Thanks Pat. Well, good evening everybody and welcome to St David's Day lecture. I think that's the only Welsh reference tonight I think. I'm the treasurer of the society and as you say somebody has to do that job and that happens to be me. And the first housekeeping announcement please switch your mobiles off or put them to silent nothing more embarrassing than your mobile spring into life, or indeed mine. The other thing I just mentioned with the Royal Philosophical Society we get to for the price of one, which is rather good. We don't only get a superb talk, we then get the opportunity to ask questions and have a discussion afterwards, and the two are very much one. So to have a good flow between the talk and the questions and answers afterwards. If you do have to leave for whatever reason a bus or you've had enough. And then please, as soon as the talk finishes if you could quietly leave at that stage and then we'll move on to the questions and answers. So it's a great pleasure of mine to introduce our speaker this evening, Sir Philip auger. What he doesn't know about the city of London and finances perhaps not worth knowing. Anyway, over and above his undoubted expertise and his excellent communication skills evidenced by the number of well regarded books that he's written and at the moment I'm almost finished his most recent book and called a twister. I'm a page turner and I reckon it's the sort of book that appeal to everyone, whatever your preferred genre of literature, and should it be crime mystery skull Dougary history, politics and abundance romance and betrayal, not to mention the accountants and lawyers amongst us discussion discussion about some of the sections in the company's act 1948 and there's nothing that gets an accountant and a lawyer more excited than looking at illegal loans to directors and flushing them through companies. Anyway, I'm, I'm afraid I hope it's not a great disappointment that we're not going to be looking into the life of I don't know if you've guessed who it is I'm referring to, but the right honorable, or perhaps not so honorable, john Stonehouse MP, and those of us who are around in the and the closing days of Harold Wilson's Premiership will remember the Stonehouse saga. I can say that Philips book. There's a lot more than even I remember or was portrayed in the recent television series but it's an absolute fantastic page turner. It's not Stonehouse tonight but I thought I'd have to get that in. It's the influence of the UK's financial power who says that is the city of London, the importance of regulations and the importance and the relevance of that for all of us to over to you Philip. Thank you. Well Richard thank you very much for those generous words of introduction I really wasn't expecting you to plug my latest book. I'm afraid they'll be a bit of a spell dark green tonight. There won't be much romance in the story I'm about to tell, but I hope that that you find it interesting. I must thank you very much for inviting me to speak here this evening in this absolutely amazing menu. The talk that I've that I've written is in fact in memory of Alison Fort, who sadly passed away last year she's known to some of you in the audience, and for a long, a complex set of reasons she's the reason that I that I'm standing in front of you today so this is in memory of Alison Fort. The talk is is really it's going to be a survey of the last. It's going to be a survey of the last 50 years. It's a bit of social history, a bit of political history, a bit of economics. I've given bits of this talk at various times and in various places and in various books over the years. This is the first time I've linked it all together into one sweeping narrative I hope it works. I hope it interests you. Some of you will have sat through these times I certainly did I was lucky enough to have a ringside seat at a lot of it. Some of you, the younger members of the audience will simply have read about them or seen it on television, but it's a fascinating history effect in effect of the last of the last 50 years of this country. I'm actually going to start need some help again because the slides aren't working. Okay, that's good. I'm going to start just over 40 years ago actually in Glasgow, and the person in that picture wearing the spectacles is in fact me. And at the time this is over 40 years ago before everything changed. I was a young stockbroker working in Edinburgh, and I needed to become a member of the stock exchange. And one of the requirements at those at those times was that every candidate member of the stock exchange had to have an interview. The stockbrokers were interviewed in Glasgow so I came across here. I came to one of the Glasgow brokers a lovely dining room panels, charming men, lovely food, lots to drink. We had a very very nice chat went on for a couple of hours we thought we talked about everything but business golf with Jack Nicholas when another major, the five nations and the Irvin everything. Except business and the economy. I stumbled back on to the Edinburgh train in the darkness. Finally a few days later, a letter arrived I was in I was a member of the stock exchange. The whole thing had been to see whether I was the right kind of chap, and the choice of gender is not accidental there were very few female members of the stock exchange. And that really is how the city worked in those days. It was gentlemanly. It was amateur. It was a bit clubby. It didn't do the economy a great deal of good. The entire financial services industry was about 2% of the economy, but it didn't do it a great deal of harm either. Clustered into the narrow streets and alleys of the square mile were probably were just a few thousand brokers with a maybe a couple hundred more