UK as a Financial Services Hub

Highly paid bankers and insurance brokers or traders who earn millions of pounds do not reflect the reality of 99% of financial services. A major reason that they matter is the cluster effect of the jobs that major financial institutions create around them. Let us take self-employed freelance workers, who often work as consultants for major firms in the industry. The number of self-employed workers in the UK has gone up by roughly 50% since 2001. According to statistics from IPSE, the Association of Independent Professionals and the Self-Employed—I refer the House to my entry in the Register of Members’ Financial Interests—22% of the self-employed work in financial services, and 40% of those freelancers had at least one project based in the EU in the past 12 months. A good Brexit deal really matters to them, and those statistics show the ancillary losses that a poor deal for financial services will bring.

Numerous challenges and changes are on the horizon, which will require our Government to change and develop their approach to the sector. I will focus on three principal areas: first, the digitisation of the economy and the rise of FinTech; secondly, the challenges and tough choices we face as we leave the European Union; and thirdly, the need to increase the penetration of financial services into our most deprived areas. That will deepen and improve the relationship between the financial services sector and our most deprived people, to ensure that everyone benefits from the sector, not just the affluent.

On digitisation, we are in a new economy: the internet and social media, as all Members of Parliament know, have completely changed not only how politics operates but how goods and services are produced and sold throughout the world. Anyone who has read Stian Westlake and Jonathan Haskel’s book, “Capitalism without Capital: The Rise of the Intangible Economy”, will be in no doubt about the profound economic change that we are seeing. These days, anyone can produce almost anything anywhere using 3D printing; anyone can advertise a product worldwide at the click of a mouse; and, as I saw last week, a film producer based in Hitchin in my constituency can work with clients in China in minutes.

Such changes are exciting from a technological perspective, but present a real challenge to the way in which we do things. For the past 15 years or so, companies have invested more in intangibles, such as branding, design and technology, than they have in machinery, hardware or property. Businesses such as Uber do not own cars; they own software and data. Coffee bars and gyms rely on branding to help them stand out from the crowd, and they often lease their premises and physical goods, rather than owning them. That is capitalism without capital.

What does that mean for financial services and, in particular, for banking? The normal model for bank lending is this: when lending to a business, the assessment of the company’s balance sheet—the assets and liabilities—is a critical aspect of assessing credit-worthiness. In the new economy, banks struggle to understand how to value and monitor intangible property. In the old days, if a company went bust, a bank could recover its money by selling physical assets—it would have a mortgage over the buildings and could sell capital assets such as machinery. If a company with intangible assets folds, those assets cannot be sold off easily—in effect, their value will have sunk with the company.

A lot of smaller businesses in the new economy therefore do not have the same access to bank loans. They are much more reliant on venture capital and angel investors, and that is a very different model of financing from traditional bank lending. My first question to the Minister is this: how will our regulatory system have to change in order to catch up with the new economy, which is changing at both a domestic and a global level? Without changing the rules on bank lending, we will be unable to finance small entrepreneurial businesses properly over the longer term.

FinTech is another success story for Britain in financial services. Indeed, we are the world’s FinTech hub. Of the European Union’s $26 billion of FinTech investment, the UK attracted $16 billion, which is a huge chunk of that European market. In the first half of 2018, that helped the UK to overtake US FinTech investment for the first time. If we consider the size of the United Kingdom, for us to overtake the US in terms of total investment is really something.

Those numbers look impressive, and they are, but there are clouds ahead. I suggest that the money is still being raised easily because the successful companies that attract a lot of the equity investment are based in Britain—they were set up here. However, there is much evidence across the FinTech sector that new start-ups increasingly are created in competitor countries, in cities such as Berlin and Paris. Much of the money raised by companies—the money I was just describing—still comes to Britain, but it is spent abroad. The companies are expanding their footprints elsewhere due to worries about the short and medium-term outlook for FinTech in Britain. We need to face up to that.

The fundamental point that we need to be honest about is that Brexit has put huge uncertainty at the centre of Britain’s short and medium-term economic outlook, which affects financial services and FinTech in particular. There are many reasons for the success of FinTech over the past few years, but the key factor is that London has become the principal magnet for the best software engineers, the best inventors, and the best and most successful investors from all over the world. How will we maintain that while dealing with the challenge of Brexit?

