My Lords, Ladies and Gentlemen

Welcome to the UK Finance annual dinner. I always look forward to this event, and it is a real pleasure to see so many friends and colleagues here from our members, associate members and the wider community with whom we work. Once again, our dinner is sponsored by EY. I should like to really thank them for their support over many years.

A year ago, I recall describing how we had achieved significant progress with the government on a wide swathe of reform. And, I will be honest, I had expected that to be the high-water mark for us. Finally, a government that not only listened to the industry, but took action in order to improve things. Was it possible to achieve more in 2025? Would the government continue to listen? The answer to both questions has been a resounding yes!

In February, we decided to build something, with the help of all our members, which we called the Plan For Growth. It is a comprehensive plan, built with the assistance of over 150 member Chief Executives, and their colleagues.  It gives the Chancellor, and the regulators, a blueprint to kick start economic growth. 

Through this plan we are seeking to create a pro-growth operating environment in the UK. To ensure the financial system is fit for the future and to unlock financial services for consumers, businesses and society.  Our report contained over 60 practical recommendations, many of which were included in the Leeds reforms announced by the Chancellor in July.

Here are just a few examples of our success. I will start with changes to the loan to income cap, which will help many more first-time buyers achieve their ambition of buying a home. 

We had asked for the Financial Ombudsman Service to be returned to its original purpose as a dispute resolution service and, for it to stop acting like a quasi-regulator. The government agreed, and work is underway to address the necessary changes, both through DISP and, by means of legislation. I should like to see greater pace and focus but it is definite progress.

We asked for reform of the senior managers and certification regime, and we got a commitment to do this. 

We asked for the FCA to reconsider how the consumer duty applies to investment banks and, here too, we have made significant progress with the FCA proposing welcome changes.

We asked for a Financial Inclusion Strategy that is informed by both the financial services industry and consumer groups.  That strategy has just been published, and it includes a commitment to make financial education compulsory in primary schools in England. This will have immeasurable benefits for future generations.

Our plan for growth put forward the case for reform of the ring-fencing regime and we asked for further reform of capital requirements of banks of all sizes. Ring fencing is being reviewed and this is likely to yield changes. I will discuss capital in more detail in a moment.

These are just a few of the examples where, after many years of effort, we have made tangible steps forward on big issues. That’s without talking about payments and digital, where significant progress is being made, and industry has a real voice in the future shape of how money is designed and moved around. Payments alone could take up the whole of this speech!  

Back in 2022 I made a speech at this dinner highlighting the risk versus consumer protection conundrum and asked for a rebalancing. Seeing the government not only listen to this message but take, real, tangible action is fantastic and a testament to the hard work of my colleagues in UK Finance and our brilliant members. 

So, UK Finance and the industry should be really delighted with progress. Thank you, Lucy, and to the Chancellor, the officials and your predecessors for taking this so seriously and taking action. 

However, on capital, I think there is more to do. The Leeds reforms heralded a major review by the Financial Policy Committee of bank capital requirements. 

Prima facie this is great news but I know that the PRA are sceptical.  We have a very positive and constructive working relationship with the regulators and I remain hopeful that we will see some movement. I hope that the FPC think carefully about whether they have the balance right between regulatory safety and growth. We have submitted a paper to the FPC to aid their deliberations.

In that paper we remind them that in 2015, after reviewing the optimal capital levels in the UK, they said that equity in the system “had a little further to increase”. 

At the time the Tier 1 capital levels were 13.8%. They are now 17.2%. I wondered if there had been much asset growth driving this but in fact, assets are broadly stable with Risk weighted assets actually decreasing by £38bn over the past decade.

This matters because real world lending to business helps drive economic growth. Lending to businesses has increased by £425bn since 2015. However, much of this has been to larger businesses with SME lending growth being anaemic. 

I made some of these points recently to the House of Lords Committee on Financial Services Regulation. To be honest, this narrative has been evident in the data for some years. Two years ago, at our commercial conference, I highlighted that lending to SMEs had not kept pace with inflation. SMEs represent 99% of all UK businesses. So, why should we be surprised that growth in the economy has been weak? Some of this lower growth in SME lending has been driven by capital and risk appetite and, some by a reluctance on the part of businesses to borrow.

If a lender is faced with ever increasing capital ratios and associated cost, it feels inevitable that lending will be impacted. Add to that capital burden the procyclicality of IFRS9 driving expected credit loss calculations, is it any wonder that lenders have been circumspect when thinking about credit risk?

The Basel Committee themselves estimate that each one percentage point increase in capital costs around 0.17% in GDP. We estimate that the upward drift in capital has cost the UK roughly 0.6% GDP growth per annum. We further estimate that the system wide increase in Core Equity Tier 1 of £54bn is the equivalent to lost mortgage lending capacity of £2 trillion or business lending of £1 trillion.