in Edinburgh and Glasgow. I don't like it's it's Lombard Street if I if I'm correct. And it was very much a closed shop. The stock exchange in the, in the 70s was riddled with tradition and arcane rules. And distributed government debt through one appointed broker it was called Mullins. Every week, the senior partner of Mullins would go up to the Bank of England, wearing a black silk top hat, and be told the bank rate. He then walked back down Threadneedle Street to the stock exchange, accompanied by a junior who'd got a sealed envelope in case his boss fell over and told us waiting stock exchange what the bank what the next bank rate was going to be. Commissions on share trading were fixed. Everyone had a very clearly, clearly defined role. As an investor, and I gave you advice you could be certain that it was honestly given and that I wasn't taking my talking my own book, because I wasn't allowed to take positions that was done by a separate category of member. It was a good living, but the city's coziness set the tone for the rest of the financial services industry, for example the banks. In the 70s colluded on interest rates charged people for writing checks, never advertised on television closed at 330pm and didn't open at all on Saturdays. The capital sector was equally old fashioned. Over half of British shares were owned by private individuals, especially the great aristocratic banking and manufacturing families, the Queen, the Duke of Westminster, the Sainsbury's as the Moors in Liverpool the vestiges. The dynasty's dominated corporate boards nepotism was accepted without question. For example in the 1970s, six members of Berkeley's founding families sat on the Berkeley's board. There was something called the special list, which guaranteed accelerated promotion to family members. And it was 1987 before Barclays appointed the first non family member as chief executive. The style of business in the 70s was very, very gentlemanly. Still with Barclays the bank built a new headquarters, 54 Lombard Street in 1969. The walls were full of portraits of the founders, East Anglian landscapes. There was a rifle range and a squash court in the basement. Sinek said the rifle range was trying to stop the bank shooting itself in a foot but I never believe that. Board meetings at Barclays at this time lasted an hour. After that there was a lunch. They were damn good lunches, one board member told me, and the board would then toddle off back to the country. I can assure you that when they did they weren't working from home. Now there was some, there were some changes underway in the 70s. There was a new breed of business men. Aggressive business men like Ardell Winestock at GEC, Ernie Harrison at Rachel and Charles Forte in his hospitality business. Gradually they're challenging the status quo. Institutional fund management was developing managing the pension funds and pooled savings of investors. These institutions very, very occasionally came together to deal with underperforming companies. They would, in that case, they would tap the chairman on the shoulder and say, you know, we really think it's time things were shaken up. But honestly, a company would have to be very, very badly run indeed for this to happen. I mean it would happen. If it happened once a year I would be amazed. Merchant banks at the time never acted against the clients of each other. Hostile takeovers were very few and far between, and basically badly run companies could slumber on for years without any interference from shareholders. It was all up to the board. And the board was a club. Back at Barclays again when the late Tom, Tom Kamois tried to inject emergency into the Barclays board. He was told, Tom don't you realize we're all very nice to one another here. Now this state of affairs wasn't a winnings formula. And throughout the 70s Britain was known as the sick man of Europe. The long post war boom had come to an end. The defeated powers of Germany and Japan had invested in machinery and technology and Britain's manufacturers were struggling to compete. The car industry typified these problems. British Leyland was an ill fated attempt by Harold Wilson's Labour government to rationalize one of Britain's left behind staple industries. Industrial relations were terrible. While famous shop steward Derek Robinson, known as Red Robo, was credited with organizing 523 factory strikes. The company's product range was dated. A flagship Morris Marina, meant to compete with Ford's Cortina and Escorts, was really made up from components of old models fitted on to a new chassis. The company was eventually part nationalized and had to be protected by import quotas on Japanese cars. The economy was a mess. We were importing far more than we were exporting. Stirling collapsed. In 1976, Chancellor Dennis Healy had to turn back from Heathrow to deal with the crisis, negotiating a humiliating IMF loan. The strikes gripped the public and private sectors. Iconic moments were Ted Heath's who governs Britain election campaign of 1974, not you mate came the answer. And Jim Callaghan's winter of discontent in 1978, nine. That's how it looked on the streets. In the 1970s, no cure had been found for the British disease. The city stood at the margin of corporate life, comfortable in the living it was earning and sheltered from foreign competition by closed shop rules, and actually by the fact that very few overseas investors would want to invest in a basket case like Britain. It was changed in 1979 with the election of a conservative government under Prime Minister Thatcher, but first we need to go to America. While the city and Britain were sleepwalking through the 70s America was stirring. The sheer size of the US economy, a more dynamic attitude to