FTI Consulting UK Public Affairs Snapshot: Mansion House – Reeves banks on the City to power growth

Last night the Chancellor of the Exchequer Rachel Reeves stood in front of an audience of City leaders and delivered her annual Financial Services address at Mansion House – her second since entering government. Delivered against a backdrop of waning public popularity and a flatlining economy, it marked an opportunity to trumpet the government’s ambitious plans for the City to rebalance risk in the financial system from one of risk aversion towards a more internationally competitive approach.

As expected, Reeves used her speech to outline further measures to support the UK’s financial services sector, following the earlier publication of the first ever Financial Services Growth and Competitiveness Strategy. The strategy included measures such as stripping back overburdensome regulation, steps to build a stronger retail investment culture in the UK, and prioritising financial services in trade.

This is a government that knows financial services is critical to its growth mission, arguably the most important of the eight ‘growth-driving’ sectors identified in Invest 2035, the government’s industrial strategy. By some metrics the government has its work cut out: London IPO fundraising has dropped to a 30-year low, business optimism has fallen at its steepest pace in almost three years, and the City is facing increasing competition from other financial centres like New York and Paris.

Reeves says the Treasury’s plans “have been developed through a deep partnership with business” and will “put a laser focus on making the UK the global location of choice for domestic and international financial services firms to invest, innovate, grow, and sell their services throughout the UK and to the world”. By 2035, the government hopes, the UK will be the pre-eminent centre of global finance. But how welcome are these changes, and what chance do they have of success?

The City’s reaction to the speech has been mixed: the City of London Corporation said it “marks a turning point” for the sector while UK Finance noted the Chancellor had “listened and delivered significant positive change”. There will be little in the strategy or Reeves’s speech which CEOs would have baulked at, but many are underwhelmed and want the Chancellor to go further – for example by removing stamp duty paid on stocks and shares, or overhauling the UK’s ISA regime.

Reeves is unlikely to face much opposition to the specific policies in Parliament, and she will have been buoyed by yesterday’s news that the FTSE 100 share index rose to the 9,000-point mark for the first time. The Conservatives are supportive of reform to the financial sector – indeed it was former Chancellor Jeremy Hunt who laid the groundwork for much of what has been announced.

She may face some criticism from the left of her party who are hostile to the financial services industry and who might worry about a race to the bottom in terms of deregulation. On the other side of the aisle, Reform UK may argue she doesn’t go far enough. The insurgent party, which leads opinion polls, is pro-deregulation and in its 2024 manifesto promised to “scrap thousands of laws that hold back British business”.

In any case, it is unlikely the speech will have done much to dampen wider concerns over the UK’s tight fiscal position, and it is here that opposition parties see government weakness. They ask how the Chancellor can claim to care about “[missed] opportunities to increase jobs or boost the pay of employees” since 2010, whilst at the same time increase National Insurance contributions on the very same employers. They question Reeves’s concern that the UK “imposes such relentless bureaucracy on its businesses”, whilst at the same time the government makes significant changes to employment law. More generally, the economic landscape remains bleak: inflation is creeping back up, welfare spending is at near-record levels and talk remains of further tax rises later in the year.

Reeves will be pleased with the reception her speech has received in the Square Mile after a challenging few weeks, but ongoing questions about Britain’s fiscal credibility means the success of her strategy will depend on a much wider set of factors at play. Much will depend on the Autumn budget later this year to determine whether the government retains investor confidence and can deliver tangible results.