I suggest a twofold approach. First, we need to ensure that we remain one of the best places to raise equity finance, and enable the employees of FinTech start-ups to take equity in the businesses in which they work. Will the Minister undertake to ensure that the Treasury will not seek to change the enterprise investment scheme or entrepreneurs’ relief? Will he also consider eliminating stamp duty on shares? That idea was floated recently by Xavier Rolet, the former head of the London stock exchange. Oxera Consulting calculates that the abolition of stamp duty on shares would cut the cost of raising capital for small and medium-sized enterprises by between 7% and 8.5%. KMPG estimates that that could rise to 13% for some technology companies. Cutting the cost of capital for SMEs would lead to increased growth, profitability and employment, and higher salaries for workers, all of which make revenue for Her Majesty’s Treasury while creating a more dynamic business environment.

The second approach is simple: it is about people. In recent conversations—some took place earlier this week—with major FinTech investors, they were extremely clear that the ability to hire high-quality people, and to keep them in this country away from the clutches of Paris or Berlin, is very important. The £30,000 earnings threshold proposed in the immigration White Paper should not be a huge problem for the sector, because the vast majority of the people brought in by our FinTech companies earn more than that. One consideration, however, might not have been fully appreciated: 42% of our founders in FinTech are from abroad, and when they start their business, they often do not earn much, because they are ploughing what they earn back into their businesses, so they might fall beneath the £30,000 cap.

What are the Government’s plans to ensure that founders—the talented people who are the brains behind FinTech businesses—can move easily to the UK to start their firms? If they cannot, they will go somewhere else, and that innovation and wealth, and those jobs, will go to other countries.

Those rather technical points matter, because they show that the equivalence regime—the regime that we are going to rely on under the Brexit deal—is being considerably narrowed. In my judgment, that may make it harder for UK-based firms to sell services directly into the EU in future than it is for, say, Japanese and American firms to do so today. If the Minister’s answer is that the UK will seek in large part to copy the EU’s regulation, does that not make us highly vulnerable to aggressive regulatory behaviour from the EU27, who have already shown that they are very capable of designing regulations that are deliberately inimical to UK interests? Just as importantly, as we look further afield to the huge growth in opportunities for financial services in places such as Asia, how will we be competitive with the centres of Hong Kong, Singapore and New York and ensure that the UK is best placed to attract that business?

On the other hand, if the Minister’s answer is that the UK will seek to diverge from EU regulations where we can—obviously, that is a perfectly legitimate outcome—do the Government have a strategy setting out the areas in which we will seek to diverge, how we might do that and what the benefit will be, bearing in mind that the consequence will be reduced access to the European market in the areas in which we seek to diverge? In my view, we can take that path only if we shift to a regulatory model that significantly increases our relationships with and footprint in emerging markets in Asia and elsewhere. In those circumstances, we would shift more decisively to being a global financial centre, accepting that a certain chunk of European business will move away to the European Union. How do the Government envisage managing that shift and balancing those two approaches?

The Asian powerhouse countries have increasing financing needs, which include servicing $26 trillion of infrastructure spend, providing the backing for the Chinese-led belt and road initiative, and the internationalisation of the renminbi. Over the past 25 years, emerging economies’ share of global activity has risen from 40% to 60%, and their share of global trade has grown from a fifth to a third, yet their financial assets make up only 10% of the global financial system. Things will not stay that way for long, especially as savings rates keep increasing and the Asian economies concurrently get richer and richer. Growth in those countries far outstrips growth in Europe and the United States, and London is not necessarily the automatic choice for Asian financing. Singapore and Hong Kong are redoubling their efforts to ensure that they are the financial services centres that finance that Asian growth. How will we ensure that the UK is the global hub for that work?

I have spoken mostly about regulation—hon. Members are all still awake; I thank them for bearing with me—but tax policy is also a major part of this. The sad truth is that we are no longer internationally competitive on taxes for financial services. A report by UK Finance and PwC published in December 2018 states:

“On an overall basis, over half the profits (50.4%) from participant banks are paid in taxes”

in the UK. Some 43% of the taxes borne are not dependent on profit. In effect, they represent a fixed cost; the profitability of the bank is irrelevant. If we compare London with our major competitors—Frankfurt, New York, Singapore and Dubai—the overall tax burden for a model bank is highest in the UK, at just over 50% of commercial profit. In Frankfurt, that figure is 43%, in New York it is 34%, and in Singapore and Dubai it is 23%.

Putting all that together, given the regulatory challenges I outlined and the tax challenges I have just set out, are we still sure that the UK is in a position to dominate international financial services for the next 30 years, as it has for the past 30 years? Our financial services sector helps productivity and growth in our real economy across the country. Financial services is one of the most productive sectors in British cities, and while the average output per worker in a British city was £59,000 a year in 2016, that figure was almost twice as much in financial services. It would be foolish, however, to suggest that our financial services sector fully penetrates into some of our poorest regions, or that it is used by some of the poorest people in our country. I refer hon. Members to my entry in the Register of Members’ Financial Interests, because I am a commissioner for the Financial Inclusion Commission, and we have been working on this issue since our landmark report on financial inclusion in 2015. Since then, the Treasury and the Government have taken on board most of the commission’s recommendations, and I commend them for that.

