Cicero Policy Briefer

Issue 2, July 2006

A long hot summer ahead for the financial services industry

By Terry Paul

As we approach the parliamentary recess and with it, the onset of a long, hot summer, some holiday rucksacks might be a little too top heavy with DWP pensions and welfare reform consultation documents, along with the odd report from the Commons HM Treasury and Work and Pension Select Committees. (Am I the only one who, halfway up a mountain and days from civilisation, still gets strange looks from other vacationers as I digest page 54 of the latest Government tome?)

For many ministers and parliamentarians, though, this year’s traditional ‘summer reading’ by the pool should be supplemented by a blank sheet of paper – to enable them to collect their thoughts on how the Government will recapture its ‘touch’.

The Government’s media presentation has recently left much to be desired, what with a very bad set of local election results and recent unfortunate ministerial events, and will surely be asking itself: ‘How could it go so wrong?’ Beyond the media storms which now seem to blow in on a daily basis, it is true that the Government has made positive differences to many people’s lives: through sustaining a strong economy, the implementation and increase of the minimum wage and lifting 1 million children out of poverty. Nevertheless, we can all point to recent examples where the Government has not, to use its own political lexicon, ‘delivered’.

Based on the OECD May 2006 economic outlook, the Government’s deficit has now exceeded 3% of GDP for three years in a row. This may require a bit of fiscal tightening to rectify the situation, which goes some way towards explaining recent cuts to various departmental budgets, and especially the delay in implementing some of the main planks of the Governments pensions reform agenda.

We in the financial services industry might well be asking what the future holds, particularly regarding the current raft of policy initiatives which concern us: the pensions reform agenda, welfare reform and the improvement of skills.

The Pensions Commission highlighted the 8-10 million non-savers across Britain, and the Government has sought to build upon the so-called ‘consensus’ in proposing Personal Accounts, as well as through its financial inclusion taskforce and the FSA’s Financial Capability project, aimed at tackling financial inequality. I believe that the forthcoming agenda from a post-Blair New Labour government will be an intensely political one, with ‘red meat’ being offered to the Government’s core and wavering supporters: respectively, Daily Mirror and Guardian readers!

What next for the financial services industry? A significant proportion of the Government’s problems can be traced back to policy overload and poor implementation, with insufficient time allowed for the policy to grow. I believe that the next phase of Labour in government will be about the execution of workable solutions, rather than merely policy for policy’s sake. After nearly a decade in power, it’s less plausible to continue blaming your predecessors – so you might as well fix the problems yourself! Therefore, as we pack our beachwear and do our own thinking, perhaps we should seek to generate and implement innovative solutions to the UK’s financial service issues and problems; perhaps it’s time to slay old shibboleths and think about the future, size and shape of tomorrow’s UK financial services industry.

The potential of 10 million new pension retail savers, inflows of £6-£8 billion per annum into Personal Accounts from 2012 and the inevitable changes to the current structure of the UK pensions industry should focus all our minds, and our corporate messages, on how we deal with a revitalised Government and its new leader, both keen to flex their reforming zeal.

Terry Paul can be contacted on +44 (0)20 7665 9533 or click here to email.

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