HAMISH MCRAE: If the Chancellor’s plans for the City are done well, it could usher in a new golden age for UK finance and benefit the economy
The City is scrambling back to business. The physical evidence is that in another couple of weeks, offices will be fully open – though we will wait and see how many people will actually be back there full time.
But in advance of that, business has been picking up too. This has been the best six months for company flotations for six years, with 49 companies brought to market and a total of £9billion being raised.
Other signs of life include London clawing back some of the financial business that slipped over to Europe, with it regaining top spot in European equity trading from Amsterdam.
Looking ahead: We must wait and see how the plans sketched out by Chancellor Rishi Sunak to set UK finance free from European regulation will work in practice
The City office sales market has picked up with a string of deals set up in the next few months as investors have reckoned that more space will be needed after all.
Rishi Sunak has just announced plans for the Government to launch at least £15billion of ‘green gilts’, starting in September. The idea is that funds are raised specifically to finance environmental projects. These would include clean transport, renewable energy, pollution prevention and so on. This should help develop the market for funding private sector green projects too.
Green finance looks like being a huge growth area, and so far London has been lagging behind Paris. France has already issued more than $40billion of government green debt.
You could argue that raising an extra £15 billion for green projects is a drop in the ocean for a UK Government that ran a fiscal deficit last year of £300billion. But if investors are eager to buy debt that is directed towards environmental projects, it makes sense to make that available.
If that stimulates a wider market, that must be a good idea too. But will this awakening of the City and financial services more generally be sustained?
There will be two things to look for through the autumn that will give us clues to what lies ahead.
The first will be the success of the return to the office. No one knows how important it will be to get people back physically in the same place until we do so. There is no precedent to guide us.
Banks around the world all have plans – they have to have them. But they differ, and they keep being changed. So the biggest French bank, BNP Paribas, says it will allow some of its staff to work from home half the time.
HSBC, the UK’s biggest bank, is planning some kind of hybrid model and plans to cut office space by up to 40 per cent. On the other hand Jamie Dimon, chairman of biggest American bank, JPMorgan Chase, thinks that: ‘Sometime in September [or] October it will look just like it did before.’
This is a global issue, but my hunch is that Jamie Dimon will be proved more right than his competitors. Not only will the most ambitious staff show up in the office; financial institutions that get their people back will outperform those that allow many of them to work from home. If that is right, it will be good news for the City. It will soon again be the buzzing, thriving place that it used to be.
The second thing to look for in the autumn will be how the plans sketched out last week by Rishi Sunak to set UK finance free from European regulation will work in practice. The Chancellor suggested that he had given up trying to get UK financial services access to Europe – so-called equivalence, meaning that our regulations are deemed equivalent to European ones. Instead: ‘We now have the freedom to do things differently and better, and we intend to use it fully,’ he said. To reverse the popular adage, it is a case of, ‘If you can’t join ’em, beat ’em.’
This is a huge strategic decision. I think it is the right one for two reasons. First, Europe is becoming year-by-year a smaller proportion of the world economy. So much better to focus on growth markets. This requires balance.
I liked the Chancellor’s comment on China, the greatest growth market of all. He pointed out that China is ‘both one of the most important economies in the world and a state with fundamentally different values to ours’. We cannot ignore it, but must tread carefully.
Second, this fits in with the City’s history. It was regulatory freedom that drove the revival of London’s financial services from the 1960s onwards, with the development of the Eurodollar markets and the reforms of Big Bang in 1986.
Done well, this could usher in a new golden age for UK finance – and massive benefits for the UK economy.