15 May 2008
Speech by the Economic Secretary to the Treasury, Kitty Ussher MP, at the Securities and Investment Institute Conference on 'The Age of Volatility', London EC3
Check Against Delivery
Introduction
1. It's a real pleasure to be here this morning, thank you Roy for that introduction; and thank you Simon for the invitation.
2. I'd also like to congratulate you for the apt title of today's conference: the fall-out from the US sub prime crisis has certainly unsettled the markets. Whether it turns out to be an "age" of volatility, I will leave for the economic historians to judge, but there's no doubt that the last year at least seems like an age for many people working in the financial services sector.
3. The main point I want to make today is that it is in difficult and challenging times like these, more than any other, that government and the City need to work together, in our mutual interest.
4. And I am grateful, Roy, for the opportunity today to set out - as the government's minister for the City, and indeed the City's minister in government - how I see this partnership working and developing over the months and years ahead.
5. But first, a quick recap.
6. They say that a week is a long time in politics. In a volatile market, it can feel even longer.
7. But throughout the events of the last year, our actions have been guided by very clear principles: to support, and work closely with, the financial services sector at this difficult time.
8. And it's worth explaining exactly why. It's because our economy and our country depends on it.
9. So when we say we are proud of the success of the City of London, and want it to grow even stronger
- its not because we want to make the rich richer, although we have no problem with appropriate rewards for the risk-takers.
- its not because we want to protect managers that have made mistakes, or large shareholders that have failed to hold their boards to account.
10. It's for the simple reason that we need it to succeed, in the national interest.
11. For the sake of the 1.1 million jobs in the financial services sector, not just here in the square mile and in Canary Wharf - but up and down the country, including in my constituency of Burnley.
12. To preserve stability in our financial system.
13. And to have an effective investment chain that matches savings with opportunity, helping households to manage their finances effectively and entrepreneurs to create jobs and prosperity for the future.
Maintaining stability by supporting Northern Rock
14. That's why, when Northern Rock required special liquidity support from the Bank of England, because the international collapse of confidence in the value of mortgage-backed securities meant it could no longer raise the money it needed in the wholesale markets, we stepped in.
15. We made sure that liquidity support was provided, and guaranteed Northern Rock's deposits. Not to protect the board, or the shareholders, but to maintain financial stability, protect consumers and ultimately the taxpayer.
16. In February, after carefully considering all of the options to resolve Northern Rock's situation, we decided that the best way to meet those principles was to take Northern Rock into temporary public ownership.
17. Northern Rock has now published its detailed business plan, and under Ron Sandler it is taking advantage of the stability that temporary public ownership has given it to restructure and reshape itself, at the best value to the taxpayer.
Getting credit markets moving again
18. Similarly, it is our desire to support the financial services sector, in the national interest, that has led us to take actions to free up the credit markets.
19. We're doing a number of things to try to help make that happen.
20. Firstly, we're supporting the Special Liquidity Scheme that the Bank of England introduced last month, to allow banks and building societies to exchange their high-quality asset-backed securities for Treasury Bills, which they can then use in the market as a source of additional liquidity.
21. Secondly, we're taking action to strengthen the mortgage finance markets.
22. In 2006, 30% of the mortgage market was funded through secondary funding markets. The fact that they've frozen up, with investors unwilling to take on new mortgage backed securities, is a major challenge for lenders.
23. We've asked Sir James Crosby to look at what can be done to improve the way that the market works, and to advise on a range of market-led initiatives that could help to lower long-term mortgage costs, and increase the availability of affordable mortgages.
24. He's now begun work with lenders, investors and the Tripartite Authorities, and he'll be reporting initially in the summer.
Getting the talent we need
25. And it is also our desire to maintain the strength of the financial services sector that has led us to design a new immigration system, which makes it easy for highly skilled people from around the world, to come and work here in the heart of the City.
26. The talented people who come to work here are vital to London, and they make a huge contribution to our financial services sector: around a quarter of senior managers in financial and business services are born abroad.
27. We're absolutely committed to continuing to attract the people who've got the skills we need, wherever they're from. And now more than ever, we need the most talented brains in the world to be here in the City.
28. The new, points-based, migration system which we're currently rolling out has been designed specifically to ensure that we can continue to attract those people - and Tier 1, for highly skilled migrants, has already gone live.
29. Last week, the Government made a number of proposals for the new system, including that jobs should be advertised to EU citizens first, and that migrants will need a job offer before they can apply for a visa.
30. But I want to be clear today that while those proposals apply to Tiers 2 and 5 - which are for skilled workers, and younger or temporary workers - they don't apply to Tier 1, the highest skilled. This is that group that we particularly want to attract here to London and the rest of the UK - although skilled workers are of course vital for supporting the financial services sector too.
31. And that's why our proposals for the taxation of non-domiciled workers make the system fairer, but are also competitive.
32. The UK is still the only major country in the world to allow people to pay tax only on their earnings here and the earnings they bring here.
33. And while we're asking people to make a contribution if they're going to use that system, they only have to pay after they've been in the UK for seven years.
34. We've also said that we won't make any further changes to the regime for non-domiciles in this Parliament or the next, so that people can have certainty about their position.
35. So, let's be clear. We're well aware of how much the City relies on international workers. The UK will remain open to talented people from across the world; and we want to continue to attract the best.
Relationship between Government and industry
36. But there's more that needs to be done to address the issues that face us. And I want to send the strongest possible message today that I want to see government and industry standing shoulder to shoulder, working together to address our common issues.
