Labour in the City Chair: Labour needs to be a long-term investor in the City

At the start of the year Rachel Reeves MP set out Labour’s plan for a stronger economy and how it would address the key economic challenges facing the UK in the 21st Century.  Any Labour Government will inherit limitations on public expenditure which will restrict its ability to finance reforms.

Attracting private capital will therefore be essential to achieving these objectives. Here are three ways in which Labour can do so.

First, meet the City halfway on ESG.

Contrary to the caricatures of the Labour Conference fringe, most people in the City tend to care about the future of our planet in the same way as other people. ESG increasingly affects how and where investors deploy their capital and this trend is re-shaping how the banking, asset management and insurance sectors operate.

Enhanced climate related disclosure requirements have been a significant driver of change in the FS sector to date however similar reforms of corporate climate disclosure have not kept pace.  Providing the City with better data on ESG is necessary for the efficient allocations of capital towards more sustainable business models. 

Politicians of all stripes have done little preparatory work to prepare businesses for this necessary step in the transition towards Net Zero. Leading this debate will show investors that Labour understands their need for better data and will also help align their capital with Labour’s climate goals.

Second, re-establish the partnership between Labour and the City

While the City is by no means perfect it is a vital asset for the UK economy and our international competitiveness.  Our FS sector attracts capital from both domestic and international investors which is then invested by our world leading asset management, banking and insurance sectors. The City contributes more than 10% of Government tax receipts and employs over 2.3 million people across the UK. Financial services are also one of the few sectors of the economy where the UK has a strong comparative advantage over other countries.

The last Labour Government adopted a shrewd approach towards the City that recognised the need to support this valuable asset. Measures like granting independence to the Bank of England showed a seriousness to this question that is lacking across the strategic challenges facing the City today. For example, how might AI shape the way in which we deliver financial services? Should the UK embrace digital assets or give them the cold shoulder? How will hybrid working affect the concentration of jobs in the square mile?

Doing the hard yards on these questions and having a serious policy towards the City’s competitiveness will help our financial centre thrive and boost the capital available to meet our Party’s objectives. 

Third, unlock new sources of finance for the high street

When people put money aside in their pensions or savings account the main recipients of this investment that flows from their savings are larger listed companies. There are few mechanisms available for individual savers to invest in UK SMEs or start-up businesses despite the obvious attractions this might hold to them.

In the US, retail investors finance small and mid-sized businesses to the tune of $163bn and reforms to stimulate greater retail investment in SMEs are also underway in Europe.  This finance will help US and EU businesses invest, innovate and create jobs. Creating a comparable market here will provide UK business with the same levels of financial support and their US and EU competitors.

While such investments won’t be suitable for all retail savers, risks can be addressed and mitigated in regulation.  Developing a market for those that do want to invest will also be an apt demonstration to voters of how the Labour Party can help the financial sector support the real economy.

These are just three areas where Labour can encourage private capital in support of its agenda.  

Labour is often first to call for more long-term investment in the City.  On this occasion it should take its own advice. 

Nick Smith
Chair, Labour in the City

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