Painful new taxes came in under the Conservatives. The bank levy rakes in around £1.5bn per year for the Exchequer. The bank surcharge, introduced to stop lenders benefitting from cuts to corporation tax, brought in £2.5bn in 2022-23, though that haul is falling now that corporation tax has been whacked back up again.
Matthew Lesh at the Institute of Economic Affairs says this all pushes up the cost of capital in the City, which hits the real economy.
“The result you are going to have is less economic growth, lower productivity, lower wages and higher prices,” he says.
Labour promises in its manifesto to “create the conditions to support innovation and growth in the sector, through supporting new technology, including Open Banking and Open Finance and ensuring a pro-innovation regulatory framework”.
It certainly sounds optimistic. Yet cutting red tape has not been the party’s natural preference historically, so the question is whether or not warm words will be matched with action.
Many believe Labour does want to stir things up but will struggle.
The Telegraph has spoken to a dozen people who have met party officials over the past couple of years, as well as other leading City voices. They collectively believe that those who are hoping for a sea change under Labour are likely to be disappointed.
Lord O’Neill, who has served as a Treasury minister and advised Labour on its start-ups strategy, warns that the government cannot legislate for growth.
“Anything that tries to force investors to artificially do something that the fundamentals don’t support could create a new performance problem,” he says.
Labour is “very definitely” listening, adds Lord O’Neill, even though the party may not have the financial firepower to match some of its bold ideas.
Cutting red tape … while dreaming up more
One of Labour’s ideas is to give the British Business Bank a bigger role in investment and open access to government contracts to small and medium-sized businesses.
It has also promised to speed up planning for gigafactories, digital infrastructure and laboratories – examples of the real world assets which the City wants to finance, if only the rules would let businesses get building.
Yet there are also big promises for more regulation, including on ESG, the environmental, social and governance campaigns beloved of political activists.
“Labour will make the UK the green finance capital of the world, mandating UK-regulated financial institutions – including banks, asset managers, pension funds, and insurers – and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5C goal of the Paris Agreement,” the party says.
Lesh warns: “This is another huge regulatory cost on institutions.”
Other industries face more red tape too, with a pledge for “much tougher regulation” of energy.
A policy to “work with the private sector, including banks and building societies, to provide further private finance to accelerate home upgrades and low carbon heating” sounds like a new plan to tell banks what to do.
The party also wants to create a new Regulatory Innovation Office, which will “help regulators update regulation, speed up approval timelines, and co-ordinate issues that span existing boundaries,” the party has pledged.
While this may help to streamline rules, a department called “Regulatory Innovation” may well find itself dreaming up new red tape.
Lesh adds: “Regulators themselves are constantly pumping out codes of conduct and guidance and consultations. It is really very heavy handed.”
Civil service enablers
Some warn that the UK’s safety-first culture is embedded at the heart of Whitehall. It means that Labour’s traditional instincts to regulate could be enabled by civil servants keen to draw up new rules.
“The civil service is designed to eliminate the risk of the Government having a mishap that ends up in the press,” says the leader of one private sector company who works with civil servants each week. “And that is a fundamental problem. The majority want to make the country better, but we’ve slipped into a system where everybody just worries about ministers putting their foot in it.”
James Palmer, a senior partner at Herbert Smith Freehills, suggests a big Labour majority may at least usher in more stability, which would be beneficial for the City. He says: “The ministerial churn we have had in recent years has been a disaster for long term thinking.”
Anne Glover, chief executive at Amadeus Capital Partners, a venture capital business that has invested in close to 200 companies, believes Labour is listening.
Glover, who was one of 10 City advisers on the party’s review of the Square Mile, says: “[There is an] intellectual understanding of the importance of entrepreneurship from growth, absolutely.”
However, Glover is more disappointed with the party’s desire to close what it has branded a “carried interest tax loophole”.
