Sophia Morrell is a Young Fabian Executive Committee member and member of the Finance Network steering committee