FTI Consulting UK Public Affairs Snapshot: Steady as she goes: Labour’s plan for financial services

Labour’s report on financial services, eagerly awaited by the City, was published on Wednesday. The lack of headlines generated was probably exactly what was intended for this report. Labour has long known that it needs to be trusted on the economy – and it has managed to win and keep that trust over the past 18 months.

While in part that hasn’t been too challenging a task, given the impact of the Truss administration, a lot of work has been undertaken by both the Shadow Treasury team and the wider Labour team, engaging with and listening to business. It’s therefore no surprise then that this report reflects those conversations.

The proposals in the plan are based on continuity and consistency, with change only where it leads to economic growth, greater efficiencies, or enhanced consumer protection. Split into six sections, the report sets out how Labour would work with the sector to achieve the overarching aim of achieving greater and fairer economic growth.

Many of the policies are a continuation of work currently in train – be that the introduction of the Sustainable Disclosures Regime, regulating Buy Now Pay Later, supporting the next steps in the Open Finance journey, or pension fund consolidation. Far from being ridiculed for containing nothing particularly new, industry has welcomed the stability and proportionality of the proposals.

Treading the line between being on the side of consumers and supporting the sector is a challenge for governments of any colour – and more so for Labour, given its strong links with unions and traditionally weaker relationship with the City.

While the importance of a strong financial sector is fully embraced, it is firmly set in the context of why the sector should matter to people across the country. Leaning into “securonomics”, Labour’s consumer policies recognise that people can only plan ahead and invest in their future when they have the economic security to do so.

The party therefore wants to expand access to services through banking hubs, ensure better pensions savings outcomes, address fraud, and explore alternative ways to increase people’s financial resilience.

Linking better consumer outcomes with the need to be at the forefront globally in technology, Labour also continues to position itself on the side of innovation.

Having listened to concerns among industry about regulators stifling innovation, the party has reiterated its plans for a Regulatory Innovation Office.

It has also underlined its support for guidelines on the use of AI in financial services, for Open Finance, and perhaps slightly surprisingly for a Central Banking Digital Currency – something which MPs have been less than supportive of in recent inquiries.

The mention of crypto was noticeably absent. However, support for the underlying technology, with tokenisation of securities and a UK CBDC, will be welcomed by the crypto sector.

As expected, Labour also set out its intention to reinvigorate capital markets. Again, much of this is a continuation of current government policy, with plans to review progress on the recommendations of previous capital markets reviews and support the Mansion House reforms on pension scheme consolidation.

However, the party has also stated that it would conduct a comprehensive review of pensions and savings, with the aim of making it easier to invest in clean technology, UK growth companies, and infrastructure.

The review would involve both industry and consumer groups to look at how to provide savers with the “best possible” return, as well as to address the barriers to increased investment by pension schemes into UK productive assets.

While the review has been widely welcomed by industry, for it to be meaningful, a Labour government must ensure a quick conclusion followed by immediate action on recommendations.

Labour’s ambition to grow Britain’s financial services sector and take it from strength to strength is ultimately an ambition the whole industry can get behind.

However, to be a world leader in financial services is not just dependent on technology and regulation. Labour must remember that having access to workforce and compatible tax regimes with other centres is also fundamental to Britain’s competitiveness.

On this, Labour’s warmth towards the EU will be welcomed by industry. But the question remains whether this will translate to materially better access as Brussels begins to legislate to take euro derivatives clearing from London.

For business, there is enough in this report to provide a direction of travel and some targeted areas for policy engagement. For Labour, this report keeps most of this vital sector onside, sidesteps any difficult positioning, and gives the party enough room if it wins the election to develop its thinking further.

That is what the party set out to do with this report, and they will be very happy indeed with its publication.