This year’s event, Navigating the future of Tax in Financial Services, took place just a week after US President Donald Trump announced import tariffs on dozens of countries.
As uncertainty shook the global economy – most tariffs were reduced to 10% the day after the event – our opening session explored:
Miles Celic OBE began with a note of reassurance for the UK financial services sector.
Amid the prevailing unpredictability, many of the principles that underpin the industry’s strength remain in place, he noted. As events play out, there’s still plenty of cause for optimism about the UK’s long-term success as a financial centre. The medium and long-term conditions are promising.
And while we shouldn’t expect a return to the previous status quo, the shift we’re seeing isn't as radical as it might seem. Yes, the upheaval is significant – Miles called it a “major political market correction” – but it’s an acceleration of existing trends.
Miles underlined three key challenges for the financial services sector’s prospects, which the UK government needs to tackle: regulation, competitiveness and tax.
The Labour government was overwhelmingly elected on a platform of growth. In its view, the funding to improve the country’s struggling public services must come from economic growth, not from tax increases or debt.
With that in mind, Chancellor Rachel Reeves has signalled the government’s intention to shift the regulatory emphasis in the UK: from reducing risk to enabling growth. This more closely aligns with the approach taken by US regulators, who are driven by the need to foster growth. Too great a focus on risk holds back innovation.
As such, there’s a sense that UK regulators are now listening to businesses, Kate Dawson observed. That’s encouraging, given the need to reduce the heavy regulatory burden on financial services firms – especially those operating in multiple jurisdictions.
While addressing the regulatory focus, the government must also ensure the UK maintains its reputation as a competitive place to do business.
As Miles underlined, there’s long been a cross-party consensus that the financial services industry is part of the solution in this regard. The UK is renowned for its financial services capability and deep talent pool. Fortunately, that view is unlikely to change.
With the competitive landscape in constant flux – now more than ever – clarity of the government’s tax roadmap, and industrial and trade strategies, is essential in driving the certainty that encourages business investment. But there are question marks over the capacity to make the industrial strategy happen, and whether regulation might get in the way.
The UK’s tax regime is, of course, crucial to the country’s competitiveness. High tax rates intensify the risk of capital and talent going elsewhere, not least in the financial services space.
The worry is that if economic growth fails to materialise – and it will be tougher to achieve in a protectionist climate – then tax rises to bolster public funding will become inevitable. And the financial sector will be a likely target for windfall and wealth taxes.
At that point, Sharon noted, the question will become: “how can we unlock growth in the industry without a favourable tax environment?”
An issue here for the government is UK voters’ desire for what’s often described as “American tax levels and North European-style public services”. It’s probably fair to say suggest the opposite is currently the case.
As well as competitive tax rates, more work on simplification would be welcome. Tax complexity is, after all, a cost to businesses. The UK tax code is extremely difficult to navigate, yet the Office for Tax Simplification was abolished in 2022.
Ultimately, bringing about economic growth will require government and industry – including the financial services sector – to be better at working together. Yet they don’t always speak the same language, Kate emphasised. As much as growth funds public services, the converse is also true: better public services can themselves drive growth.