What does financial inclusion actually mean? In simple terms, it means belonging to a modern, mainstream financial system that is fit for purpose for everybody, regardless of their income. It is essential for anyone wanting to participate fairly and fully in everyday life. Without access to appropriate mainstream financial services, people end up paying more for goods and services, and have less choice. The payday lending market grew from £330 million in 2006 to £3.7 billion in 2012, and it is probably now worth more than £4 billion. We are a country of about 65 million people, and 13 million people in the UK do not have enough savings to support themselves for one month were they to experience a 25% cut in income—one month! We save less as a percentage of our income than any other country in the European Union.

I have talked about banking, insurance, Asia, and the belt and road initiative, but for the UK to be an effective financial services hub internationally, we must ensure that we are No. 1 in the world for financial inclusion. All our people need the chance to create and develop wealth and savings. There is no excuse for us not to use the talent of the world’s finest firms and individuals involved in financial and professional services in the UK, and for us not making true financial inclusion a reality for all our people.

My hon. Friend properly referred to the contribution made by the financial services sector to the UK economy, and it is worth mentioning the report “Total tax contribution of UK financial services”, which was issued by the City of London Corporation, to which I pay the highest respect for its work to promote the sector nationally and internationally. The report, which was published in December 2018, highlighted the fact that the industry’s contribution to the Exchequer increased over the past year to £75 billion. That is 10.9%—nearly 11%—of the Government’s total tax receipts from all sources. It is 6.6% of the UK’s economic output. The number of jobs has already been referred to. This is a critical national economic and strategic asset, and Government policy must treat it as such.

It is worth saying that access to the European markets remains important, as it should do. My hon. Friend the Member for Hitchin and Harpenden is right to recognise that there are opportunities to be had from growing our contacts and trade with emerging economies. I was in Hong Kong in September at a legal conference looking at the opportunities for British law firms and their financial services clients, in relation to the belt and road initiative. No doubt there is much that can be done there, but at the moment, often, trade with China—particularly in the service sector—comes with strings attached, and perhaps a lack of transparency about access to the relevant sectors that would frankly not be acceptable in UK terms. The same applies with India, where there are great opportunities, but where there has so far been a marked reluctance about liberalisation in the service sector. As to my profession, as a lawyer, there is marked difficulty with India in getting liberalisation in the legal services sector. I hope that the Government will give more attention to that.

I was the sort of lawyer who became involved in the matters in question if regulatory procedures had not always been properly followed, whereas my hon. Friend was someone who made sure they were. What I have pointed out makes good, robust and internationally recognised regulatory frameworks all the more important. I previously had a spell working for Scottish Widows insurance, and as a trainee jobber, when such things existed, with Ackroyd and Smithers, who were then the leading gilts jobbers. It is an area of law in which I have always taken an interest, aside from its constituency importance for me.

The benign regulatory environment is something we need to watch, as we leave the EU. My hon. Friend is right to say that sometimes EU regulators have been difficult to deal with, from our perspective. Equally, however, dealing outside the EU, with a proper free trade agreement with third countries, to include financial services, will not be without challenges. I am secretary of the all-party parliamentary group on financial markets and services and have just come from a breakfast meeting with the group to discuss the prospects of a free trade agreement in services with the United States. There are real regulatory obstacles—not least having to deal with not one regulator but, in relation to the insurance sector, for example, 50 state insurance regulators as well as a national regulator. With banks, would one be dealing with the federal regulator, the regulator in New York or the state regulator in Chicago?

There is a multiplicity of issues to be addressed, which is why it is critical that we leave the EU with a deal, and with a transition period in which we could maintain all the good aspects of market access to the EU and have time to sort out arrangements and opportunities with non-EU countries. Let us be honest and not kid ourselves—those complexities will not be sorted out overnight. It will take time, and to benefit we must be patient about how we go about things.