business ensured that its post war boom was longer and stronger than Britain's. In the 70s, even America was facing serious competition from the Japanese prompting questions to use the title of a very famous TV documentary in America, if Japan can why can't we. The answer came from the academics, the Keynesian ideas that had driven post war economic policy, but simply it was the put simply it was the job of government to stimulate demand were challenged by the Chicago school. The Chicago school believed that free of government interference market would produce the best outcomes for society the rising tide of free enterprise would lift all the boats. Alongside this came a new theory shareholder value. It originated in the Northwestern University Business School in America, driven by Professor Alfred rapper poor. And the idea was that companies should be managed for shareholder value. Quite quickly this was seized upon by management consultants and it got transformed it transformed into a sort of very hard edged version which ignored the interests of employees suppliers, the wider community, the environment, a highly focused drive for short term shareholder value crept into US business practice in the 1970s, driven by amongst others Jack Welsh neutron Jack he was called who worked his way up the GE hierarchy, and he had many disciples. Change was also a foot on Wall Street. Until the mid 70s Wall Street was a bit like the seven bit like the city we had the bowler hat. They had white shoe investment bankers fixed commissions on share dealing limited competition. But these free market ideas and shareholder value shattered the calm on Wall Street. Quite quickly the investment banks started acting against each other's clients and in 1975 Wall Street itself was deregulated. Commission rates were dropped there was an explosion in capital markets activity and Wall Street is on the March. New ideas, more competition deregulation. It's all over the US and the election of Ronald Reagan in 1980 gave everything political blessing. The next decade the 80s in America saw ruthless cost cutting financial engineering mergers and acquisitions leveraged by else and the emergence of the US investment banks as the playground bullies. Now, let's go back to grainy gray strike bound Britain. Margaret Thatcher's election victory actually preceded Reagan's by 18 months, but they both came in on the same tide. And I want to talk just for a moment about thatcher and the city I'll move on to thatcher and the economy in a bit, but thatcher and the city now to start with she didn't like the city at all. She went to a lunch at the merchant bank Rothschild and felt that she'd been snubbed. She herself came from provincial trade stock, and she never really felt at home with the city. And she never really understood it seems to me the power of the city, or the significance of two particular things that she did for it. The city changes with the abolition of foreign exchange controls in 1979 foreign exchange controls were introduced actually at the time of the First World War to prevent a run on sterling. But by the 70s they become a misguided linchpin of government policy restrictions on taking money out meant that British companies couldn't invest abroad and overseas companies were reluctant to invest here. As a result, British business became an isolated backwater and sterling became a fringe currency. But the Thatcher in 1979 abolishing exchange controls seemed like a very big risk, and she had to be persuaded to do so by her chancellor Jeffrey Howe. The PM was worried that if we abolished, if we abolished exchange controls, there'd be a run on the pound. In fact, the reverse happened. Free of exchange controls sterling became a regular readily traded currency and overseas investors took freedom overseas companies took freed to advantage of the freedom to invest in in Britain. And particularly when it became clear that the Thatcher government would not interfere in bids for British companies. What happened then was a foreign Japanese American, some European country companies started to invest in and take over British companies. And foreign exchange controls an absolutely massive effect on the economic history of Britain in the last 30, 40 years. The second big change that Thatcher made as far as the city was concerned was the famous Big Bang, the Financial Services Reforms of 1986. Mrs Thatcher wrote, Lady Thatcher wrote a 900 page autobiography 900 page memoir of his time in office of her time in office. She spent just one paragraph talking about Big Bang, but it was absolute. It was absolutely sensational. When she put fixed commissions on the stock exchange were abolished banks become members and the old distinction between giving advice and share dealing was swept away. The old stockbroking partnerships the kind of place where I came here in Glasgow in the late 70s early 80s were replaced by a different kind of institution, the investment banks the American investment banks came into town, and everything changed. Everything was now done under one roof, advice to investors trading advice to companies mergers and acquisitions conflict of interest was absolutely everywhere, managed by so called Chinese walls between the departments. But the perception grew in British government and British society, that it was okay to know about these things as long as you manage them properly. We'll talk about that in a minute. I think that the introduction of these integrated investment banks and the information that they had and managed change standards in business and government. We see it today it's become an accepted feature. I think it's a change for the worse. Now these integrated investment banks also allowed people in the city to make