1. Thank you to Bob for that kind introduction; it's a pleasure to be here today, and I'd like to congratulate London First for arranging such a stimulating series of discussions on Building the Capital's capital - as well as for your work, along with the Government, the Mayor and the London Development Agency, to represent London's business interests on a range of public policy issues.
2. It's also a pleasure to be able to talk to you so soon - just a week after being appointed Economic Secretary.
3. As ministerial reshuffles in Britain often happen with no notice and with immediate effect - I had no idea, for example, that I was going to do this until the Prime Minister rang me 10 days ago - the first task of new Ministers is usually the dubious pleasure of fulfilling the commitments of their predecessors. And I have to say Ed Balls owes me a couple of favours for some of the things I ended up doing last week... But I was genuinely delighted when I saw this event in the diary, and it is a real pleasure to be here with you today.
4. Since this is one of my first public interventions, I'd also just like to say for the record that this is my dream job. I spent much of my earlier career, before entering Parliament, studying and working on the fringes of the City, and made a lot of friends in the process, so it's a real honour to be able to use this office to try and give something back.
5. And I'd like to start my comments this evening by saying here and now that my top priority in this job is to ensure that your views, your analysis and your concerns are fed right into the heart of government. We want our decisions to be informed by your expertise. And more than that, we need them to be.
6. So as Minister for the City, I give you this guarantee: I will be your ambassador to government, and your representative in Europe. No decisions will be made that affect the financial services sector, be it in London or across the UK, without the fullest possible consultation and debate with business and the City. That's my commitment. And it is one that is shared by the Chancellor and the Prime Minister. Because maintaining and building on our competitiveness is a top priority for this government.
7. So whether it's working together to get the best out of Europe, or modernising the regulatory environment to ensure it works with the market as things adapt and innovate, government, business and the City need to work side by side.
Importance of the City
8. Because let's face it - our interests are essentially the same. The financial services sector creates 8.5% of our GDP and employs 1.1 million people in London and across our regions and nations.
9. And the sector also has a hugely important wider role in underpinning, supporting and facilitating the rest of the UK's economy. It's the payment systems and accounts that financial intermediaries provide that allow wealth to be stored, accessed and moved - making a modern economy possible. It's the financial sector's role in the investment chain that provides business with access to the finance that they need to invest and grow. And it's the ways in which the sector can manage risk for the wider economy that allow firms to focus on their core activities, and to be less risk averse.
10. It's manifestly in our interests for the sector not just to maintain its position, but to build on it - so let's work together to make that happen.
11. I'm determined to do so, and so in my first week of the job I've been speaking to as many senior practitioners as possible from across the financial services industry. That will continue - I've got a lot of people to meet and a lot of places to go. But it is crucially important. How after all can I represent your views to the heart of government if I don't first listen to what you are saying? So expect me to be a regular visitor to the City - it's where I want to be.
12. So far, what people are telling me is that in many ways, things have improved in the last few years. But we also face some challenges. Europe. Globalisation. Getting the regulatory environment right. As well as some opportunities from new markets - Islamic finance, carbon trading and so on. I want to touch on some of these issues tonight. But first the context.
Strong position of the City
13. London is, I have no doubt, the world's greatest global financial centre.
14. In terms of scale, scope and internationalism, it really is unparallelled - it's the natural location for 70% of the global secondary bond market, over 40% of both the derivatives market and cross-border equities trading, over 30% of world foreign exchange business, and 20% of cross-border bank lending. And the UK is a base for over 250 foreign banks, mostly in London - more than any other financial centre.
15. These are pretty impressive statistics - and London makes a major contribution to the fact that the UK also has a trade surplus in financial services twice as large as anywhere else in the world, at over £26 billion last year.
Historical development
16. That performance is the result of a long-term historical development, at the heart of which have always been London's openness and internationalism.
17. These characteristics developed along with the City, as it supplied capital and acted as a financial clearing house to the British Empire and beyond, at a time when the UK was rapidly growing as a global trading nation.
18. More recently, the emergence of the Eurobond market in the late 1950s and '60s - and the regulation and tax policies in the US that drove Eurobond business from New York to London in the early 1970s - reinforced the City's reputation as an international centre for financial services. And London's internationalism was strengthened by the trend towards fully open capital markets in the late 1970s and 1980s, with the consolidations, takeovers, and influx of foreign institutions and talent that followed the Big Bang confirming the openness and integration of Britain's financial services.
19. That had left the City in a strong position when we came to office in 1997 - but there were still areas where work was needed, and I'd like to talk about three of those.
Actions since 1997
20. Firstly, Britain's macroeconomic framework was flawed, and politicised. Giving independence to the Bank of England was a central component of a new framework for macroeconomic stability that has helped bring an unprecedented period of growth.