The other critical point in that context is that unless we have a deal—if we leave without one—we will lose the existing arrangements for the mutual recognition and enforcement of UK court judgments in EU countries and vice versa. That is vital for contractual certainty and continuity. A contract is worthless if it cannot be enforced, and if it cannot be enforced through the judgment of a court there are no other means to do so. It is vital to find means to maintain that. TheCityUK has pointed out that losing it would mean profound difficulties in relation, for example, to insurance contracts—which would not be of value if we were to leave without the ability to enforce them in the event of default—and, significantly, uncleared derivatives. The derivatives market is particularly important to the UK. It is an area of expertise where, as my hon. Friend the Member for Hitchin and Harpenden said, financial services are not just about figures, but are relevant to real business. Most business work is now underpinned in one way or another by a form of financial instrument being traded, particularly in any significant commercial deal. That has been described as the plumbing of the business system, so anything that threatens the derivatives trade operating out of the City, and what relies on it, would be extremely dangerous.

There have been some areas of progress. I was pleased when the European Securities and Markets Authority agreed a memorandum of understanding with the Bank of England in relation to central counterparties and the central securities depository, which enables that issue of central clearing to continue. However, that is one part of a much more complex structure. There are other areas on which I hope for assurances that the Government are determined to see the issue as central to our negotiations. Those things are largely part of the future state negotiations, but we have to have a deal to get into those future state negotiations to begin with. That cannot be emphasised too strongly.

I also want to emphasise the fact that financial services and many aspects of legal services depend on the free flow of data to underpin them. At the moment that is available to us, in relation to our EU counterparties. However, unless—at least until a future state agreement is achieved—there is regulatory alignment on data sharing, we risk disruption to those data flows. That will severely disrupt the circumstances in which we could guarantee that trades could be carried out and completed. Again, insurance and uncleared derivatives are particularly vulnerable to disruption of data flows.

The City believes that an EU-level solution is the optimal one, and I hope the Government will reassure us that it is their intention to press for that, for the same reason as we spoke of before—the complexities of dealing with the 27 on bilateral agreements would be daunting to say the least, and would cause more delay, which would deter people from writing contracts while that period of uncertainty persisted. I know that a temporary solution to protect data flows is currently under discussion, relating to a non-enforcement period between regulators under what is known as a “safe harbour” precedent, but that is not guaranteed. I hope the Minister will be able to update us on progress and assure us that this, too, remains a very high priority for the UK Government.

Getting global regulation right and making it business-friendly, as my hon. Friend the Member for Hitchin and Harpenden said, is critical. Of course, the City of London Corporation provides the secretariat for the International Regulatory Strategy Group, which is a practitioner-led body comprising the leading UK financial and professional services figures. The key test of global regulation is not necessarily its quantity, but its quality and effectiveness. Thus far, the UK has been a world leader in that, and it is important that we continue to make that central to our policy.

My hon. Friend mentioned FinTech, and I am very pleased that he did, because I have constituents, including one of my councillors, working in the FinTech sector and there are real opportunities there. The ability to retain young talent in the UK is critical here; that applies also to young lawyers and to young professionals right across the board, so it is vital that we have a regime for immigration that not only does that in practice, but sets the right tone.

That is why I am pleased that we have scrapped the £65 fee for the settled status scheme; I rather regret that we ever had it to start with. I have in my constituency many EU-national professionals, working in the City of London, the west end and other sectors. They have been settled with their families in places such as Chislehurst and Bromley—commuter land—for many years, and the suggestion that they were going to have to pay to remain somewhere where they had already put down their roots and that they regarded as home sent the wrong signals. I am pleased that the Government thought twice about that, and I hope that can be reflected in the tone of our approach to our EU friends and neighbours hereafter.

However, we must bear in mind that it goes beyond that. International workers make up 40% of the City’s workforce and 35% of London’s finance and insurance jobs. Many of those are EU nationals; others will come from elsewhere, but having that welcoming and open approach is critical. Successful market economies are only successful if they have that open and broadminded approach, and it is important that we as the UK Parliament recognise and articulate that as strongly as we can.

Finally, sometimes people think that financial services are purely about profit; they see the City purely in terms of big financial institutions. The City of London does a great deal to encourage responsible business practice as well, and the two do not need to be separate. The financial services sector is one of the most active and engaged in corporate community investment across the country, as I see in some of the firms based in my constituency or where constituents of mine work.

New research that the City of London Corporation has published indicates that financial and professional services firms gave £535 million in cash and in-kind donations to various forms of community investment in 2017. It is worth saying that although a flourishing financial services sector is important to the economy, its leaders and the practitioners I know from my constituency also want to ensure that they pay their fair share not only to the Exchequer, but in kind to the communities that they serve. That is not separate from the day-to-day workings of our economy and our lives, but central to it, and I hope that this debate helps to bring that home.

