Thursday 1 November 2018 8:06 am

We must turn the page on the public perceptions of finance


A company needs to stand for something more than making money. Sustainability matters more than profit. The mission should be a lasting contribution to society that finds a balance between all stakeholders.

Those aren’t the words of a pious left-wing hand-wringer but of John McFarlane, chairman of Barclays, in an anthology of writing published this week examining the challenges facing the banking sector a decade on from the financial crisis.

The anthology, produced by Labour in the City, brings together a number of influential financial voices – including Xavier Rolet, former chief executive of the London Stock Exchange; Craig Donaldson, chief executive of Metro Bank; the economist Ann Pettifor; and Simon Lewis, head of the Association for Financial Markets in Europe.

While each of them offers a subtly different perspective on the cause and impact of the 2008 credit crunch, a common thread runs throughout: the financial services industry is still struggling to win back the confidence of the public, and of politicians.

The demise of Northern Rock, the collapse of Lehman Brothers, the nationalisation of Lloyds and RBS may be 10 years ago, but they were such an existential shock to confidence in the sector that in the public memory they remain fresh.

An enormous amount of work has since gone into reform – not least the ring-fencing system separating retail and investment banks, the creation of a comprehensive bank resolution regime for failures in the UK and Europe, higher capital ratios, and a curtailment on the degree to which banks trade on their own accounts.

Yet the public isn’t convinced. A YouGov poll published in August found that 66 per cent of people do not trust banks to work in the best interests of society, and 72 per cent feel that they ought to have faced tougher penalties over the causes of the credit crunch.

That perception gap between the Square Mile and the rest of the nation needs to be narrowed.

Whether left or right, it doesn’t make intellectual or practical sense to be blindly “anti-bank” – the financial services industry contributed £27.3bn to the Treasury in taxes in 2016/17, and made a total contribution to the economy of £119bn in 2017.

The industry employs 3.2 per cent of the UK workforce – it’s a cornerstone of our economy.

Some, including Pettifor, argue that far more radical reforms are needed to prevent a recurrence of the 2008 crisis.

Global debt has risen from $142 trillion to $250 trillion over the last decade, banks continue to speculate in often opaque financial instruments, bonus pools remain a bone of contention, and a shadow banking system, outside the scope of many forms of regulation, has grown into a $160 trillion business.

Above all, a lack of “closure” in resolving the debate around the credit crunch bothers many people working in financial services, both senior and junior. Nobody wants their industry to be held in low public esteem.

That’s one reason why, this week, 200 workers drawn from the financial sector attended a Labour in the City discussion at the Guildhall, in the heart of the Square Mile.

Chaired by Alistair Darling, who was chancellor at the time of the crisis, the event launched the anthology of “10 years on” writing and sought to continue a discussion about how banks can regain trust.

It was the largest event yet organised by Labour in the City, an independent network for Labour supporters in finance, and it belies the myth that those working in the sector are all Conservatives.

In fact, political plurality flourishes in the Square Mile – this is, after all, a place where the working population is overwhelmingly young, multicultural, and socially liberal. Many City workers are relaxed about immigration, alarmed by the prospect of a hard Brexit, and concerned at the impact of austerity.

Certain areas of Labour’s policy platform – including the nationalisation agenda and a financial transactions tax – are contentious.

Others – including reconsidering the mandate of the Bank of England, the establishment of regional development banks and of a national investment bank to direct capital beyond the south east and the real estate sector – are generating a lively and constructive debate.

Thomas Piketty’s 2013 book, Capital in the Twenty-First Century, kickstarted a broad discussion about responsible capitalism and inequality. Adam Tooze’s “Crashed” weighed in this year by arguing that the financial crisis never ended – and that we are in an era of constant financial upheavals.

The page hasn’t yet turned: there are more lessons yet to be learned from the events of 2008, in how to rebuild public confidence in finance.