Some of you might raise an eyebrow at these numbers but GDP per capita is the same now as it was 17 years ago and the credit to GDP ratio is the lowest it has been since the 1970s.

Yes, you might say, but that surely this had to happen because of inherent risk in the balance sheets of lenders?

 Well, not necessarily. Remember that since 2015 we have introduced Basel 3.1, stress testing, ring fencing, the SMCR, the UK corporate governance code and, enhanced resolution including MREL. All these reduce risk and strengthens the system considerably. 

But there is more. Complementary systems such as the Bank of England’s liquidity framework, macroprudential housing tools and the FCAs conduct regime have reduced systemic risk across wholesale and retail markets.

With that structural dampener on risk appetite is it any wonder that UK economic growth is weaker than we would all like? What is in it for a firm or indeed an individual in a firm to take additional risk? Is it any wonder that we have seen increased financial exclusion?

We don’t operate in isolation in the UK and the argument has been put to me, by regulators, that we compare favourably internationally. 

Both the US and EU are actively reviewing capital requirements to minimise gold-plating to support growth and competitiveness.

Specifically, the new US administration has signalled changes to three components of the regulatory capital framework, to remove unnecessary drags on growth. While the detail of most of these changes remains unclear, the aggregate effect is expected to reduce the capital requirements of the largest US banks significantly. 

This follows a recent stress testing exercise that yielded a reduction of $54 billion in CET 1 in aggregate. The way the US appear to be going to implement Basel 3.1 will also help promote growth.

Now, no one wants some kind of knee jerk swing to a much higher risk environment, or a regulatory race to the bottom. What we seek, is a data driven and reasoned debate that acknowledges what is obvious – the capital and associated regulatory regime is inhibiting lending and growth. We need to find a way to unlock the UK’s potential for the sake of the whole country. Capital is a good place to start.

Capital is necessary to protect against risk but when taken too far it can overcompensate and cause different problems. I would argue that is also true for corporation tax.

Each year we produce a report on tax in the banking sector which we share with treasury and ministers. The industry has an effective tax rate of 46.6%. 

For our specimen bank the base level of corporation tax is 25%. There is then a surcharge added just because it is a bank, and then a further levy just because it is a bank. This is all before national insurance and other employment costs and irrecoverable VAT.

Bank taxation is an emotive subject but my argument is that a healthy,  growing, banking sector produces high quality jobs. 369,000 jobs at the last count. The banks directly, and the colleagues they employ, together account for £1 in every £25 raised in tax. Put another way that is £120m a day or enough to pay for all of the following departments:

• Ministry of justice

• Culture media and sport

• Business and trade

• Science innovation and technology

• Energy security and net zero

• Environment food and rural affairs

And, Lucy, you will be pleased to know we also find enough to cover the Treasury on top!

The jobs that allow this to happen are mainly located outside London in places like Belfast, Manchester, Leeds, Glasgow and Birmingham. 

Our report doesn’t just look at UK bank taxes, it compares us with Amsterdam  at 42%, Frankfurt at 39%, New York at 28% and Dublin at 29%. 

The Chancellor is faced with some tough choices on the 26th and the industry is proud to play its part in financing the important work of the government. All I ask is that we pause, and in the same way we need to think carefully about capital we do so about taxation.

 We need mechanisms to attract investment, not drive it away. We need growth in living standards and GDP to provide enduring prosperity, rather than short term quick fixes. The action taken in just over a week will be a key factor in determining our direction of travel.

I want now, to go back to where I started and talk about good stuff. In his opening remarks Bob highlighted our incredibly strong stakeholder survey. I think that is testament to the effort we make to behave collegiately. We always strive to be balanced, trustworthy and fair in everything we do. I think our colleagues and friends in the key stakeholder groups see that and respect it. 

I think it helps us influence the debate for good and we try very hard to look beyond the industry at the impact upon society. Our team is motivated to behave in that way, and I want us to build on this further.

We represent 300 brilliant businesses in an industry I have been lucky enough to call home for almost 48 years now. Our member survey has strengthened, and the successes I outlined earlier, demonstrate the really close relationship we have with them all. We only have 300 members, but we have over 13,000 colleagues in member firms helping us refine ideas, produce data, and do good things for the UK.

My team facing off to those13,000 numbers only 230 and I want to pay tribute to those hard-working colleagues, a few of whom are in the room this evening led by my executives  Alastair, David, Jana, Ben, Simone, Eric, Lee and Sarah.

It is such a pleasure to be in a position where we the government and regulators are really listening and acting to help the industry drive growth. If we can continue this team work the future could be very bright indeed. 

Thank you.