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The chief executive of Lloyds Banking Group – the UK’s biggest lender – has warned whoever wins the general election that they will not be able to fuel growth by increasing government borrowing.

Charlie Nunn said the UK’s national debt had been forced higher in the last decade and a half due to “massive shocks” such as the global financial crisis, the pandemic, the war in Ukraine and also by some issues specific to the UK economy.

Limits on investment

And, speaking exclusively to Sky News, he said this would limit the next government’s ability to invest.

He said: “We have increased the government debt ratio for the UK. And…we should just accept the government can’t pay its way out of this next stage.

“The US in the last few years has gone up to a… 7.5% government [deficit] to GDP ratio. The US can do that because it’s growing at above 3%, but also it’s [the US dollar] the world’s reserve currency.

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“We don’t have those options in the UK – but what we do need is a really clear plan and set of priorities for the UK. And then…we need to find the right way of getting the very material amount of private money, international and domestic, that is excited about investing in the UK to invest alongside government.

The biggest challenge

“I think we can create that positive momentum for investment in jobs and business growth. And then that will feed through into the economy. That has to be the unlock from these three or four very systemic shocks that the UK economy has experienced in the last 16 years.”

Mr Nunn, who has served on both Prime Minister Rishi Sunak’s business council and the British Infrastructure Council launched by the shadow chancellor Rachel Reeves, said this would be the biggest challenge for the next administration.

He added: “When you look at the next few years for the next government, the real issue is how are we going to get investment into the economy – and that investment isn’t going to come from the government. It’s going to have to be crowding in international foreign direct investment, leveraging the banking system to really support customers, investing in their businesses and creating jobs and employment in growth and then supporting other financial institutions and pools of capital like pension funds for that investment.

“So the real focus has to be how do we get some growth going and how do we bring in private money alongside the government to make that difference? And that’s what will give the best outcome for the country, but also the government’s own finances.”

‘Very high’ business sentiment

Mr Nunn, who said business sentiment was “actually very high” at present, said a clear government plan and set of priorities could unlock three things.

He went on: “The first is we need to get more private, both domestically and international investment into the UK to support growth, and that needs to come with some supply-side reforms.

The second is housing. Housing really is an important topic for the UK, from social housing all the way through affordable housing and in the broader housing market. We think you need a 10-year plan to unlock the housing investment that would be needed to really make a difference.

“And then the third thing that we think that could make a difference is focusing on long-term savings and investments, both building financial resilience for businesses and consumers in the UK, but also then how we use those savings, those savings pots, to invest back in the UK economy.

“We think there’s opportunity to do more.”

General view of signage at a branch of Lloyds bank, in London, Britain October 31, 2021. REUTERS/Tom Nicholson
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Investors looking for ‘stability and a plan’

Lloyds is the owner of Halifax, the UK’s biggest mortgage lender, as well as being the UK’s biggest current account provider and one of its biggest players in business banking and credit cards and owner of the life and pensions giant Scottish Widows.

Mr Nunn said that, as chief executive, he met many businesses and was clear what they wanted from the next government.

He went on: “I spend a lot of time with entrepreneurs across the UK, but also big international finance houses, whether they’re pension funds or institutions looking to invest in the UK. The first thing that’s consistent across them is they’re looking for stability and a plan.

“And I think that’s the first thing for a new government, which is to provide that stability and to provide thinking, in some of these areas around infrastructure and housing, which is 10 years thinking not shorter-term thinking. So that’s the first thing they’re looking for.

“The second big theme, which is really consistent, is there are some supply-side issues… which are getting in the way of businesses getting a return on their investments. And obviously, there’s been good discussion around planning around connectivity to the [electricity] grid, around skills. Those are the three topics that businesses always identify.

‘Two to four times longer to get a return on UK investment’

“And what does it mean for investors, whether it’s a business or international investor? Typically, they’ll tell you it takes two to four times longer to get a return on your investment in the UK than it does in other countries of the world. And that’s really where we need to focus.”

Interest rates

Mr Nunn, who in August will mark his third anniversary as chief executive of the black horse bank, said the interest rate cuts from the Bank of England expected later this year would be “beneficial” – but warned homeowners not to expect a return to the ultra-low interest rates seen for most of the last 16 years.

