“The financial sector is one of the UK’s great historic, globally competitive clusters. In 2010 the sector directly contributed 9 per cent of the UK’s gross value added, paid £63 billion in taxes (or 12 per cent of the total UK tax take), employed over 1.1 million people (or more than 3.5 per cent of the UK workforce), and generated a trade surplus equal to 3 per cent of UK GDP. Its success is essential to the UK economy.
However, the 2008 crisis and subsequent events have revealed significant weaknesses in the sector, triggering a debate on the increased role finance has played in the British economy over the past few decades. This debate has been polarised between those who argue that the financial services sector is too large, creating too much risk for the British taxpayer and crowding out other sectors, and those who argue that a competitive sector delivering many benefits to the UK economy requires financial institutions operating on a global scale.
But the debate should not be about the size of financial services – there is no preordained optimal size for the sector. Rather the focus should be on how to address three critical sets of issues that have been highlighted by the crisis:
- Protecting stakeholders, including depositors, borrowers, investors, and bank clients and shareholders.
- Reducing implicit subsidies to the sector and future liabilities for UK taxpayers.
- Addressing the excess economic rents extracted by the sector….”