When we put aside all that, the reality is that the industry has been highly successful. and highly important to our country—though I do not dispute its controversial nature—and we must ensure that it remains so. Those are not just words. This industry gives people in North East Derbyshire the opportunity to set up their own business by giving them access to the financing that my hon. Friend the Member for Hitchin and Harpenden talked about. It allows people to own their home—the new houses that are being bought in North East Derbyshire—and ensures that small and medium-sized enterprises in my constituency have the opportunity to grow.

I will touch briefly on Brexit. I come from a different position from my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) on this. I want a deal, too, but I want a good deal. It is incumbent on us to accept that there are circumstances in which we may have to go to a no-deal position. We cannot accept just any deal, or we might as well have not bothered with the last two years and simply accepted what the EU gave us the day after 2016.

I am the chairman of the all-party parliamentary group on alternative lending and vice-chair of the APPG for challenger banks and building societies. More importantly, I am doing a fellowship with a fantastic institution, the Industry and Parliament Trust, going around a number of banks and talking about the future of banking. Although there will be issues, and we do not want to create problems with business models unless we have to, I believe that the level of preparation in this industry is high, and the understanding of what needs to be done is good. We may have to accept no deal in certain circumstances, although I hope we will not; it will be down to EU intransigence if we do.

My point, in the brief time I have left, is that Brexit is not the big thing for this industry. We in this place are obsessed with Brexit in a way that I think is incredibly unhealthy and that will only get worse in the next few weeks. The actual challenges for this industry are much broader than Brexit. They are about FinTech, and how we ensure that we increase the number of people operating in FinTech here and that this remains a fantastic place to work. They are about artificial intelligence and how we incorporate it into financial services in the long term. They are about regulation. I have a particular interest in capital regulation, having worked in risk for the last two years before I came here, and I simply do not understand some of the directions we are going in on capital regulation. I cannot explain all that in 45 seconds, but I am sure there will be another time to discuss that.

There are key challenges around disintermediation and how we ensure that banking as a whole gets closer to customers. We will have a huge problem with insurance in the coming decade; insurance is based on a model in which we pool risk, on the basis that we do not fully understand the customer base we are serving. As we get more and more knowledgeable, from a data perspective, about individuals, the pooling of risk becomes a conceptual challenge that we will have to get through. We have a huge problem with customer services. Often in banking and financial services, people feel done to, rather than done with. We have to work with the industry to understand why that is.

I am conscious that my time is short, but ultimately I agree with my hon. Friends that this is an important area that needs more debate. We need to ensure that we develop our country, so that more banks, insurance companies and asset managers are investing here, and staying here longer, to create the wealth that we all know is vital for our public services.

Financial services firms and their money are leaving the UK because of Brexit; they are genuinely voting with their wallets. Since the 2016 referendum, $1 trillion-worth of assets have been moved from the UK to the rest of Europe according to Ernst & Young, which is a significant amount of money. According to Bloomberg, Deutsche Bank AG is repatriating at least €400 billion to Frankfurt; JP Morgan is taking €200 billion there, Goldman Sachs €60 billion, Citigroup €50 billion and Morgan Stanley €40 billion. Those are significant amounts of money.

Bloomberg has said that London could lose 10,000 banking jobs and 20,000 jobs in wider financial services. To put that in context, professional services represent 12% of the contribution to the British economy. Losing those jobs in financial and professional services, losing that investment, and losing the centres of large financial services organisations as they move would be a significant hit to the Treasury.

When we have discussed Brexit in this place, we have not had enough discussion of services. We have had in-depth discussion about tariffs, for example, but if we think about the contribution made to the economy by services, compared with the export or import of goods, services are a huge part of the economy. It surprised me that when the UK Government set out on the path of trying to work out which Brexit would suit, they did not say, “We are going to bat for services. Services are the key thing that we will put front and centre, and we will fight for access to services markets.” That would have been a far more sensible option for the Government than saying, “The most important thing is clamping down on freedom of movement. We are happy to ditch our access to services markets, simply so that we can get rid of our citizens’ right to freedom of movement.” That was an incredibly poor decision, and we will all pay the price.

On the impacts on the single market and our options— I am aware that there is not a huge amount of time, so I will whizz through this—one of the biggest concerns raised is data transfer post Brexit, whether there is a deal or a no-deal Brexit. There are issues to do with compliance with the general data protection regulation. For example, if a motorist crashes their car in Europe and they are insured by a UK firm, it is important that the data can be transferred, so that the claim can be paid. If there are barriers in place because we are outside the single market, or because we are outside the GDPR regime as it is set up in Europe, that is a major issue for ensuring that those claims are paid.