a great deal of money, and I was fortunate to benefit myself for a while. I was too old to be a yuppie, but the late 80s and early 90s was their era, driving Ferraris wearing red braces, striped shirts, shouting excitedly across the dealing rooms as the news cameras ran at exciting moments, black Monday, black Wednesday, black Friday. I've always wondered why there was never a black Tuesday or a black Thursday but I guess there's still time. And in the city changed from my word is my bond to who do you work for Salomon Brothers or this guy. That's a quote from a great book Liars poker written by Michael Lewis when he was a bond trader in Salomon Brothers in the 80s. He called a dud bond to a client, and he said to his boss I feel really bad about this. What's what's going to happen you know what's going to have this guy might lose his job boss says who do you work for this guy or Salomon Brothers. Now the city's values spread out into society, making money and talking about it strictly to boo when I grew up in the 60s and 70s. By the 80s became something that not everyone did, but lots of people. I'm thinking of Harry Enfield's character, loads of money on Friday night live from 1988 onwards this was the plaster who picked out his picked out his ward and waved it around loads of money loads of money look at my word. It wasn't all like that, but there was a distinct change in attitudes to money. By the investment banks shareholder value and the market knows best brought hostile takeovers to Britain big time in the 80s and 90s and the face of corporate Britain changed nepotism and a job for life goes out of the window. It's replaced by survival of the fittest and a focus on short term shareholder value. It's the world of aggressive conglomerates like Hanson, BTR and Williams. They brought brought out badly run undervalued companies improve the bottom line by closing loss making divisions rigorous cost control, Arthur Bell gateway for anti del Monte holiday ends, dozens of big companies lost their independence over these few years. The non essential R&D is cut back. Best practice becomes the benchmark shareholders want value not loyalty. The chief executives average time in office shrinks to below three years. In the about to be privatised utilities get the same treatment and industry becomes a harder mean a place. British telecom, a company which in 1984 had a quarter of a million employees and had never made a redundancy by 1999 had cut its workforce in half. Now not all of this is bad. Some of this absolutely had to happen otherwise Britain would have remained a basket case would have remained the sick man of Europe. The chief is that it went too far and it's driven by these changes that came out in the city. So, we'll move on. Driven by an improvement in businesses bottom line. Margaret Thatcher decided that the public sector would also benefit from market forces determined to break the power of the unions. She took on and defeated the striking miners. She was a member of the civil service where she observed and I'll quote certain attitudes and work habits have crept in that were an obstacle to good administration. The NHS was a particular problem. And she said that was again I'll quote a long way to go before all the resources of the NHS will be used efficiently from the benefit of patients. In 1985, one of the people behind America's managed care home and care program, a professor called Alan and oven wrote an influential paper on the internal market, and it was introduced to the NHS in 1990 hospitals and gps would hold their own budgets and trust were set up to obtain better value for money. The staff became, in end ovens words, resource managers. The entire British public sector was encouraged to operate as though it was a business in a competitive marketplace. Student loans were introduced with the intention of making students more discriminating about what they studied. The State Education Reform Act linked the funding of schools to performance. As that to explain by exerting financial pressure we had increased administrative efficiency and promote overdue rationalization. In both the public and the private sectors. It's all about the short term, the long term can look after itself. Short supply chains outsourcing just in time dying the place patient capital and investing for the long term. By the mid 90s is calling the shots and by the big night by the bid 90s it was important sector in its own right accounting for six and a half percent of the economy. Travel what it was before Big Bang, a staggering increase reflected in its influence over the long conservative government. By the big night by the mid 90s it was clear that factorism and its variant majorism had run its course. And the question for British business was whether the incoming labor government will continue with market friendly policies. It could have gone either way because the city's reputation had suffered a bit in the 90s. On the one hand as we've just seen it was a great success. In 1995 the city of London corporation produced a glowing if not exactly impartial account. The corporation said that London was the world's largest center for international financial transactions and one of the world's top three financial capitals along with New York and Tokyo. But in the same year, a different opinion on the city emerged with the publication of Will Houghton's bestseller, the state we're in. Houghton's stakeholder vision was a very broad view of political economy but in so far as it affected business, he wanted to see business run in the interest of the community, customers and employees, not just shareholders. And the former stockbroker had no idea where the blame lay, accusing the city of malpractice commercial misjudgment