HAMISH MCRAE: Chancellor Rishi Sunak’s new golden age for City
HAMISH MCRAE: If the Chancellor’s plans for the city are carried out well, it could usher in a new golden age for British finance and benefit the economy
The City is back to business. The physical proof is that in a few weeks the offices will be fully open – although we are waiting to see how many people will actually be back there full time.
But before that, business also picked up. This is the best six months for company IPOs in six years, with 49 companies put on the market and a total of £ 9bn raised.
Other signs of life include London’s recovery of some of the financial activity that has slipped to Europe, regaining the top spot in European equity trading from Amsterdam.
Looking to the future: we must wait and see how the plans outlined by Chancellor Rishi Sunak to free British finance from European regulation will work in practice
The city’s office sales market picked up with a series of deals struck over the next few months as investors felt more space was ultimately needed.
Rishi Sunak has just announced that the government plans to launch at least £ 15bn of ‘green gilts’ from September. The idea is that funds are raised specifically to finance environmental projects. These would include clean transport, renewable energy, pollution prevention, etc. It should also help develop the market for financing private sector green projects.
Green finance appears to be a huge area of growth, and so far London is lagging behind Paris. France has already issued more than $ 40 billion in public green debt.
You could say that raising an additional £ 15bn for green projects is a drop in the bucket for a UK government which ran a budget deficit of £ 300bn last year. But if investors are keen to buy debt for environmental projects, it makes sense to make it available.
If this stimulates a larger market, that must also be a good idea. But will this awakening of the City and of financial services more generally be sustained?
There will be two things to look for throughout the fall that will give us clues as to what lies ahead.
The first will be the successful return to the office. No one knows how important it will be to physically bring people back to one place until we do. There is no precedent to guide us.
Banks around the world all have plans – they must have them. But they differ, and they continue to be changed. Thus, the largest French bank, BNP Paribas, claims that it will allow some of its employees to work from home half the time.
HSBC, the UK’s largest bank, is considering some sort of hybrid model and plans to cut office space by up to 40%. On the other hand, Jamie Dimon, chairman of America’s largest bank, JPMorgan Chase, thinks that: “In September [or] October it will look like it was before.
This is a global problem, but my hunch is that Jamie Dimon will be more right than his competition. Not only will the most ambitious staff show up at the office; financial institutions that get their employees back will outperform those that allow many of them to work from home. If so, it will be good news for the City. It will soon be once again the vibrant and prosperous place it used to be.
The second thing to look for in the fall will be how the plans outlined by Rishi Sunak last week to free UK finance from EU regulation will work in practice. The Chancellor suggested he had given up on trying to gain UK financial services access to Europe – something called equivalence, which means our regulations are seen as equivalent to European regulations. Instead: “We now have the freedom to do things differently and better, and we intend to use it fully,” he said. To reverse the popular adage, it’s “If you can’t join them, beat them”.
It’s a huge strategic decision. I think this is the correct one for two reasons. First, Europe is becoming a smaller share of the world economy every year. So much the better to focus on growing markets. It requires a balance.
I liked the Chancellor’s comment on China, the biggest growth market of all. He stressed that China is “both one of the most important economies in the world and a state with fundamentally different values from ours.” We cannot ignore it, but must move forward cautiously.
Second, it is part of the history of the City. It was regulatory freedom that led to the revival of London financial services from the 1960s, with the development of the Eurodollar markets and the Big Bang reforms in 1986.
Done well, it could usher in a new golden age for UK finance – and huge benefits for the UK economy.