I have tackled the Government about the lack of reciprocity in some of the secondary legislation that has been brought in. They had immediately assumed that we would not have reciprocal arrangements with the EU in a no-deal scenario, whereas I come from the point of view that we should always have reciprocal arrangements with the EU. Once there was regulatory divergence, a further statutory instrument could be laid before Parliament to change the position around reciprocity. It concerns me that the Government have refused to do that.

I will focus briefly on people, as the issue was brought up a lot in the debate. In some sectors of the capital markets, EU27 citizens account for as much as a quarter of all staff in the UK. That is a significant stat. If the UK Government’s settled status scheme makes people feel unwelcome, and they therefore choose to go back to the EU country where they were born, that is a major concern. There is another issue around short-term visas. A lot of large companies have bases in other countries and require people to come over for a short period. The UK Government have suggested that the visa scheme will allow for 12-month visas; somebody might only be here for three months, and then the company might want somebody else for three months. That causes a real problem for companies, with regard to ensuring flexibility in their workforce.

To sum up, everything relating to Brexit that the Government have decided on has been disadvantageous to financial services. Anybody who talks about a low tax, low regulation system causes me major problems; I have real issues with that. For 20 years of my life, Scotland had a Conservative Government for which we did not vote. Conservative Back Benchers are talking about a low tax, low regulation system that we have not voted for. I wonder why people—and the Government—cannot understand why Scotland wants to be an equal partner in the EU, rather than a member of the UK, where we are having these things done to us against our will.

Reference was made to stamp duty on shares. That stamp duty brings in about £3 billion of Government revenue a year. It is one of the most efficient and least avoided taxes, and for that reason Labour is considering extending it as part of a financial transactions tax. I would be very happy to talk to the hon. Member for Hitchin and Harpenden about how that would work.

As many hon. Members have said, financial services contribute significantly to Britain’s exports. In 2016, they were worth about £61 billion, with a surplus of £51 billion over imports of—yes, obviously—£11 billion. Of course, that is very significant in a situation in which other areas that traditionally were important for Britain’s export strength face tremendous headwinds, not least in relation to manufacturing, given the current uncertainty about Brexit.

As the hon. Member for Hitchin and Harpenden rightly mentioned, the UK is increasingly integrated into global markets. I would argue that the UK is already a very important hub when it comes to the Chinese financial markets, for example. About two thirds of renminbi payments outside mainland China and Hong Kong flow through London, so we are already catching quite a lot of that business. In addition, a number of Chinese firms have established themselves here. However, we need to be clear: yes, that activity is increasing, but, as others have said, we have to be sanguine about its current size. TheCityUK, in its report entitled “Key Facts about the UK as an international financial centre”, says that only about 0.4% of UK financial services exports currently go to China. That may of course increase in the future, but if we compare that with the 44% of our exports that go to the EU, there is a massive difference. As my right hon. Friend the shadow Chancellor of the Exchequer has intimated many times, it must continue to be possible for our financial services companies to win business across Europe and, reciprocally, for European companies to win business here.

As I have said many times during delegated legislation Committees on no-deal legislation, the UK Government have failed to prioritise sufficiently our financial services. I absolutely agree with the comments in that regard by the hon. Member for Aberdeen North (Kirsty Blackman). We appear to have accepted an outcome whereby equivalence, rather than passporting, is the likely eventuating circumstance, and of course that equivalence will operate on virtually exactly the same basis as it currently does for nations such as the US and Japan, which are far less dependent on access to the EU27’s markets than the UK is. On the question of how equivalence would work in the future, the point is that it would work the same for all third countries. If there were to be a stricter regime generally, that would apply to us in just the same way as it would to Japan and the US—the point is that it can also be removed at any point, from the perspective of the EU Commission—rather than there somehow being a more onerous regime for the UK, which I think would not be the case.

I very much associate myself with the remarks by the hon. Member for Bromley and Chislehurst (Robert Neill) concerning the current legal services conundrums and how they can have some kind of certainty on many regulatory issues.

Only very late in the day did our Government start to stress the shared interest of the UK and the EU27 in maintaining access to UK financial services. That was an enormous shame, because we have a mutual interest both in financial stability and resilience and in ensuring that the EU27 can continue to access the deep pool of capital that is available via our financial services. That recognition came only after a much longer period, sadly, in which a very damaging zero-sum narrative had developed, with the cut in corporation tax suggesting an intention to race to the bottom on tax and regulatory standards. That was immensely frustrating. What the hon. Member for North Warwickshire (Craig Tracey) described in relation to the insurance industry is actually what I am finding right across the financial services sector. There is no appetite anywhere, from what I can see, for a bonfire of regulations. Actually, the concern is to try to prevent regulatory turbulence and ensure that there is co-ordination into the future, and yet a picture has developed of a zero-sum approach whereby the UK would seek to reduce those regulations. I think that that has been very damaging.

