As Britain starts grappling with the unknown-territory of a coalition government, comprehending the enormity of the deficit, and considers the ructions across the eurozone, Four Broadgate posed the question ‘Where does the UK fit in the new financial services world order’ at its second Edinburgh breakfast seminar at The Balmoral Hotel at the end of April in conjunction with Scottish Investment Operations. As last year, the views of the Castle from the Holyrood Suite were pretty stunning, but more appealing was the view coming from the panel at the seminar: Andrew Clare, Professor of Asset Management, Cass Business School and Chairman of Fathom Consulting; Colin McLean, Managing Director of SVM; Harry Morgan, Head of Investment Management at Adam & Co; and Alan Thornburrow, CEO of Scottish Investment Operations (SIO).
Strikingly, Professor Clare argued that there was no ‘new financial services world order’. Business would not be going anywhere else and the perceived threat from the East was a long way off; he suggested the development of Shanghai as a major financial centre was 20-25 years away.
Colin McLean agreed that the UK has no real competitors, other than New York. And while some high earning hedge fund types had decamped to Geneva, that in itself would not seriously impact the overall health of the financial services industry in the UK. Longer term, Singapore and Shanghai had ambitions to become major global financial centres.
On regulation Andrew Clare felt that global regulation was not required. Instead, what was needed was agreement between the US and the eurozone. Harry Morgan added that the UK should be included at this ‘top table’. Colin McLean noted that the industry needed to raise standards higher than FSA requirements, as well as better manage the expectations of both retail and institutional investors.
In Andrew Clare’s opinion the current crisis was one of over-lending and over-borrowing. The real problem in his view was that the last ten years had been about expansion and the next ten years would have to be about the contraction of public sector debt. He cited Canada and Sweden as good examples of countries that had achieved this ‘expansionary fiscal tightening’, a phenomenon now faced by the UK. The cuts to the public sector were going to have to be painful – a point agreed by all of the panel; and he felt that a Thatcher-style character was required, although there didn’t seem to be an obvious doppelganger among the current crop of politicians.
Colin McLean said that an intervention from the IMF and a downgrading in the Uk’s credit rating were not out of the question when it came to the UK economy, and these would bring more decisive action in reducing the public deficit than the election outcome.
In summary, the view of our panel was that in the medium to long-term, the prognosis for the UK’s position in the ‘financial services world order’ was good. The City has a good track record of emerging from financial crises stronger than when it entered them. The financial services sector which currently employs more than a million people in the UK looked to be in good overall health. Our geography, language and time-zone all give us an advantage. Thanks to agencies such as SIO ‘upskilling’ is being taken seriously and should help us remain competitive. However, we are living longer, and the whole area of pensions is going to require some serious innovative thinking (that’s another whole blog in itself). As for the current health of the UK economy, it was generally agreed that decisive and potentially drastic action will need to be taken.