November 2022 • Topic: Making a better case for capital markets • by William Wright
At New Financial, we believe that banking, finance, and capital markets can and should be a force for social and economic good. At a time when the economy needs all the help it can get, the industry has a powerful role to play in supporting a recovery. But in order to fulfil that potential, it needs to better engage politicians and the wider public. A good place to start is a new narrative that frames the value of the industry in terms of the impact it has on the wider economy, customers, and the everyday lives of millions of people in every corner of the UK.
New Financial is a social enterprise that relies on support from the industry to fund its work. To request a copy of the paper, please click here.
>>> What is the problem?
For everyone working in the industry, it is self-evident that it plays a vital role in channelling investment into the economy to support jobs and growth, and helping millions of people manage risk and save for their futures. But to most people outside of the industry, what goes on in the City of London every day and what the industry actually does is complex, abstract, and remote. The further you get from London, the less relevant the industry may seem. Most people and most politicians do not trust the industry, they do not understand it, and they do not engage with it. This presents a huge political and economic risk – and a big opportunity. To ensure the industry can fulfil its potential and perform its important ‘day job’ of supporting the wider economy, it will need the buy-in and support from politicians, customers, and the wider public. A good question to start with is ‘why should my mother care about what this industry does?’
>>> What is wrong with the current narrative?
The industry has traditionally talked about itself in terms of itself (‘we make an important contribution to the UK economy because we employ a lot of people, and we pay a lot of tax’) and prefers talking about big abstract numbers than smaller but more relatable ones (‘there are £10 trillion of assets under management in the UK’). Of course, the industry is a vitally important sector in its own right and is a rare example of a world-leading industry based in the UK. It employs around 1.1 million people across the UK and generates more than 10% of tax receipts.
But this narrative can reinforce the abstract nature of the industry and a sense of ‘otherness’ to many people. It suggests that the industry sees its business as an end in itself and misses the opportunity to engage with people about what investment banks, or insurers, or asset managers actually do, and the impact they have on people’s everyday lives. Less charitably, it can sometimes sound too much like ‘you may not like us, but we pay for your hospitals’.
>>> Why should you care?
It may be tempting for the industry and for individual firms to think they can keep their heads down, focus on the day job, or adopt the ‘Millwall defence’ of ‘nobody likes us, we don’t care’. That would be dangerous. Changing the way in which the industry talks about itself goes way beyond putting a positive spin on what it does. Finance operates in a highly regulated and politicised framework, and that framework is set by politicians who are in turn influenced by the views of their voters and social norms. Like it or not, much of the public’s sense of inequality and anger with capitalism, big business, and the elite is channelled towards ‘the City’. This makes the industry an easy political target.
>>> Why now?
During the Covid crisis, the industry showed for the first time in more than a decade that it was part of the solution rather the problem in supporting millions of companies and individuals through the pandemic. The economy needs all the help it can to rebuild, and the industry has a rare opportunity to reset its relationship with politicians and wider society for decades to come. In the midst of three crises – the economic crisis, the cost-of-living crisis, and the climate crisis – the industry has an opportunity to demonstrate how it can make a tangible difference. It also needs to think about how best to engage with a potential Labour government with a different political agenda in the next few years.
>>> What would a new narrative look like?
A new narrative would be far more focused on the industry’s day job, its underlying purpose, and the impact of what it does on the everyday lives of millions of ordinary people in every corner of the UK. It would highlight how the industry oils the wheels of the economy more than how it benefits from doing so. It would be framed in terms of how the industry helps its customers and clients achieve their goals rather than on the headline outputs from the industry, and it would be more focused on outcomes for the industry’s customers and end users than on outcomes for the industry itself. It would reference the industry’s direct contribution in terms of employment, contribution to GDP, and tax receipts, but more as a happy consequence of its day job than as an end in itself.
It would use simple, accessible language rather than jargon; smaller and more tangible numbers instead of abstract billions or trillions; and include concrete, local examples that people across the country can relate to. In short, it would engage people by showing them – rather than just telling them – why the industry matters to the UK economy, to their local community, and to their everyday lives.
>>> A starting point for discussion
One challenge for the industry is the ‘Tale of Two Cities’. It is important to separate the ‘domestic’ role of the industry (supporting UK companies and investment) from the separate but related international role of the City (as a host or venue for ‘international activity’). This poses two separate issues: first, a lot of the international activity has a less obvious societal benefit (beyond direct employment and tax receipts); and second the industry often conflates the two when it is convenient to do so (‘we need to make London more competitive to drive investment across the UK’). The thrust of this paper is on the domestic side of the business, and here is a headline draft of what the new narrative might look like:
The banking, finance, and capital markets industry touches virtually every aspect of millions of people’s daily lives. It directs capital into the real economy to help companies raise money to invest in jobs, innovation, infrastructure, growth, and prosperity in every corner of the UK. The industry helps millions of individuals across the country to save and invest for their future and for their retirement by investing in these and other assets, creating a virtuous circle of investment and growth.
The narrative for London’s role as a leading international financial centre is harder to frame in these terms – we would be keen to hear your suggestions – but it might focus on how the City enables overseas investment in the UK, connects the UK to the global economy, and generates high levels of direct employment, exports, and tax receipts that directly fund public services for the benefit of everyone in the UK.
>>> A note on this paper
This paper deliberately simplifies the problem and the industry’s approach to it, but I hope it is not too simplistic. It is at times deliberately challenging and provocative, without being too critical. In the past few years, the industry and many individual firms have made significant progress in how they think and talk about what they do, but there is still a lot of scope for improvement. The paper is a work in progress and we look forward to improving and updating it with your feedback and suggestions. Of course, a new narrative on its own will not be enough, but it is a good place to start: the industry will have to walk the walk as well. If the industry talks about itself in a different way, it will start to think about itself in a different way, and ultimately operate in a different way. At New Financial, we are developing a model to help firms and industry sectors measure the social and economic value of what they do in a different and more engaging way. We would be delighted to discuss it with you.