He added: “Of course, the short-term impact of interest rates is going to impact, first of all, the government on the cost of government debt. That will be important. And secondly, it’ll make the cost of borrowing for businesses short term more attractive…that’ll be important.

“In terms of the impact on the broader consumer in the UK, it’ll take longer to feed through. Around mortgages specifically, we’ve just come off a decade where mortgages have been in the 1.5-2.5% range.

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“The expectations the market have is that interest rates probably won’t get below 3.5%. And that means mortgages, or the new normal for mortgages, will be in that 3.5-4.5% range, not 1.5-2.5%.

“So there is going to be a higher cost of borrowing in the economy, probably based on what we can see happening at the moment.

“But a reduction in rates will be good for the government’s own capacity to invest and will support the economy and it should be good for business.”

Bank of England proposals

Mr Nunn also questioned proposals for the Bank of England to pay no interest to banks on the reserves they have deposited at the Bank of England – a measure that Reform UK has claimed could raise £40bn that could be used to cut taxes.

The Lloyds chief executive said: “Obviously that will be a political decision and not one that we’ll get directly involved with. The statement from the governor of the Bank of England was an important one in this context…he wouldn’t support it because it would start to undermine monetary policy and specifically how…interest rates feed through into the economy, through the commercial banks, through organisations like Lloyds Banking Group.

“I think that’s a really important consideration. In terms of the quantum of impact, there are various estimates out there, but I think the quantum of impact that’s been talked about is significantly more than I think would be realistic. And so it will be a political choice.

But you really need to look at the integrity of what the Bank of England does and whether or not monetary policy works effectively in the economy.”

Growth through financial regulation

Mr Nunn also said there was an opportunity for a new government to boost the economy through financial regulation, building on the new objectives recently set for financial regulators by the current government, which obliged the Financial Conduct Authority and the Prudential Regulation Authority to enable competitiveness and growth both for the banking sector and the UK economy as a whole.

Stressing he was not calling for a return to the looser regulation seen prior to the financial crisis, he added: “There are choices about how do we help customers take the right level of risk…how do businesses and entrepreneurs take the right level of risk and what can financial services do safely to support that?

“When I look at what the UK is doing relative to other countries, we haven’t had that as a really clear objective and I think there’s more we can do that can untap opportunities for businesses, for families in the UK, over the coming years.”

He said the US and Canada could be a good template for the UK in that respect.

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Bank chiefs to Reeves: Ditch ring-fencing to boost UK economy

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Bank chiefs to Reeves: Ditch ring-fencing to boost UK economy

The bosses of four of Britain’s biggest banks are secretly urging the chancellor to ditch the most significant regulatory change imposed after the 2008 financial crisis, warning her its continued imposition is inhibiting UK economic growth.

Sky News has obtained an explosive letter sent this week by the chief executives of HSBC Holdings, Lloyds Banking Group, NatWest Group and Santander UK in which they argue that bank ring-fencing “is not only a drag on banks’ ability to support business and the economy, but is now redundant”.

The CEOs’ letter represents an unprecedented intervention by most of the UK’s major lenders to abolish a reform which cost them billions of pounds to implement and which was designed to make the banking system safer by separating groups’ high street retail operations from their riskier wholesale and investment banking activities.

Their request to Rachel Reeves, the chancellor, to abandon ring-fencing 15 years after it was conceived will be seen as a direct challenge to the government to take drastic action to support the economy during a period when it is forcing economic regulators to scrap red tape.

It will, however, ignite controversy among those who believe that ditching the UK’s most radical post-crisis reform risks exacerbating the consequences of any future banking industry meltdown.

In their letter to the chancellor, the quartet of bank chiefs told Ms Reeves that: “With global economic headwinds, it is crucial that, in support of its Industrial Strategy, the government’s Financial Services Growth and Competitiveness Strategy removes unnecessary constraints on the ability of UK banks to support businesses across the economy and sends the clearest possible signal to investors in the UK of your commitment to reform.

“While we welcomed the recent technical adjustments to the ring-fencing regime, we believe it is now imperative to go further.

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“Removing the ring-fencing regime is, we believe, among the most significant steps the government could take to ensure the prudential framework maximises the banking sector’s ability to support UK businesses and promote economic growth.”

