© Stocksak. Rishi Sunak, Britain’s new Prime Minister, returns to Number 10 Downing Street, London, Britain, October 25, 2022. REUTERS/Hannah McKay
By Iain Withers. Lawrence White. Huw Jones.
LONDON (Stocksak), – Senior finance executives have welcomed Rishi Sunak as prime minister after seven weeks of financial missteps that have ruined Britain’s reputation.
Sunak is a well-known figure to British banks, asset managers, and insurers. He was previously the head of the country’s finance ministry during the COVID-19 pandemic.
Finance bosses hope that his new administration will have a steadying effect on markets. After Liz Truss’s tax-cutting plans spooked investors, it sparked a chaotic sell off of government bonds which forced the Bank of England intervention.
Stocksak was told by Miles Celic (chief executive of TheCityUK), that policy stability is essential. “An unhelpful and constant swing of the pendulum in policy is something that can happen in any country.
Celic said that finance chiefs want Sunak’s spending on infrastructure to be balanced with an easier immigration policy for skilled workers, and to invest in education.
According to HSBC’s boss in London, Sunak must also keep Britain competitive globally.
Stocksak was told by Noel Quinn, CEO of HSBC, that there are areas where he believes there is potential to improve competition. He also welcomed recent efforts to integrate competitiveness into regulators’ objectives.
Bankers are concerned by plans to collect more taxes from banks under the current finance minister Jeremy Hunt. This decision is expected to be made before fiscal plans are released on Oct. 31.
Business groups have long advocated tax cuts. They argue that the country’s tax system is not competitive for banks. It has both a levy in balance sheets as well as a tax surcharge.
Analysts say that Sunak’s promotion to the top job has eased some of the anxiety around the outlook for UK’s economy. It has boosted domestic markets and reduced borrowing costs.
“There is a lot of concern in the City about the UK’s reputation as sound policymaking, but there is still scope for a reset,” stated William Wright, CEO of New Financial.
Sunak is widely expected to keep Hunt as his finance Minister. Hunt was appointed late during Truss’ brief premiership in order to boost confidence in Britain’s finances and cut down on her planned tax-cutting agenda.
One senior banker based in London at a global bank expressed hope that they wouldn’t have to spend as much time explaining Britain’s political turmoil to international colleagues.
The actions of the Conservative party, along with the Bank of England’s earlier intervention in bond markets to calm them, showed that Britain had “built-in systems to correct itself”, which would provide some reassurance to the international community.
Sunak stated that he had become prime minister shortly after his speech outside 10 Downing Street. He said that he wanted to create an economy that “embraces Brexit’s opportunities”. This hint suggests that more deregulation could be in the future.
After Brexit, Britain’s 164 billion-pound ($185 billion), financial industry was almost completely unable to serve EU customers directly.
According to parliamentary research, the exports of financial services from Britain into the EU declined 19% in cash terms, between 2018 and 2021. This is compared to a 4% increase in exports to non EU countries over that time.
Sunak, a former Goldman Sachs (NYSE.) analyst and hedge fund partner, has previously described his thoughts on the financial sector in detail. A new bill is currently being considered by parliament.
It introduces regulations on stablecoins as well as easing capital rules to insurers. Additionally, it gives regulators a new objective for competitiveness. Industry is pressing for a rapid implementation.
“Delivering on the secondary objective for the financial regulators to promote growth and international competitiveness in the Financial Services and Markets Bill will support this agenda,” said Chris Hayward, policy chairman at the City of London Corporation, which runs the ‘Square Mile’ financial district.
Kwasi Kwarteng, Liz Truss’ finance Minister, promised to go further in order to “unshackle” City of EU rules by making insurance capital rules more flexible than planned. A source from the finance ministry said last week that an additional package of measures was still in the works.
There is little evidence that Kwarteng’s unfunded tax cut package will lead to a crisis in the pensions industry, which may put an end to further radical changes to insurance regulations.
However, the BoE has resisted plans for the finance ministry having the power to veto rules created by the Bank of England or Financial Conduct Authority.
Kwarteng’s initial push towards more radical measures – such as scrapping an EU derived cap on banker bonus – have survived political turmoil for now.
However, lowering corporate taxes and eliminating a levy from their balance sheets along with making it easier to hire talent from overseas don’t seem to be in the cards. Hunt is actually considering a tax raid against banks.
Wright of New Financial said, “There could possibly be a political statement by Sunak and Hunt that tells banks ‘You are important to the economic system, but we have bills’.”
Hunt will confirm the current surcharge on bank profits at the end of this month. Any attempts to collect more tax from banks will likely be met with opposition from the industry.
“We don’t have any divine right to success. Celic from TheCityUK said that we need to protect the things that are the foundation of the UK’s success in international financial centres.
“We are eager to work with government to make sure we move forward in the right direction, in a positive as well constructive manner.”
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