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Rachel Reeves has been handed a firm warning that Britain’s financial ecosystem is facing a “critical juncture” even after the Chancellor touted a “golden age” of opportunity for the City.
The Chancellor faces a call to action following a report from lobby group TheCityUK and Big Four consultancy giant PwC revealing the “hard truth” that Britain’s financial sector has lagged behind wider economic growth over the last decade.
The report – which surveys 300 key figures in City government, regulators and academia – lays out five “critical imperatives for action” that could generate near £53bn in additional economic output by 2035 if targets are met.
“If we keep going the way that we’re going, we are risking a period of relative decline: the industry declining as a share of the economy but also the industry declining comparative to our major competitors,” Miles Celic, chief executive of TheCityUK, told the Sunday Times.
Celic said London was a “burning platform” making the changes essential to supercharge growth.
The report comes a week after the Chancellor was set to deliver a speech at the London Stock Exchange stating there was “first signs of a new golden age for the City” after regulatory changes.
Reeves pulled out of the speech, scheduled for Monday 19 January, after President Trump’s latest tariff offensive sent shockwaves through global markets leading to the Prime Minister delivering an emergency press conference at Downing Street.
The report from PwC and TheCityUK urges the government to double down on the City due to its capacity in generating more than 11 per cent of the national economic output and contributing £12 in every £100 of tax.
‘One of least competitive’ tax systems
Key rallying calls from the report centre around regulation and tax, calling for introduced measures to be accelerated.
It notes the authorisation process from the Financial Conduct Authority for senior individuals wanting to work in the City – which is currently under review – must be simplified even further.
The importance of ploughing ahead in tokenisation – the process of converting ownership rights of real-world assets into digital tokens on a blockchain – was highlighted in the report with the government urge to create a stronger regulatory framework.
The report took aim at the tax system in Britain, branding it “one of the least competitive in the world” due to the levies on financial services firms.
Speculation had ramped up ahead of the Autumn Budget that Reeves would inflict more taxes on the City’s banking giants amid fierce calls across the aisles.
Lobbying efforts from industry body UK Finance ahead of the November Budget showed London lender’s total tax rate rose 0.6 per cent to 46.4 per cent in 2025.
Banks are subject to a sector-specific levy that sits on top of corporation tax as well as VAT, property taxes, national insurance and other taxes levied on businesses.
The surcharge stands at three per cent, after being lowered from eight per cent under the Conservative government.
The report also said that addressing the UK’s personal tax regime was “critical” after warning it was forcing senior professionals into other financial sectors.
Scrapping non-dom regime ‘weakened’ UK as talent destination
The choice to scrap the non-dom regime by Rachel Reeves in her first Budget “weakened” the UK’s ability to “entrepreneurs and internationally mobile talent,” the report said.
It warned Britain was struggling in the battle to be a “destination of choice for talent” as tax regimes in UAE and Milan threatened driving wealth creators overseas.
The report called for incentives to lure back talent as well as fast-tracked visas.
As well as winning back talent, the report said reforming Brits culture to investing was crucial due levels being “strikingly” when compared with international standards.
It said just eight per cent of household wealth invested in equities, mutual funds or bonds, compared with 30 per cent in America.
Pensions were also highlighted as another major way to inject capital into the UK economy and meet the government’s goal to invest £725bn in infrastructure by 2035.
But the report noted the rapid increase of public finance bodies like the National Wealth Fund and the British Business Bank had made it more difficult for entrepreneurs targeting innovation.
Lucy Rigby, the City minister, said: “This government’s ambitious reform agenda is designed to unleash the full potential of the [financial services] sector including by ensuring regulation is fit for purpose, backing innovation and ensuring that we retain our competitive edge.”