Work on the letter is said to have been led by HSBC, whose new chief executive, Georges Elhedery, is among the signatories.

His counterparts at Lloyds, Charlie Nunn; NatWest’s Paul Thwaite; and Mike Regnier, who runs Santander UK, also signed it.

While Mr Thwaite in particular has been public in questioning the continued need for ring-fencing, the letter – sent on Tuesday – is the first time that such a collective argument has been put so forcefully.

The only notable absentee from the signatories is CS Venkatakrishnan, the Barclays chief executive, although he has publicly said in the past that ring-fencing is not a major financial headache for his bank.

Other industry executives have expressed scepticism about that stance given that ring-fencing’s origination was largely viewed as being an attempt to solve the conundrum posed by Barclays’ vast investment banking operations.

The introduction of ring-fencing forced UK-based lenders with a deposit base of at least £25bn to segregate their retail and investment banking arms, supposedly making them easier to manage in the event that one part of the business faced insolvency.

Banks spent billions of pounds designing and setting up their ring-fenced entities, with separate boards of directors appointed to each division.

More recently, the Treasury has moved to increase the deposit threshold from £25bn to £35bn, amid pressure from a number of faster-growing banks.

Sam Woods, the current chief executive of the main banking regulator, the Prudential Regulation Authority, was involved in formulating proposals published by the Sir John Vickers-led Independent Commission on Banking in 2011.

Legislation to establish ring-fencing was passed in the Financial Services Reform (Banking) Act 2013, and the regime came into effect in 2019.

In addition to ring-fencing, banks were forced to substantially increase the amount and quality of capital they held as a risk buffer, while they were also instructed to create so-called ‘living wills’ in the event that they ran into financial trouble.

The chancellor has repeatedly spoken of the need to regulate for growth rather than risk – a phrase the four banks hope will now persuade her to abandon ring-fencing.

Britain is the only major economy to have adopted such an approach to regulating its banking industry – a fact which the four bank chiefs say is now undermining UK competitiveness.

“Ring-fencing imposes significant and often overlooked costs on businesses, including SMEs, by exposing them to banking constraints not experienced by their international competitors, making it harder for them to scale and compete,” the letter said.

“Lending decisions and pricing are distorted as the considerable liquidity trapped inside the ring-fence can only be used for limited purposes.

“Corporate customers whose financial needs become more complex as they grow larger, more sophisticated, or engage in international trade, are adversely affected given the limits on services ring-fenced banks can provide.

“Removing ring-fencing would eliminate these cliff-edge effects and allow firms to obtain the full suite of products and services from a single bank, reducing administrative costs”.

In recent months, doubts have resurfaced about the commitment of Spanish banking giant Santander to its UK operations amid complaints about the costs of regulation and supervision.

The UK’s fifth-largest high street lender held tentative conversations about a sale to either Barclays or NatWest, although they did not progress to a formal stage.

HSBC, meanwhile, is particularly restless about the impact of ring-fencing on its business, given its sprawling international footprint.

“There has been a material decline in UK wholesale banking since ring-fencing was introduced, to the detriment of British businesses and the perception of the UK as an internationally orientated economy with a global financial centre,” the letter said.

“The regime causes capital inefficiencies and traps liquidity, preventing it from being deployed efficiently across Group entities.”

The four bosses called on Ms Reeves to use this summer’s Mansion House dinner – the City’s annual set-piece event – to deliver “a clear statement of intent…to abolish ring-fencing during this Parliament”.

Doing so, they argued, would “demonstrate the government’s determination to do what it takes to promote growth and send the strongest possible signal to investors of your commitment to the City and to strengthen the UK’s position as a leading international financial centre”.

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Post Office to unveil £1.75bn banking deal with big British lenders

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Post Office to unveil £1.75bn banking deal with big British lenders

The Post Office will next week unveil a £1.75bn deal with dozens of banks which will allow their customers to continue using Britain’s biggest retail network.

Sky News has learnt the next Post Office banking framework will be launched next Wednesday, with an agreement that will deliver an additional £500m to the government-owned company.

Banking industry sources said on Friday the deal would be worth roughly £350m annually to the Post Office – an uplift from the existing £250m-a-year deal, which expires at the end of the year.