On that issue, although I agreed with much that the hon. Member for Hitchin and Harpenden said, I did not agree with his comments about EU regulation. Actually, one root of the financial crisis was the misalignment of risk with reward. That was targeted by the cap on bankers’ bonuses, and rightly so. A second root of the financial crisis was the lack of transparency in financial markets—dark pool trading and so on. That was targeted by MiFID, which encouraged many other countries to adopt the kind of transparency standards that existed in the UK before. I therefore think that we need to be very careful about mounting any kind of wholesale assault on those regulatory systems. When it comes to having robust regulation of systemic providers of market infrastructure, I think that that is a very sensible approach and, indeed, it is one that has been supported a lot of the time by UK actors.

Co-ordination of regulation will become ever more important with more innovation in delivery models of financial services. I strongly agree with the comments by the hon. Member for Henley (John Howell), who is no longer in his place, about the need for regulations to keep in step with new developments—for example, in relation to digital currencies. I also agree with the comments made about the workforce, who are incredibly important. We need to ensure that we still have access to people from other countries who can contribute so much to our financial services.

I am a little surprised that we have not talked much in this debate about the contribution of financial services to investment, particularly in business. We need to be clear about what has happened over time. In 1988, almost a third of banks’ UK lending went to businesses. It is now less than a tenth, so there has been an incredible change over time. The Labour party thinks that we need to do something to deal with that. We need to learn from what other countries have done in relation to national investment banks—KfW in Germany, in particular. We need to look at the RBS branch network. I share the anger of the hon. Member for North East Derbyshire (Lee Rowley) about the closure of some of that network.

Of course, we need to focus on vulnerable consumers as well. Although we have seen many positive innovations in that space, that often has not been the case for consumers on low incomes. I will add one statistic to this debate, which is that about one in three families in the UK do not have the financial wherewithal to pay for a new cooker if their current one stops working. That quite extreme lack of financial resilience is now very present in our communities. Consumer credit debt is still far too high, not least for people with overdrafts, credit card debt and/or hire purchase debt. We need to see much more strenuous activity on that. I was very pleased to hear the comments of the hon. Member for Hitchin and Harpenden about credit unions in that regard. Yet again, I urge the Government to focus on better integrating credit unions into the Help to Save programme. I also ask the Government to look again at having a proper tribunal process for the businesses that were dealt with so badly during the RBS Global Restructuring Group scandal, so that there is some redress for small firms that may have been impacted on by banks’ practices.

London has long been the global capital of finance. We want that to continue. Its strengths are multifaceted. They come from the depth and breadth of experience and talent in the ecosystem here. That stretches, as we have heard, beyond pure financial services to the law, where a number of us worked, and to accountancy, shipping and insurance, which my hon. Friend the Member for North Warwickshire (Craig Tracey) mentioned. We have to view that ecosystem as something special that needs to be preserved.

London is also an attractive destination culturally, socially and in terms of diversity, all of which need to be preserved. I am married to a New Yorker who moved to London and would never leave the UK now, because she thinks that it is such a special country and that London is the world’s greatest capital city. None of those factors should be underplayed and we should not be complacent about how we can keep them going in the future.

We have had a good debate about the importance of financial services in other parts of the country. My own city of Nottingham has a significant financial services presence. For example, it is home to Experian, the credit rating company, which employs thousands of people. The hon. Member for Aberdeen North (Kirsty Blackman) mentioned the importance of Edinburgh, for example for asset management firms.

We also heard about banking in Birmingham, back office processes in Bournemouth, the insurance industry in cities such as Cardiff and Norwich, and many other examples that we must preserve and give due consideration to in the debates we are having in Parliament at the moment. I agree with hon. Members that this House and the Government need to give more consideration to the fact that our economy is 80% services-based, and that there need to be more debates about professional services and the contribution they make to the whole economy.

It is important that the UK remains a tax-competitive jurisdiction in many respects, but particularly for financial services. We are committed to the reliefs that my hon. Friend the Member for Hitchin and Harpenden spoke about, such as the seed investment enterprise scheme, the enterprise investment scheme and entrepreneurs’ relief, as well as the continued reduction in corporation tax, which we have just legislated for in the Finance Bill, to 17%. Together, those measures are critical to the future success of the UK in paying our way in the world and attracting investors here as an important place to live, work and form businesses.