21. Secondly, the financial sector's regulatory framework was fragmented and burdensome. The Government's decision to create a new and unified regulator, the FSA, and its development of a risk-based regulatory approach, have left the UK's wholesale financial markets with a regulatory regime widely regarded as the best in the world. It's not often that a Government Minister can talk about regulation as a competitive advantage - and I think that shows just how far we've come.
22. Thirdly, we were seeing chronic underinvestment. We addressed that by reducing Capital Gains Tax, but also by focusing on the investment chain - the series of relationships that link savers, borrowers and investment.
23. We have systematically reviewed each link in that chain since 1997, identified a number of issues and - while there's still more to be done - started to address them. So at the consumer end, we've worked with the FSA to develop simpler and more transparent longer-term investment products. On pension fund trustees, we've endorsed the comply-or-explain 'Myners principles', to improve the quality of their investment decision-making; and we've also made it a legal requirement for trustees to have the understanding that they need to function effectively.
24. I believe that addressing these issues has helped the City to build upon the strong position it was in when we came to office. And London has also maintained its integration and openness, and today benefits from a unique international position: a strong transatlantic relationship; links with the emerging markets in Asia and Africa; and the gateway between Europe and global markets.
Europe
25. That European relationship is increasingly important - and ensuring that we use our experience and influence to ensure that the EU's financial markets develop in the right way is the first of the challenges I want to mention.
26. I know that many in the City can at times be frustrated by the detail of some of Europe's directives, and by their implementation. If it helps, we in Whitehall sometimes are as well. But I believe that London is strengthened as a global financial centre by Britain's EU membership.
27. In wholesale financial services, London has established itself as Europe's gateway to the world - with 35% of the EU's market and nearly a third of the jobs - and as the world's financial services gateway to Europe. And we're seeing key European banks like Deutsche Bank, Société Générale and BNP Paribas locating substantial parts of their wholesale operations in London.
28. Europe also offers our financial services industry opportunities in jobs and investment, from the prospect of an enlarged and competitive retail financial services market.
29. Of course, retail markets are intrinsically different to wholesale markets, and there are a number of differences that can't simply be regulated away. But I hope that with Commissioner McCreevy's focus on the Better Regulation Agenda, and Neelie Kroes' robust use of competition policy to dismantle anti-competitive barriers, we can make real progress that will benefit consumers, and that will enhance the competitiveness and efficiency of Europe's financial services industry.
30. These conversations will be top of my agenda when I go to meet with Commissioners McCreevy and Kroes in Brussels on Friday, and I'll be reaffirming the importance of an effective competition regime. Because we will need to fight our corner, make our voice heard, and win the arguments.
31. We've shown that we can do that on the savings directive, for example, and on the markets in financial instruments directive, MiFID, which will be implemented in the UK later this year. By doing so, we've helped ensure that the UK and Europe stand to gain from the greater openness and competition that will come from MiFID - and I know that firms and authorities here have put significant effort into preparing for MiFID here in the UK. I welcome Commissioner McCreevy's recent moves to put pressure those Member States that are dragging their heels over implementation - and I'll be making clear later this week that he can count on my support.
32. Whatever the future brings, it's abundantly clear to me that it's better to be at the table, shaping Europe to our advantage, than sitting on the sidelines being affected by the decisions of others. So as I said, consider me the City's ambassador within Europe, and I hope we can work together to achieve our common aims on the European stage.
Globalisation
33. Of course, we also need to think about our relationship with the rest of the world. We're all aware that the world's economy is increasingly interconnected, as new communication technology and falling transport costs break down the geographical barriers to trade and economic integration.
34. That presents some huge opportunities. But it also presents some major challenges, and the emergence of new economies and new financial centres, like Shanghai, Mumbai and Dubai, means that we need to make sure London can maintain its position as the leading global financial centre, and remains the natural partner for those emerging markets.
High Level Group
35. Aside from developments in the European and international arena, the second major challenge I'd mention is quite simply working out how to work together. I sense this has improved recently, not least thanks to the establishment last year by Gordon Brown of the High Level Group, which gave a formal process for senior representatives of Government and the financial services sector to address their common concerns, and to work more closely together to strengthen and promote the City.
36. One of the things that the new Chancellor, Alistair Darling, did when he was appointed last week was to reaffirm his commitment to this process. The Group will continue, and we will engage with it at the highest level.
37. Because it is a process that is showing real promise. The Group has already developed a new strategy for overseas promotion of the UK-based financial services sector, and it has also been considering a number of aspects of the business environment in which the financial services sector operates - three of which I'd like to mention today.
38. Firstly, we're working together to reduce regulation. So, for example, the last meeting of the High Level Group in May discussed proposals, which are now the subject of consultation, on a package of measures to deregulate the UK's fund management industry, reducing costs by up to £290 million per year. As you all know, the FSA is leading the way in its move towards more principles-based regulation. And in February my predecessor, Ed Balls, held an informal meeting of the Group focused on EU regulation, with Commissioners McCreevy and Kroes, to ensure that the Commission fully understands and takes account of the views of UK practitioners.