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The sources added that in return for the additional payments, the Post Office would make a range of commitments to improving the service it provides to banks’ customers who use its branches.

Banks which participate in the arrangements include Barclays, HSBC, Lloyds Banking Group, NatWest Group and Santander UK.

Under the Banking Framework Agreement, the 30 banks and mutuals’ customers can access the Post Office’s 11,500 branches for a range of services, including depositing and withdrawing cash.

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The service is particularly valuable to those who still rely on physical cash after a decade in which well over 6,000 bank branches have been closed across Britain.

In 2023, more than £10bn worth of cash was withdrawn over the counter and £29bn in cash was deposited over the counter, the Post Office said last year.

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A new, longer-term deal with the banks comes at a critical time for the Post Office, which is trying to secure government funding to bolster the pay of thousands of sub-postmasters.

Reliant on an annual government subsidy, the reputation of the network’s previous management team was left in tatters by the Horizon IT scandal and the wrongful conviction of hundreds of sub-postmasters.

A Post Office spokesperson declined to comment ahead of next week’s announcement.

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Trump trade war: How UK figures show his tariff argument doesn’t add up

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Trump trade war: How UK figures show his tariff argument doesn't add up

As Chancellor Rachel Reeves meets her counterpart, US Treasury secretary Scott Bessent to discuss an “economic agreement” between the two countries, the latest trade figures confirm three realities that ought to shape negotiations.

The first is that the US remains a vital customer for UK businesses, the largest single-nation export market for British goods and the third-largest import partner, critical to the UK automotive industry, already landed with a 25% tariff, and pharmaceuticals, which might yet be.

In 2024 the US was the UK’s largest export market for cars, worth £9bn to companies including Jaguar Land Rover, Bentley and Aston Martin, and accounting for more than 27% of UK automotive exports.

Little wonder the domestic industry fears a heavy and immediate impact on sales and jobs should tariffs remain.

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Chancellor’s trade deal red lines explained

American car exports to the UK by contrast are worth just £1bn, which may explain why the chancellor may be willing to lower the current tariff of 10% to 2.5%.

For UK medicines and pharmaceutical producers meanwhile, the US was a more than £6bn market in 2024. Currently exempt from tariffs, while Mr Trump and his advisors think about how to treat an industry he has long-criticised for high prices, it remains vulnerable.

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The second point is that the US is even more important for the services industry. British exports of consultancy, PR, financial and other professional services to America were worth £131bn last year.

That’s more than double the total value of the goods traded in the same direction, but mercifully services are much harder to hammer with the blunt tool of tariffs, though not immune from regulation and other “non-tariff barriers”.

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How US ports are coping with tariffs

The third point is that, had Donald Trump stuck to his initial rationale for tariffs, UK exporters should not be facing a penny of extra cost for doing business with the US.

The president says he slapped blanket tariffs on every nation bar Russia to “rebalance” the US economy and reverse goods trade ‘deficits’ – in which the US imports more than it exports to a given country.

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That heavily contested argument might apply to Mexico, Canada, China and many other manufacturing nations, but it does not meaningfully apply to Britain.

Figures from the Office for National Statistics show the US ran a small goods trade deficit with the UK in 2024 of £2.2bn, importing £59.3bn of goods against exports of £57.1bn.

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IMF downgrades UK growth forecast

Add in services trade, in which the UK exports more than double what it imports from the US, and the UK’s surplus – and thus the US ‘deficit’ – swells to nearly £78bn.

That might be a problem were it not for the US’ own accounts of the goods and services trade with Britain, which it says actually show a $15bn (£11.8bn) surplus with the UK.

You might think that they cannot both be right, but the ONS disagrees. The disparity is caused by the way the US Bureau of Economic Analysis accounts for services, as well as a range of statistical assumptions.

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“The presence of trade asymmetries does not indicate that either country is inaccurate in their estimation,” the ONS said.

That might be encouraging had Mr Trump not ignored his own arguments and landed the UK, like everyone else in the world, with a blanket 10% tariff on all goods.

Trade agreements are notoriously complex, protracted affairs, which helps explain why after nine years of trying the UK still has not got one with the US, and the Brexit deal it did with the EU against a self-imposed deadline has been proved highly disadvantageous.

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