New painful taxes came under the conservatives. Bank levies will generate around £1.5 billion a year for the Exchequer. The bank surcharge, which was introduced to prevent lenders from benefiting from the cut in corporation tax, brought in £2.5 billion in 2022-23, although that figure is falling now that corporation tax has been increased again.
Matthew Lesh of the Institute of Economic Affairs says all this raises the cost of capital in the city, which impacts the real economy.
“The result you’re going to have is lower economic growth, lower productivity, lower wages and higher prices,” he says.
In its manifesto, Labor promises to “create the conditions to support innovation and growth in the sector by supporting new technologies, including Open Banking and Open Finance, and ensuring a pro-innovation regulatory framework”.
It certainly sounds optimistic. Still, cutting red tape has historically not been the party’s natural preference, so the question is whether or not warm words will be matched by action.
Many believe Labor wants to shake things up, but they will fight.
The Telegraph spoke to a dozen people who have met party officials over the past few years, as well as other leading voices in the city. Together, they believe those hoping for sea change under Labor are likely to be disappointed.
Lord O’Neill, who served as Chancellor of the Exchequer and advised Labor on its start-up 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.
Labor is “very definitely” listening, Lord O’Neill adds, even if the party may not have the financial firepower to match some of her bold ideas.
Cut red tape… while dreaming bigger
One of Labour’s ideas is to give the British Business Bank a greater role in investment and open access to government contracts for SMEs.
She also promised to speed up planning for gigafactories, digital infrastructure and labs — examples of real assets the city wants to fund if the rules allow firms to build.
But there are also big promises for more regulation, including ESG, environmental, social and government campaigns beloved by political activists.
“Labour will make the UK the green financial capital of the world and mandate UK-regulated financial institutions – including banks, asset managers, pension funds and insurers – and FTSE 100 companies to develop and implement credible transition plans that are compliant with 1.5C.” goal of the Paris Agreement,” the party says.
Lesh warns, “This is another huge regulatory cost for institutions.”
Other industries also face more bureaucracy and commit to “much tighter regulation” of energy.
The policy to “work with the private sector, including banks and building societies, to provide additional private finance to accelerate home modernization and low-carbon heating” sounds like a new plan to tell banks what to do.
The party also wants to create a new regulatory agency for innovation that will “help regulators update regulation, speed up approval times and coordinate issues that cross existing boundaries,” the party promised.
While this may help streamline the rules, a department called “Regulatory Innovation” may well find itself dreaming up new bureaucracy.
Lesh adds: “Regulators themselves are constantly drawing on codes of conduct, guidance and consultation. It’s really very difficult.”
Activators of civil service
Some warn that the UK’s security-first culture is entrenched at the heart of Whitehall. It means 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 a government mishap that ends up in the press,” says the head of one private-sector company that works with civil servants on a weekly basis. “And that is a fundamental problem. The majority want to make the country better, but we have slipped into a system where everyone is afraid that ministers will put their foot in it.”
James Palmer, senior partner at Herbert Smith Freehills, suggests a large Labor majority could at least bring more stability, which would benefit the city. He says: “The rejection of ministers we’ve had in recent years has been a disaster for long-term thinking.”
Anne Glover, CEO of Amadeus Capital Partners, a venture capital firm that has invested in nearly 200 companies, believes Labor is listening.
Glover, who was one of the city’s 10 advisers on the party’s review of the Square Mile, says: “[There is an] An intellectual understanding of the importance of business to growth, absolutely.”
But Glover is more disappointed with the party’s desire to close what it described as the “carried interest tax loophole”.