The past year’s public health crisis has provoked an extraordinary economic intervention by the Government. Only the most diehard of free market advocates have decried the approach. Instead, there has been a wide recognition, right across the political spectrum, that if the economy is to weather these unprecedented circumstances, ideology must be firmly set aside.
The acceleration of the COVID-19 vaccine roll-out means that there is now a light at the end of the tunnel. However, as normal life resumes in time, so will the battle over the future shape of this country’s economy.
The end of the past year’s economic ceasefire – means there is a great deal at stake. These risks are compounded by the fact they coincide with a newly independent UK, striding out into the global economy in the immediate aftermath of the Brexit transition period.
It goes without saying that against such a backdrop, much is up for grabs. There is an enormous opportunity before us to continue reshaping our approach to the economy. In so doing we must avoid the siren calls of both those looking to permanently entrench the emergency statist measures necessary in a health crisis, and on the other side those seeking to exploit the crisis to implement a hyper-deregulated, dog-eat-dog capitalism.
Instead we must build a vision for responsible capitalism – recognising that we must harness the power of the market to revitalise the economy and fund world-class public services, while ensuring that corporate actors recognise their obligations to society.
As Economic Secretary to the Treasury and City Minister over the past three years, I know that our world-leading financial services sector is ideally placed to showcase this responsible capitalism and help build an inclusive, stakeholder economy.
In recent years, our leading companies have increasingly recognised their obligations to society as well as to their shareholders. Corporate social responsibility (CSR) and environmental, social and corporate governance (ESG) concerns have moved centre stage, becoming a critical part of the corporate mission, not the fringe, box-ticking obligation of an earlier era. I welcome this development.
At the same time, we must guard against some of the worst excesses of what critics have termed as ‘woke capitalism’.
The ESG, responsible capitalist agenda needs to focus on inclusivity, not a divisive, identity politics-driven agenda that can be too easily caricatured as catering to a metropolitan elite and ignorant of the world outside the M25. While my job title is ‘City Minister’, I’m very much aware that the UK financial services sector is so much more than just the occupants of the Square Mile.
The Treasury is fully committed to not being too London-centric. I was delighted to see the Chancellor announce in the Budget that the first ever UK infrastructure bank would be based in Leeds and a new ‘Treasury North’ campus will be set up in Darlington. Ron Kalifa’s Fintech Review, commissioned by the Treasury, has also highlighted the importance of the network of fintech clusters across the country, in driving innovation and creating jobs.
The drive to champion responsible capitalism should not be taken as evidence of a lukewarm attachment to the wealth-creating, free market engine of our economy. It is a mistake to read this as ‘capitalism-lite’ or ‘diet capitalism’. It is instead a recognition of the wider societal obligations of corporate actors beyond the immediate bottom line and an appreciation that the interests of shareholders are enhanced by a more holistic view of the corporate mission. The Government has been on the front foot on this agenda and we will continue advancing these themes in the almost four years remaining of the parliamentary term.
In my area of the Treasury, our commitment to building a responsible capitalism can be most clearly seen in the Government’s support for financial inclusion.
In 2018, the Government established the Financial Inclusion Policy Forum which I chair alongside Pensions Minister Guy Opperman. We meet bi-annually, gathering together leaders from across financial services, the third sector, ministers and the regulator to keep the pressure up on this issue and to raise awareness of the importance of financial inclusion. At our last meeting in November, we had an important discussion around supporting those who are financially vulnerable as well as how best to get low-income consumers to access credit.
In addition, one of my proudest achievements in the Treasury has been the work we’ve done on helping those with problem debt. Working alongside charities such as StepChange and the regulators, the Government introduced Breathing Space. For those with the misfortune of finding themselves with spiralling debt, the scheme effectively stops the clock for 60 days. As well as freezing interest and preventing creditors from taking enforcement action, individuals also receive professional debt advice. It also allows those receiving treatment for a serious mental health crisis to be protected until the completion of their treatment. Regulations for Breathing Space have been fully approved by Parliament and will go live on 4 May 2021.
These crucial reforms would be important in ‘peace time’ but are even more pertinent now given the economic challenges we face in the wake of the COVID-19 pandemic. Guy Opperman and I published the Government’s second Financial Inclusion Report at the end of last year and it sets out some of the initiatives we have taken this year to advance the agenda. This included a commitment at the Spring Budget to bring forward legislation to give credit unions a bigger role in the provision of products and services to vulnerable people. It also highlighted the announcement last May of the release of £65m of dormant assets to fund Fair4All Finance to scale up access to financial products for those in financial difficulties.
While in the Treasury we are focused on building a model for responsible capital – it is undoubtedly down to financial services businesses to turn that vision into reality. There can be no doubt that if businesses are to truly serve a modern, vibrant society and understand its needs, firms must reflect the diversity of today’s United Kingdom.
A major part of my role has been to drive forward policies that seek to boost the inclusion of people from all backgrounds, throughout every level of the financial services sector, right up to the most senior. While there is still some way to travel, I’m pleased that we are starting to see a sea change. The last vestiges of anachronisms like the Old Boys’ Club are being consigned to the dustbin where they belong. Instead, businesses are wholeheartedly joining in with a range of initiatives that seek to increase the representation of the brightest and best people from all backgrounds.
I’m delighted that over 370 firms have now signed up to the Treasury’s Women in Finance Charter, that aims to help talented women to progress to senior roles. And late last year, the Government launched a new taskforce, along with the City of London Corporation, to boost socio-economic diversity in the industry and help those from lower income backgrounds to reach their potential.
I’m well aware, however, that if we are to build a true system of responsible capital, there is still much more to do. We need to ask ourselves big questions: What more can financial services firms do to tackle climate change? Can we make it easier for pension funds to invest to help us build back better and greener after Coronavirus? How do we boost the UK’s fintech sector while ensuring new technology doesn’t leave anyone behind?
The start of 2021 was always going to be an important inflection point for the UK economy. With the added imperative of getting the UK back on its feet after the pandemic, this year has now taken on even greater significance.
We need to be at the forefront of building a responsible, capitalist economy, with a vibrant financial services sector at its centre. Our goal should be to create a dynamic market economy that attracts the brightest and the best, but one that never loses sight of those in society in a much more precarious financial position.
We have made significant progress on this journey and I am excited about furthering this agenda in the years ahead.
John Glen MP is Economic Secretary to the Treasury and City Minister. This essay is published as part of the Social Market Foundation and Chartered Banker Institute’s Banking on Building Back Better essay series. The full set of essays is available here.