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Newsroom & speeches
23 November 2004
I’d like to thank the British Bankers Association for inviting me to speak today. I am delighted to be here.
Nobody here needs any reminder from me that a strong and successful retail banking industry lies at the heart of every modern, dynamic economy. The effectiveness and competitiveness of the economy depends to an increasing extent upon the quality and availability of an ever-greater array of retail banking products and services.
The Financial Services industry as a whole makes an enormous contribution to Britain’s prosperity – generating £50 billion pounds worth of wealth every year, providing work for over one million people, and accounting for 5 per cent of total UK output. It is vital for us to ensure that the UK remains a pre-eminent financial centre.
It is a fundamental obligation of Government to achieve and to lock in the stability that businesses and individuals need to be confident about investing for the future. So the Treasury’s priority has been and will remain to secure stability and steady growth.
Through our monetary policy framework we will continue to deliver the low inflation outcomes that are one of the most tangible and long-lasting achievements of this Government. Throughout the whole of the nineteenth and twentieth centuries, we have never had a period of uninterrupted growth in the economy that has lasted as long as the current one has. Since 1997, the UK has had the most stable economy in the whole of the G7 – bar none.
The key, in our view, has been a small number of vital changes which we have made:
We have also focused on the need to foster the competitiveness and efficiency of our capital markets. And, importantly, to ensure that the regulation of financial services strikes the right balance between the protection of consumers and the competitiveness and capacity for innovation of the financial services industry. Those considerations led us to introduce a single integrated regulator in the Financial Services Authority; a single financial ombudsman service; and a single compensation scheme.
Building on those foundations, it is a major priority for Government to promote saving and asset accumulation. Its a challenge for us, but its one we share with you. So between us, we need to do more to improve financial education and capability. We need to ensure that individuals are empowered in their decision-making, and can access the financial services industry and engage with it with confidence. Finally, we need to encourage saving opportunities for all, providing the right information and incentives for people to save.
We are committed to tackling financial exclusion. I feel very strongly about this. Every day I travel from my constituency in East London to Westminster, and pass the Isle of Dogs. It has become a fantastic centre of expertise and skill, the heart of one of the most competitive and sophisticated financial service sectors in the world.
But for too many of my constituents, and far too many of those living within sight of Canary Wharf, that superb industry provides them with nothing. Access to financial services for them still means loan sharks and cheque cashing shops. It is not in the interests of this industry that this gulf should remain.
Financial exclusion means having to pay out more than everybody else, through for example high cost credit and cheque cashers, and the inability to make savings via direct debits on utility bills. It can lead to over-indebtedness and further social exclusion. Together we need to do more to assist those who have been underserved by financial services.
The Spending Review White Paper in the summer reinforced our commitment to tackle financial exclusion. We will establish a new Financial Inclusion Fund to support initiatives to tackle the problem. We will set up a Financial Inclusion Taskforce to monitor progress on three key priorities:
Beyond improving access to basic finance, we need people to be more informed and knowledgeable in their engagement with the financial services industry. Education puts consumers in a position to make informed choices and manage their finances better. It will also sharpen competition, in turn encouraging innovation, raising quality and improving value for money
The FSA has established the Financial Capability Steering Group to develop and implement a national strategy for financial capability. The aim is to provide consumers with education, information and generic advice so that they can make their financial decisions with confidence. And to take full advantage of the range of knowledge and expertise in the industry in doing so.
We are working to improve children’s financial capability. We have introduced personal finance education as a non-statutory part of the national curriculum for schools in England. Many schools are now delivering personal finance education. Mike Tomlinson’s recent review of the 14-19 curriculum, building on work I was responsible for as Schools Minister after the last Election, has been right to recognise the scope to develop it further as a robust subject, and to support teachers to deliver it.
And we are working, with the industry, to provide financial products that are easier for people to understand. The Sandler review pointed out the lack of confidence among consumers in engaging with the financial services sector.
So we are pioneering new approaches, like implementing Ron Sandler’s recommendation for a suite of simple savings and investment products from April next year. This stakeholder initiative will provide consumers with more simple, transparent, low-cost products for short, medium and long-term savings.
We also want to do more to incentivise saving, particularly for those sections of society who need it the most. ISAs have been successful – with over £150 billion subscribed since their introduction five years ago. They are a flexible, accessible product, and they are popular – around 16 million accounts opened so far. Relative to PEPs and TESSAs, which preceded them, they have been more widely taken up by younger and less well off people, as we had hoped.
And we want to build on this – and to innovate in the ways in which we target our incentives. Over the last few months, we have been piloting the Saving Gateway, where we have matched the savings made by individuals. The pilots are providing valuable information on saving behaviour, ton he effectiveness of matching savings funds, rather than using tax-relief, and on the role of financial education in helping people to save. We are looking forward to the final evaluation report early next year.
Next year will also see the introduction of the Child Trust Fund: to help build a savings culture from birth. I see this new measure as ground breaking and optimistic. It is a step towards a new progressive consensus, a chance, through a partnership between Government and the financial services industry, to enhance opportunities for a future generation of young people and also to develop financial capability and a responsible culture of saving among them from their earliest years. It is an opportunity too, for the industry, to build a relationship with individuals from an early age – and with their extended family as well.
So we have taken important steps over the last few years. We are pioneering an approach to welfare that is universal, progressive and asset-based. We are committed to encouraging individuals to recognise the opportunities for saving and investment, including those who would never have dreamt of making an investment in the past.
I know there is particular concern here about European regulation. 40 per cent of all new regulation, and as much as three quarters of new financial sector regulation, now comes from Europe. We think we have done a pretty good job in the negotiations on behalf of the retail-banking sector, and you have made it possible for us to do so. We won the battle for a Savings Directive against tax harmonisation, and we have insisted on changes to:
We are currently negotiating a series of European dossiers from the Capital Adequacy Directive to the New Legal Framework for Payment Systems. We know that we need to work closely with the industry in pressing our case.
Finally, on European regulation, I would like to say a few words about financial services integration, and our future priorities now that the majority of the FSAP measures have been adopted. FSAP, by the way, is the Financial Services Action Plan. I expect that everyone here knew that, but I didn’t until my return to the Treasury two months ago!
The top priority needs to be consistent and effective implementation of existing financial services measures throughout the European Union. We won’t get the benefits of a genuinely liberalising effect otherwise.
In the UK, as elsewhere, the implementation of the FSAP into national law presents a significant challenge for both the Government and firms. We are determined to ensure that implementation is effective, proportionate and consistent – it has to be if we are to capture the potential benefits from the FSAP, while preventing the unnecessary burdens to business that we are all keen to avoid.
So earlier in the year, jointly with the FSA and Bank of England, we published a document entitled Delivering the FSAP in the UK, aimed specifically at giving the industry guidance on implementing the FSAP, and at helping UK-based financial service firms deal with the impact on their businesses and to prepare for compliance.
We are also determined that the lessons, post-FSAP, are learnt and applied to future EU work on financial integration. Including the need for full consideration of the alternatives to regulation, and on the need for better regulation where regulation is indispensable. And on the need for financial regulation to take full account of the global nature of financial markets.
Last May, we published a document setting out our priorities for a future financial integration strategy – encompassing these aims. We have been very pleased with the response we have received from the industry, and from the British Bankers Association in particular. Thank you for the way you have worked together with us on this.
In all the work we have done in financial services since 1997, there have been some key themes:
These principles have given us a coherent approach to policymaking for the industry…. an approach that will continue to influence all the future work we do. We are seeing very good benefits at the present time from working closely with this industry, and with this Association in particular, and I am looking forward to our continuing to work closely together in the future.
Thank you.