37. That's why we've decided a fresh look is required at the whole issue of international competitiveness in tax, and why we're setting up a new group with industry representatives to discuss how the tax system can provide the long-term certainty multinational companies need, considering the competitive and other challenges that both businesses and government face.
38. It's why we remain committed to the high level group for financial services, chaired by the Chancellor, which brings government and City together at the highest level. This group will meet again in the next few weeks to update on the actions that are required, at home and abroad, in response to the fall-out from the US subprime crisis.
Banking reform
39. Our biggest opportunity, as we work together, comes from the way in which we take forward our banking reforms, to help prevent bank failure, to deal with it more effectively if it does happen, and to address the issue of depositor protection. How can we ensure that in the unfortunate event of a financial institution getting into difficulties, a solution is found in the interests of consumers and the taxpayer that does not threaten financial stability?
40. We've made a number of proposals, and we've reached out to industry to seek their response. You have told us that while reform is needed, it is important to take the time to get it right. So we have pushed back the introduction of legislation until the autumn to give more time for discussion.
41. And I will take it upon myself to lead the largest ever effort to work with the City to make sure we get this right. We have an opportunity, not only to emerge stronger from the difficulties we have faced, but to lead the world in the way we do so. I want to make sure we turn that opportunity into reality.
Focus on the long term
42. But as we react to the immediate issues, we mustn't take our eyes off the long term. It would be easy to retreat into our shells, but I know that our future success depends on opening our arms out wide to the rest of the world.
43. And we can't afford to lose the strengths and advantages that the UK has, and that have made London the world's leading financial centre - because it's those strengths that we'll need to emerge strongly from this period of turbulence, and for the future.
44. I know that Hector Sants told you all about principles-based regulation earlier, for example, and we know how important that is to London's success. And I want to be clear that we've got no intention of moving away from the proportionate approach that we've developed here in the UK - we know how important it is to London.
45. We also know the importance of the skilled workforce that we have here in London. Businesses consistently say that it's one of the top factors in their decisions about where to locate - and there's no doubt that London's workforce is one of the best in the world.
46. I've just mentioned the need to strive for the best talent from around the world. Of course, though, we also have to continue to invest in skills here at home.
47. We have made a commitment to developing a world-class skills profile by 2020, and by committing to spend an extra £2bn on higher education and skills in 2010-11, compared to last year, we're putting in the investment to make that a reality.
48. Much of that money will be focused on training opportunities for the most disadvantaged, both in and out of work, because that's where there are the most serious market failures to address.
49. But I know that to create a strong future workforce for the City, intermediate and higher level skills also need to be a priority - and so meeting our targets will mean more adults qualified to degree level, more young people in higher education, and more adults already in the workforce developing higher skills.
50. And I also know that to give Britain the skills profile it needs, we have to think about specific sectors that are going to be important for our economy in the future - including of course financial services.
Financial services skills at home
51. There is an important role for the Financial Services Skills Council here, and I'd like to thank Roy and everyone at the FSSC for the work that they're doing.
52. They played a major role in the creation of the National Skills Academy for Financial Services, which is now up and running in London, Manchester, Leeds and Norwich.
53. They shape and endorse new qualifications at a variety of levels.
54. And they also produce some important research, like last year's Skills Review of the UK's wholesale financial services sector.
55. That report was discussed by the Chancellor's High Level Group on City competitiveness, which has now asked the FSSC to lead a working group on financial services skills.
56. The group has already met three times, and it's working to identify the issues that need to be dealt with - like poor marketing of careers in financial services; the shortage of numerical and language skills; and the changes that are needed in the curriculum for the future.
Financial services skills internationally
57. Alongside ensuring that London and the UK have the right skills profiles for the future, I also think that Britain can have an international impact - for example in shaping regulatory skills in emerging market economies.
58. Both Government and industry want to see better training and research into financial regulation. And the International Centre for Financial Regulation, the ICFR, is one way that they can work together to achieve that.
59. The need for the ICFR is even greater than it was when the High Level Group proposed it last year, and when the Government contributed start-up capital - and we hope that the Centre will be established by the end of the year.
60. But the UK's international impact isn't just confined to regulatory skills. UK-based private sector training providers have also shown that there are markets for their products across the world.
61. The SII, for example, now have offices in Mumbai, Shanghai, Dubai and Singapore. And the number of people sitting their exams abroad is doubling every year.
Conclusion
62. So, there are opportunities here, as well as important challenges to deal with - and we need Government and the private sector to continue to work together, to ensure that we emerge from the current situation in the strongest possible position.
63. We understand that things are difficult for the sector at the moment. But it is important to remember that because of the decisions of the past, our economy is much better placed to deal with this type of shock than it was in the past.
64. But even so, uncertain times put strains on any relationship. Which is why effective communication between government and the City matters even more now than it ever did.
65. I said when I took on this job that I would be a strong voice for the City in the heart of government, and I take that commitment very seriously. I will be the City's champion in government, ensuring an effective dialogue so that your priorities become our priorities.
66. Because we need you to succeed.
67. And we know that for London to remain the world's leading financial centre, we do need to work together.
68. I'm determined to do that, and I know that the rest of the Government are determined to do so too.
69. I know that is possible; and I look forward to working with those of you here today, and with people from across the financial services industry here in the UK, to respond to the challenges that we're all facing; to maintain London's advantages; and to ensure that it emerges from the current turbulence strong, prepared, and ready to take advantage of the new opportunities that will follow.
70. Thank you for listening.