39. Secondly, the Group is considering ways to modernise the wholesale insurance market. Lord Levene is leading work to develop proposals that he will present to an insurance summit that I will host in autumn, and that summit will also discuss work, which the Treasury have been carrying out, on the potential for further reforms of the business environment.
40. Thirdly, we have to realise the importance of the UK having the right skills in place. London already has a hugely talented workforce. That's the result of both the UK's high quality education and training, and of our openness to inward migration -demonstrated by one quarter of London's senior managers in financial and business services coming from abroad.
41. Our workforce is already amongst the City's major advantages. Earlier this year, the City of London Z/Yen report highlighted the availability of good personnel as one of the key indicators of competitiveness - and placed London in pole position.
42. But we can't take that position for granted - and so we've started wider work, through the Leitch review, to identify the skills profile that Britain will need in 2020.
43. In response to the Financial Services Skills Council's review of skills in the wholesale financial sector, we've also set up a working group, involving the Treasury, the new Department for Innovation Universities and Skills, the FSSC and the industry, to take forward work on improving the supply of quantitative skills in the wholesale financial sector. And I'd take this opportunity to encourage London First members to be as fully involved in the skills agenda as possible, by ensuring that their employees are able to fully enjoy the opportunities available to gain basic skills.
44. But it isn't just the practitioners that necessarily need to upskill. On the regulatory side, we also understand the need to continue researching new financial regulatory expertise to help inform our principles-based regulatory approach. So when the High Level Group suggested launching a prospectus for a new world-class International Centre for Financial Regulation here in London, it was something the Government immediately supported.
Next steps
45. We want this kind of partnership to work, not just in financial services but across the economy. Indeed, as you will be aware, the Prime Minister has also created a Business Council to advise him on issues that affect enterprise, business and the long-term productivity and competitiveness of the economy.
46. And we expect the kind of issues that come up to not necessarily fit neatly into Government departmental structures. For example, Government at the highest level need to know if you are saying that our transport infrastructure is holding us back, so that we can do something about it.
47. And we must work together to consider in a sensible and measured way our response, if any, to changes in the public mood - for example on private equity, where Alistair Darling made clear last week that any changes to the tax system need to be properly considered and carefully thought through, in the context of what's best for the economy overall, rather than a knee-jerk reaction.
Opportunities - Islamic Finance
48. Of course a partnership approach will help us to turn the potential opportunities out there into successful reality. For example, Islamic finance. This market has been growing at 10 - 15% a year, with Islamic finance assets worldwide now estimated to be worth over £250 billion - and with 300 Islamic finance institutions in over 75 countries.
49. With London's wealth of expertise in this area, and its strong ties with markets in Asia and the Middle East, that presents real opportunities - which we want to make sure we seize. We've already made important strides in regulatory policy for our domestic retail market - most recently with the FSA extending regulation to cover Islamic home finance.
50. And in this year's Finance Act, we created a new tax framework for Islamic bonds, or sukuk. We are seeing signs that this market is now growing, with two sukuk listed on the London Stock Exchange earlier this year. And I'm determined to reinforce London's position as a global gateway for Islamic finance - and to ensure that everyone, regardless of their faith, has access to competitive financial services.
51. To do so, we need to work together - which is why my predecessor hosted an Islamic Finance Summit in April, and set up a new consultative forum, the 'Islamic Finance Experts Group'. We have listened carefully to suggestions on what else we could do - and so we're undertaking a feasibility study into opportunities for the Government to issue Islamic financial instruments in the wholesale sterling market, and have asked National Savings and Investment to look at the possibility of the Government issuing retail Islamic products.
52. Already, London has received delegations from emerging markets in Muslim countries, seeking to learn from our experience. We must make sure we continue our lead in this area as other countries develop more sophisticated financial services sectors.
Opportunities - carbon trading
53. Another area we want to focus on in future is the global carbon market. Nick Stern argued that emissions trading is the most cost-effective, and the most just, way of reducing global emissions. And while emissions trading is today worth just $9 billion, that could rise to between $50 and $100 billion - again, providing huge opportunities for London.
54. So, while we've made progress by working together, there will always be more to do, and new areas to focus on. By continuing to work together, I know that we can maintain the City's impressive strength. We know that that is vital - the Chancellor called the City "absolutely critical" to the UK in an interview last week, and I would echo that.
Conclusion
55. I'm delighted by what a strong position the sector is in - I know that position is the result of a huge amount of hard work, but also of working together.
56. I know how important that engagement has been, and I'm committed to ensuring that it continues over the coming months and years, and that it continues to support the strong and strengthening position of the City at the heart of a thriving British economy. My role in that, as I said at the outset, is to be your ambassador to Government and within Europe, and to ensure that we make no decisions that affect the UK financial services sector without the fullest possible consultation with business and the City.
57. That is my offer to you, my first commitment in the job. I hope you will use this opportunity to play your part in ensuring that we get things right.
58. Thank you.