speculation, inefficiency and cheating. Apparently both Houghton and the London and the corporation were correct. The city was indeed riding high as a global financial capital, but the decade after Big Bang 86 to the mid 90s was characterized by institutional failure and corporate scandal on an astonishing scale. The hope was that the British banks would lead the UK out of Big Bang, but it turned out that the American investment banks knew how to do it better. They dominated the city, squeezing out British competitors and bringing their culture and business practices into Britain's public and private sectors. Between 1995 and 1997, all of Britain's new investment banks created by Big Bang either fell over in disgrace, like Nick Leeson's bearings, or simply gave up and sold themselves to foreign owners at Warburg amongst many examples. The American fund management industry in the first half of the 90s performed particularly badly. On the one hand, it was a spectacular success, as independent asset managers sprang up from nowhere. But on the other hand, it didn't do the clients much good. The promise was to beat a benchmark, for example, the FTSE 100 or the World Index, but repeat winners were virtually impossible to find. Only one in five of these of these active fund managers actually beat their index and beat their benchmark in these times. That at least was an honest failure that cannot be said for other parts of the corporate sector. The near figures including the Guinness Chief Executive Ernest Saunders were sent to jail for their part in an illegal share operation. There was corruption at the failed bank BCCI looting of the Maxwell Group of companies and the collapse of high-flying polypec, where their founder, Azil Nadir, fled to northern Cyprus, a company, a country where Britain didn't have an extradition treaty. The insurance market moved into a spectacular Richard Rogers building in 1986, but pretty soon afterwards it was losing £2 billion a year. Several US states and investors alleged that Lloyds kept secret their knowledge of asbestos claims until they'd recruited more names to take them on. The novelist Julian Burns described Lloyds management as displaying negligence, fraud and sardonic uncaringness. This then was the city facing the new Labour government when it came to power in 1997, both a rip-roaring success and a shambolic failure. Would the new government embrace the success or tackle the failure. So during the 1980s, you were the future once David Cameron said. In the 1980s, Tony Blair and Gordon Brown, they'd sounded like old school socialists when talking about the city. Blair called the QCL at the stock exchange of an exercise in self-congratulation. Brown's 1989 tract against thatcherism was simply called where there is greed. But chastened by defeat in the 1992 election. Remember this is the one where if Neil cannot win today will the last person to leave Britain please turn out the lights. That was the sun leading to the next headline it was the sun what won it. Labour after this defeat Labour under John Smith embarked on a charm offensive, wooing Britain at a series of lunches on the so-called prawn cocktail circuit. Gordon Brown watered down his belief in Keynesian demand and economics in favour of free trade, open markets and flexibility. But Blair was less sure. And there's a big moment coming up in our history, I think in 1996 Blair appeared to endorse Wilhelms stakeholder views, telling an audience in Singapore and I'll quote from Blair now. It's surely time to assess how we shift the emphasis in corporate ethos from the company being a mere vehicle for the capital market towards a vision of the company as a community or partnership in which each employee has a stake. This was dynamite. If it was followed through shareholder value and the market economy will be softened by a much more inclusive approach and factorism would be dead and buried. By this time, Gordon Brown had secured control over economic and social policy in return for giving Blair a run at leader, and he would have none of it. I've spoken to various labour insiders. According to them, the chance to elect immediately poured cold water on the idea of a stakeholder economy. According to one insider, again a quote, one minute the net then editor of the Observer will Hutton was sitting in Blair's kitchen, watching Tony Blair push down the plunger on the cafeteria. As he said, will stakeholder is going to be a Bible. Just six weeks later, Hutton found his idea had been dropped. Everyone knew why and other insider, and I'll quote again, the stakeholder idea had frightened the big end of town. And so it had been dropped. Company directors were concerned that they would be made accountable to people other than shareholders and institutional investors were frightened that it would destroy shareholder value. That's what I mean by the big end of town. Bords, institutional investors, the investment banks, this turning point. This was a massive turning point, not just for the city but for the whole British economy. The next quarter of a century would have looked very different if Labour had turned the other way in 1997, because what happened in the decade after 1997 meant that Britain was fully exposed to the great financial crisis. And it would take years to recover. I can't emphasize enough how much I believe this was such an opportunity missed. So what did Labour do? Well, there were two big steps as far as France was concerned the 1998 budget, capital gains tax from 40% to 10% and carried on with a very generous tax regime for non-doms. This meant this attracted private equity into the UK, and in the in the early 2000s, a wave of British companies were brought up by private equity, the AA, William Hill, