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Newsroom & speeches
23 September 2009
Good evening, thank you Jesper Kjaedegaard very much for your kind introduction and for inviting me to speak to you this evening. It is a great pleasure to be here at the inaugural Maritime UK annual dinner.
Financial Services, and the City of London, has been a source of economic growth and national comparative advantage for many centuries. We recognize the strength of our financial services is not merely limited to our banking institutions, but stretches out to include professional services, asset management, insurance and, of course, shipping.
I strongly welcome this new initiative to bring together the whole of the UK shipping services sector, from port operators and ship owners, to maritime lawyers and insurers. All are extremely important components in enabling the UK maritime industry. I support your ambition to widen the membership of Maritime UK.
There has been a tendency to forget just how important shipping is to the UK economy, and what a contribution it makes - according to the Chamber of Shipping, you contribute around £9 billion a year to the UK GDP and employ, directly and indirectly, over two hundred thousand people. I would like to assure you all that the Government recognizes, appreciates and values that which the maritime sector brings to the UK.
London's status as a global maritime centre, and with it the ability to make such a significant contribution to our economy, is built upon a combination of factors that are the result of both government and industry actions.
As such, it is especially important that the industry has come together under this umbrella, at this time of opportunity, to speak with one voice on all the issues that affect your diverse businesses. Maritime UK is a clear example of positive engagement between the government and shipping sector.
In reflecting on the important role that shipping plays in our economy, I’d like to explore the steps necessary to ensure the long-term health of the maritime sector.
As Government we have taken extraordinary action to stabilise our financial services – this is critical for the long-term success of shipping. And together, we are working collectively on shipping and climate change to ensure that we can achieve sustainable growth for generations ahead.
Over the past year I have chaired the Professional Services Global Competitiveness Group, the first joint Government-industry report on the professional services industry. As you will be aware, shipping was represented on the group by Andi Case, ensuring that the industry was an important focal point of the report.
The report showed that while the professional services sector faces discrete issues, specific to the sector, they are inexorably linked to the financial service sector, for which I have government responsibility.
As we have learnt in the recent financial crisis, what happens in our banking sector matters for the rest of the economy. It matters that we have a strong, vibrant and importantly, responsible financial system that creates and sustains value in our economy. London’s status as a global financial centre is a source of comparative advantage that yields benefits to other sectors, including, importantly, shipping.
I would like to echo Lord Levene’s recent comments that the UK financial services perform a vital function in the British economy; but there can be no going back to those practices that contributed to the global financial crisis. We need a step change in both the regulation and governance of the banking industry.
We need a strong, responsible banking system, focussed on delivering long-term value, not overnight profits that are ‘here today, gone tomorrow’ validated by models that can, at times, convey a spurious accuracy. The benefits of success need to be felt in the wider economy – not simply the bank accounts of the few.
We must not bury our heads in the sand. Banks have to rebuild trust – trust from their customers, funders, shareholders and regulators.
We need to reform and strengthen regulation – we have started this already and will introduce new legislation in the Autumn. We need to develop robust governance arrangements, with fair remuneration practises, and I look forward in particular to Sir David Walkers report on the issues of stewardship.
We also need to ensure that banks have sufficient capital - both quantity and quality, to absorb losses and support their customers.
First, on the issue of quantity, we need to ensure that banks are adequately capitalised to support economic recovery, and I envisage that this will require banks to retain more of their earnings and build capital buffers over time as part of new higher international capital standards recommended by the G20 and the FSB. Banks will not become self-sufficient, no longer dependent upon the support of governments, until they are strongly capitalized in the eyes of depositors, investors and regulators.
And the recent financial crisis has shown us that poor quality capital has failed in its primary purposes of absorbing losses. There needs to be a meaningful shift from exotic capital towards Core Tier 1 and Tier 1 capital.
Let me be clear, this is not about cutting the banking and financial services sectors down to size; we want to see a strong, confident financial services sector, acting responsibly and playing its part driving the real economy. I support well-regulated financial services businesses, creating value and serving consumers. Financial and professional services, across a broad range of activities, are a source of national economic strength and we want to ensure that remains the case.
This matters for you in the shipping industry; a healthy bank balance sheet will support lending and support economic growth. We know that the Professional Services Group reported that the shipping industry had been particularly hard hit by problems with bank lending, although we understand the situation has now eased a little.
Dry cargo and oil tanker rates remain depressed. This has an adverse effect on values – casting a pall over parts of the industry. There is a global phenomenon and one that can be best corrected by an improvement in global trade and economic activity. This is the argument we will advance at the G20 in Pittsburgh later this week.
There have been questions over banks’ behaviour with customers experiencing difficulties in managing debt. Deleveraging will take years. I expect banks to play a long game, acting responsibly to help customers manage this debt. Banks should make all efforts to support long-standing customers who act with integrity and show willingness to support assets and projects, and direct cash-flow to meeting obligations. Forcibly selling asset into depressed and illiquid markets rarely makes economic or financial sense.
The Government will continue to take action to ensure that competitively priced credit remains available. To this end, a number of large banks have given us commitments to lend an additional £50 billion to households and businesses. British banks are very much open for credit-worthy business.
Shipping is a cyclical industry – it always has been and many of you owe your success to your proven capacity to manage though cycles. The current cycle has been extreme, but we are now pulling back from the precipice. Banks are now raising and retaining capital; investor confidence has returned to the sector.
We recognise that bank lending is not the only source of funding to the maritime sector. We remain open to exploring new, innovative ways of revisiting ship financing with you, subject to initiatives passing the test of financial viability and economic value. I appreciate that you’re not looking for a subsidy but for fair treatment. I believe you would also recognise that the industry needs more long-term capital, primary equity but also bond-type financing drawn from the non-bank sector.
The PSGC group also set out a number of issues critical for delivering long-term success in shipping. The report recognised that the ‘Tonnage Tax’ continues to be a great success story. The tax has been a major factor in the revival and subsequent growth of the UK shipping sector, and the Government will continue to work and engage with you to maintain a stable and competitive tax regime for UK shipping.
The group’s report drew attention to the strong human capital of the UK maritime sector, and of the professional services sector as a whole. It is very pleasing to see that the shipping industry is actively forging links with higher education institutions; such forward thinking is vital for future skills development. The investment in people now will bear fruit in years to come, and will serves to only enhance our competitiveness.
The PSGC report recognised the success and international renown of the professional services sector. We must continue to value and recognise the achievements of this sector, and it remains essential for both industry and Government to highlight the quality and professionalism of the UK’s professional services industry and the importance this holds for the UK economy.
In developing a medium to long-term strategy I call on the maritime sector, as echoed in the PSGC paper, to show the ambition and drive which made the UK a global shipping leader, and to boldly set out a vision for how it intends the UK maritime sector to grow. The industry must lead in driving this, and the Government looks forward to engaging in this vision and lending its support.
The Chancellor will also importantly be responding to the PSGC and associated competitiveness reports in the autumn. In the meantime in Europe and at the G20 in Pittsburgh he will reaffirm the need for fiscal support to remain in place while the global recovery is embedded, whilst also reiterating our absolute commitment to reducing the government funding deficit over the medium-term.
As I am sure you will be aware, although shipping is one of the most energy efficient means of transport, climate change is the major environmental challenge facing the shipping industry today. It is in all our interests that we take this challenge seriously.
Emissions from the sector are expected to increase by two to three times over the next few decades.
If international shipping CO2 emissions are not included in a global climate agreement, and continue to grow as emissions from the wider economy fall; then by 2050 they could account for a significant proportion of the global total - as high as 13%.
It is therefore essential that emissions from international shipping are included in the global climate deal to be agreed at Copenhagen, and the UK government is working hard to achieve this goal.
We are pleased to see that industry is also constructively engaging with this challenge, working to make the global fleet more fuel efficient so as to simultaneously help the environment and reduce costs.
We welcome the fact that the UK Chamber of Shipping has publicly indicated its support of a binding global framework to address ships' greenhouse gas emissions. We are particularly pleased that the Chamber favours a cap and trade scheme as the preferred way forward, because this supports the Government's view that international shipping must operate under carbon limits. I look forward to working with you to ensure that we meet these challenges together.
Jasper spoke of the need for connectivity and the need for greater involvement. I agree, and I wish you well in broadening your membership to promote common action and emphasise the importance and potential of your combined industries.
The shipping industry continues to have the foresight to look beyond immediate difficulties and focus on long-term success – as evidenced by Maritime UK – and I support the steps that you are taking to invest in your industry. As I’ve set out today, action to meet the immediate financial challenges, and the pressing environmental challenges will be critical. I look forward to working with you at Maritime UK as you set out your vision for the future growth of shipping.
[ENDS]
