Carney and Hammond look to future in Mansion House speeches
20 June 2019, 19:16 | Updated: 21 June 2019, 15:53
This year's Mansion House dinner - the traditional event in which the chancellor and Bank of England governor address the 'bankers and merchants of the City of London' at the Lord Mayor's official residence - looks like being something of a landmark.
For it will have been the last attended by Mark Carney, who is due to step down as Bank governor at the end of January next year, while it is also almost certainly likely to have been Chancellor Philip Hammond's last such event.
Accordingly, both could have been forgiven for being slightly demob-happy.
Yet both have used their speeches on Thursday night to look not to the past, as some chancellors and governors have at their swansong Mansion House speeches, but to the future.
This was particularly true of Mr Carney.
For a man with only a matter of months to serve, he announced four eye-catching initiatives which, if they come to fruition, would amount to a decent legacy.
The first was enabling the digital economy, outlining reforms that he hopes will enable tech firms to compete more effectively with traditional banks.
He said this could also help contribute to financial stability if it reduces reliance on major banks.
Secondly, he announced a consultation on developing an open platform for finance that would help plug the estimated £22bn funding gap suffered by small and medium-sized businesses.
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Mr Carney said it was not for the Bank to build the platform but it could "lay some of the groundwork".
Thirdly, Mr Carney discussed a review of how the Bank uses data and technologies like the Cloud and artificial intelligence to strengthen the resilience of the UK's financial system.
Lastly, and perhaps most strikingly, Mr Carney said the Bank will now stress test the UK's financial system for its resilience against the risks caused by climate change.
He added: "The path to a carbon-neutral economy will affect every institution in this country - very much including the Bank of England. We need to do more than just cutting out cups and bringing up bees. We must lead by example."
Some of his messages will not have been welcome to his audience.
In the very politest way possible, the governor chided those in charge of the leading institutions that make up the UK's financial system for not living up to the expectations of either customers or businesses.
Mr Carney noted that they "increasingly expect transactions to be settled in real time, checkout to be a historical anomaly and payments across borders to be indistinguishable from those across the street".
He went on: "While there have been some notable successes, the UK system has a way to go before it meets these expectations."
The governor's observation that the UK is behind India, in not being able to facilitate direct, free and bank-to-bank payments in stores and online with a text or scan of a QR code, will have startled some.
Continuing with his theme of the current inadequacies in the payment system, Mr Carney noted that, while card payments are convenient, they can cost between 0.5% and 2% of the total transaction value. He also highlighted that it can take three days for the merchant to receive their money.
He added that settlement of cross-border transactions is particularly expensive and cumbersome and noted that anti money-laundering checks also take too long.
Mr Carney added: "Most fundamentally, the new payment system must end the iniquity that the people with the least money pay the most for financial services."
Technological innovation was also central to the chancellor's speech as he, too, looked to the future. He announced a Payments Strategy Review - which Mr Carney said he welcomed - and a review into the future of financial services regulation.
The latter will be more relevant than ever as the UK leaves the EU and seeks to ensure that its financial services sector remains among the best and most competitive in the world.
Mr Hammond added: "This review will deliver a regulatory system that continues to enable, rather than stifle, innovation…that protects consumers…maintains the highest possible standards…is proportionate and policed by independent regulators…and recognises that the EU will continue to be one of our major trading partners…even as it lays the groundwork for the more global nature of our future financial services industry."
Yet the most eye-catching parts of the chancellor's speech were, of course, political.
As with his recent speech to the CBI annual dinner, the chancellor urged those vying to succeed Theresa May to stick to the fiscal caution that has been the hallmark of his time at the Treasury, pointing out that a no-deal Brexit would risk "soaking up all the fiscal headroom we have built and more".
That headroom was put by the Office for Budget Responsibility at the time of Mr Hammond's March Spring Statement at £26.6bn but, after changes to how the Office for National Statistics accounts for student debt, Mr Hammond said the figure had fallen to £15bn.
The chancellor added: "There is a choice: either we leave with no deal or we reserve our future fiscal space - we cannot do both."
Equally blunt was Mr Hammond's warning to Conservative leadership candidates not to put the union at risk by pursuing a no-deal Brexit: "I cannot imagine a Conservative and Unionist-led government actively pursuing a no-deal Brexit; willing to risk the union and our economic prosperity.
"I will not concede the very ground we stand on. I will fight, and fight again, to remake the case for pragmatism and yes, for compromise in our politics - to ensure an outcome that protects the union and the prosperity of the United Kingdom."
Before the demonstration by the climate change protesters, the mood in the room was also looking ahead and in particular, beyond Brexit.
One City grandee in attendance said: "We realised about six months ago that there was no point in trying to talk to Westminster about Brexit or what kind of regulation we wanted to see after Brexit - they weren't listening.
"So we just decided to focus on the message and talking about London's strengths as a financial services sector."
The reception to Mr Hammond, in particular, was remarkably warm. Most people in the room said they respected his fiscal strategy and his "grown up" attitude towards Brexit and managing the economy.
Such was the lengthy applause Mr Hammond received that the chancellor quipped: "Do you know something I don't?"
Mr Hammond also had a joke at his own expense, noting: "This speech will inevitably have a retrospective tinge as it will be Mark Carney's final Mansion House speech."
These two speeches were quite a contrast with some previous Mansion House swansongs. In 2016, in his final Mansion House speech, George Osborne tore up what he had planned to say in favour of delivering remarks on the UK's shared values following the murder of MP Jo Cox.
In 2013, Sir Mervyn King, making his last speech as Bank governor, used the occasion to urge Mr Osborne to accelerate the return of Lloyds Banking Group and Royal Bank of Scotland to the private sector.
And perhaps the most hubristic swansong speech of all came when in 2007, shortly before he became prime minister, Gordon Brown told his audience: "It will be said of this age, the first decades of the 21st century, that out of the greatest restructuring of the global economy, perhaps even greater than the industrial revolution, a new world order was created."
The financial crisis followed soon afterwards.
Mr Carney, it is fair to assume, will hope this speech ages better than the one he made in 2014. On that occasion, he sent the pound soaring on foreign exchange markets, delivering a speech indicating that the UK could become what would have been the first major economy since the global financial crisis to raise interest rates. He told his audience:
"There's already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced…It could happen sooner than markets currently expect."
The governor subsequently back-tracked from those remarks, causing the Labour MP Pat McFadden to describe him as "behaving like an unreliable boyfriend", a description Mr Carney is thought to abhor.
The governor subsequently told the Treasury Select Committee the comments had been made to shake markets out of their complacency - but it was an unfortunate episode.
(c) Sky News 2019: Carney and Hammond look to future in Mansion House speeches