The hon. Member for Oxford East also alluded to the importance of the financial services sector to the wider economy. Having strong capital markets in the UK is important for our venture capital industry, which is the European leader and is maturing, but there is more that it needs to do to create thriving sectors such as FinTech, the technology sector more generally and life sciences, for example in Oxford. There is also more to do in infrastructure investment, which the hon. Lady also referred to. We will shortly publish a review of how we can continue to be a strong player in financing major infrastructure projects. That will include the proposition of a national infrastructure investment bank, which has been suggested by a number of individuals, as well as by the Labour party.

It is important that the UK’s financial services sector is inclusive. The hon. Lady made an important point about diversity. Most recently, we commissioned Alison Rose to report on how we can improve the level of finance that is available to female entrepreneurs across the country, building on the charter alluded to by the hon. Lady. The Government are also committed to credit unions. The number of individuals who are members of credit unions is rising—it is now over 2 million. There has been some consolidation in the number of credit unions, but the number of members benefiting from them is increasing. I think that they now have assets of £3.3 billion. We are making a number of interventions in that respect, including a FinTech challenge fund to see how FinTech can help with some of the social problems that we have discussed in terms of access to capital.

Given that there is little time available, I am happy to write to my hon. Friend the Member for Hitchin and Harpenden and any other hon. Members who are interested about the measures that we have taken and are interested in taking to ensure that credit unions become more widely available, including, of course, by increasing their scope from 2 million to 3 million members and their geographical reach, which helps them to have a larger presence in big cities and different regions of the country.

Brexit has clearly been a major factor in this debate. Like my hon. Friend the Member for North East Derbyshire (Lee Rowley), I do not believe it would be responsible to rule out a no-deal scenario, as it is important to maintain that leverage in the negotiations, but we have to accept that this is a sector of the economy that would be significantly harmed by a no-deal exit. It would be problematic for a range of reasons, which we have discussed.

First, if we can secure a deal, it will provide an implementation period, which, as my hon. Friend the Member for Bromley and Chislehurst said, would smooth out those cliff edges and enable firms to prepare as we transition to the future relationship. There is no escaping the fact that while we can take a generous approach to the European Union, there is no obligation on it to reciprocate, and we cannot prepare for that in advance.

Secondly, if we leave with a deal, it will ensure that we have the political declaration and, within it, the enhanced equivalence regime that we want, to ensure that we have a continued close relationship with the European financial system. It is critical for all of us to work together in the weeks ahead to secure a deal that we can support. Of course, it must not be just any deal, but a good deal that we can support for this sector. Ultimately, that is the only way we can give the sector the assurances it needs to continue to invest and protect jobs.

My hon. Friend the Member for Hitchin and Harpenden spoke about FinTech, to which I have alluded. There are now 80,000 people working in the FinTech sector in the United Kingdom. None of those jobs existed 10 years ago. We are a world leader. We have published a FinTech strategy. Of course, there is more that we might be able to do in the future. The next great opportunity is in SureTech. We are working with Lloyds of London and other parts of that industry to ensure that the same principles of open data that were taken forward by the Financial Conduct Authority can help to drive a revolution in products in the insurance industry. That is of interest both globally and to consumers in the UK, to ensure that they are protected.

We have heard about the importance of access to capital, on which the industry is reliant. We have taken a number of steps, from the patient capital review to increasing the amount of money available to the venture capital sector in the UK. There is more that we can and will do, such as working with pension funds in the UK so that they back these sorts of investments.

As we have heard, this is an industry that relies on attracting the best and brightest talent to the United Kingdom. We need to ensure that that continues. In March, we will be launching the start-up visa, which was announced last June by my right hon. Friend the Home Secretary. That will answer the question my hon. Friend the Member for Hitchin and Harpenden asked about how talented entrepreneurs in a sector such as FinTech can come to the UK. There will be no limit on the number of individuals who can benefit from that and it should be a major step forward.

We have also accepted the Migration Advisory Committee’s recommendations with respect to students. Those changes will be made in due course, which will make it easier for individuals to stay on in the UK after studying, to make a life here and to join businesses in financial services and elsewhere.

With respect to data sharing, which my hon. Friend the Member for Bromley and Chislehurst raised, we are pursuing a comprehensive relationship with the European Union, but we will be able to deliver that only if we can secure a deal and get on to those negotiations in due course.

I hope that I have answered many of the questions that have been raised today. There were many others, and I will write to the hon. Members who raised them. We are committed to financial services sector, which is a foundation stone of the United Kingdom’s economy and is of benefit to people across the country. The critical step in the days ahead is to secure a deal that gives the sector the assurance that it needs to move forward.