Vision for Economic Growth

Government, regulators, and the industry must support the conditions for growth. This is about getting the basics right. Some conditions, such as world-class infrastructure, apply to the whole economy.

Others are specific to the FPS sector and can be far more effectively implemented as part of a wider FPS strategy.

To support the conditions for growth, the report outlines Big Move #01: to develop a UK FPS strategy and FPS Partnership Council to support it.

The impact of this by 2030 will be that Government's clearly defined strategy for UK-based FPS maximises the sector’s contribution to UK jobs and economic growth.

Conditions for growth of UK-based FPS in support of a prosperous UK

• Skills and talent

• Competitive tax and remuneration policies

• Strengthened reputation for ease of operating

• A balanced approach to risk-taking

For greater prosperity and growth, the UK needs higher long-term returns for savers and more investment in its firms and infrastructure to create high quality jobs. The UK’s FPS firms are leaders in providing capital to firms and projects globally.

Deploying this expertise more consistently at home will pay dividends. It has the potential to improve returns for long-term savers, provide capital for businesses to pursue new opportunities, and create compelling investment options for international investors.

Big move #2: fully implement a programme of change for UK pension and insurance funds. These reforms will benefit long-term savers while also supporting growth companies, infrastructure, and the wider economy. Government should progress the reforms for which there is strong and broad ranging support. This includes Solvency II reform and a new Value for Money framework for defined contributions (DC) schemes.

Government has indicated that up to £75bn in private capital could be unlocked by 2030 if Local Government Pension Schemes (LGPS) increase their allocation to unlisted equities to 10% (which the government is consulting on at time of publication), and if UK DC schemes allocate at least 5% of their default funds to unlisted equities. Reforms to Solvency II could potentially unlock £100bn from the insurance and long-term savings sector over the coming decade from 2024. Capital will only flow if these regulatory reforms are accompanied by profound cultural change. In addition, there will need to be a significant increase in savings levels into DC retirement schemes.

Big move #3: maximise the effectiveness of every pound of government support for growth companies. Government deploys financial support across the economy, nationally and locally. Clarifying how these disparate funding schemes align to major strategic outcomes would provide strong signalling.

The clearer the priorities, the greater the chance of leveraging in private capital. Operationally, firms also find it difficult to navigate the opportunities. This could be made much more user-friendly with a “product and institution-neutral” advisory team and portal that would help firms navigate the choices available to them. There is also an opportunity to explore creating investment vehicles that could provide a destination for long-term capital.

A truly digital-first economy is one in which organisations and individuals have the capacity to innovate and drive growth. This requires reforms to allow secure data sharing and an enabling mindset across government and regulators.

Big move #4: be internationally competitive on data and digital. The first step is to create a differentiated approach to data policy and regulation that combines high standards with pragmatism.

Another priority is digital verification. Government must scale the deployment of the robust standards it has been developing. The UK government estimates that widespread adoption of digital verification solutions could deliver about £800m per annum to the UK economy, amounting to a potential £4.8bn in value added from 2024-2030.

Finally, government should consider emulating the US’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system of machine readable company filings to make it easier for investors to assess information about public companies when making investment decisions, building on the recommendations from Rachel Kentʼs review.

Big move #5: invest in an innovation and growth mindset across government, regulatory agencies, and industry. Digital transformations of the next few years will require agile responses that cut across existing regulatory boundaries. Government should provide an even stronger mandate to the Digital Regulation Cooperation Forum (DRCF) to enable collective leadership on regulatory approaches towards emerging technologies such as digital verification, artificial intelligence (AI), and tokenisation.

Deploying machine-readable regulation, and tasking regulators to do so, would be another critical change. This can build on the digital regulatory reporting pilot already underway by the Financial Conduct Authority (FCA) and the Bank of England (BoE). The interventions can also help to ensure that the FCA and the Prudential Regulatory Authority (PRA) deliver on their secondary competitiveness and growth objective.

The transition to a sustainable economy represents the great transformation growth opportunity of the 21st century.

There are vast investment and financing needs to achieve global net zero emissions and nature related commitments. UK FPS can work with the UK Government as it delivers its own sustainability goals. It can also be a “go-to” partner for firms and countries across the world seeking to transition, protect biodiversity and deliver on other impact and sustainability-related objectives.

Big move #6: create the conditions to scale and accelerate financing for a just transition towards a low-carbon economy. Financial and professional services already play an important role in supporting the transition and will continue to do so.

However, the enabling conditions must be in place for the financial sector to be able to provide the supporting finance and investment. A crucial need is for the UK Government to provide clarity and commitment around sector-specific transition policies that deliver on its net zero strategy as part of predictable and durable energy and industrial policy foundations.

With the right enabling conditions, the signs are positive that the Government can mobilise sufficient private capital at pace to achieve the £100bn it has said it will leverage as part of its Net-Zero Strategy and British Energy Security Strategy.

Big move #7: scale innovative approaches to sustainable finance. The UK has a history of pioneering sustainable finance. There is an opportunity for it to cultivate high-integrity voluntary carbon markets, high-integrity nature markets and approaches for natural capital.

The financing need, and opportunity, is vast. One estimate suggests that closing the finance gap to achieve nature-related outcomes targeted in UK policy will require a minimum of £44-97bn by 2032.

The size of voluntary carbon markets has also begun to grow. One estimate put the total market size at nearly US$2bn at the end of 2021. This marked an almost fourfold increase from 2020. Continued growth at this pace would see the the market expand exponentially by the end of the decade.

The future success of UK-based financial professional services (FPS) depends on bringing a compelling offer to the world. That requires world class promotion. It also rests on a network of strong relationships within a robust international framework.

Big move #8: showcase the UK’s FPS firms like never before through the creation of an FPS Knowledge and Support Hub.

The international promotion of the UK’s financial industry relies on a network of promotion agencies at home and abroad. With targeted support, these organisations could have far stronger impact. An FPS Knowledge and Support Hub could support international messaging and promotion by highlighting compelling narratives, messaging and collateral of existing promotion efforts; supporting the coordination and advocacy efforts of others (via their own direct advocacy); and providing further industry research.

This would help to increase FPS foreign direct investment (FDI) into the UK and exports abroad, in turn supporting the broader economy’s growth. An illustrative estimate demonstrates the potential benefits.

For example, if the hub could achieve an uptick of FPS FDI worth up to 6% of 2022 levels, then up to £0.7bn additional FPS FDI could be captured between 2024 and 2030.

As another example, if the hub could contribute an average additional uplift of approximately 0.9% compound annual growth on top of the forecasted growth of UK goods and services exports, this would result in an increase of up to £24bn in FS exports to be achieved between 2024-2030.

Big move #9: create innovative networks across the world.

The UK should flip its trade policy to focus on services, as much as goods. Trade negotiators should use the full “trade toolbox” including digital and, where appropriate, mutual recognition agreements of professional qualifications or regulatory frameworks.

It should create mechanisms for partnership across government, regulators, and industry to discuss trade priorities, better incorporating industry views. One such mechanism could be the FPS Partnership Council described as part of big move #1.

Finally, government should look to establish international forums for collaboration. One such mechanism could be multijurisdictional sandboxes, building on the work of the Global Financial Innovation Network (GFIN). The sandboxes could develop interoperable regulatory approaches in response to emerging technologies and, potentially, authorisation in multiple jurisdictions.