6 November 2023

The next General Election could be over a year away, but the main political parties are already in campaign mode.

It is notable how the City’s perceptions of Keir Starmer’s party have shifted, with the focus now on Labour’s plans for Government and what role the City could play in delivering Labour’s vision.

Labour faces a challenge. It has a legacy of 13 years of sometimes contradictory policy ideas that all wings of the party have been pushing the leadership to adopt. The National Policy Forum final document is over 110 pages, outlining an ambitious agenda with more priorities than any government could deliver in one term. If Labour does win, they may not have the luxury of a sizable, or any, majority, so the crucial question would be: what do they prioritise?

The approach to financial services has a clear focus on consumer protection. Regulating buy-now-pay-later schemes is cited. Although the party’s views on crypto have softened, shadow cabinet ministers have referred to the crypto market as a “Ponzi scheme” and the party has not joined the Government in talking about making the UK a “global cryptoasset hub”.

The policies show enduring support for productive finance. With both parties seeking to jolt the UK out of its sluggish growth, Labour sees business investment as a key solution. Shadow Business Secretary Jonathan Reynolds has lauded the Solvency UK reforms as a “benefit of Brexit”. Labour has focused on incentivising pension fund investment into the real economy. Initiatives such as encouraging DC pensions to invest in tech start-ups – Long-term Investment For Technology and Science (LIFTS) – may well continue.

Labour sees the financial sector as crucial to the net zero transition. The party’s push for an uptick in covered green bonds, under their Green Prosperity Plan, is a response to Biden’s Inflation Reduction Act. The lack of fiscal headroom for mass subsidies or tax exemptions increases Labour’s reliance on the financial sector for the success of the net zero transition. Their commitment to embed ESG in firms’ regulatory requirements is a sign that Labour will take a different approach to the Government, who have deliberately slow-pedalled initiatives like the Green Taxonomy and Sustainability Disclosure Requirements.

Much of what will define the party’s relationship with the City will be what – for now – remains unsaid. Labour’s revenue-raising proposals are currently limited to a windfall tax on oil and gas companies and ending tax breaks for private equity, non-doms and private schools. But Labour may be forced to change tack. Last February, Starmer tabled an amendment to the Finance Bill to cancel the reduction in the banking surcharge, which would have seen banks pay taxes of over 30 per cent on their profits. Labour insists that they won’t raise taxes on the sector, but they will face pressure to do so from campaign groups and activists. This issue of taxation will be a litmus test for Labour’s support for financial services.

The Government’s reforms to the post-2009 settlement, particularly those that are seen as injecting risk back into the financial system (like the ringfencing reforms or the proposed new-look short selling regime) could be unpicked by a Labour Party uneasy at overruling regulators. With a Treasury led by Rachel Reeves, a former regulatory policymaker, Labour may defer more often to the Bank of England and FCA.

The success of the City over the coming years may well rest with a new top team that sees the financial services as a key enabler of their policies.

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This article was originally published in City AM.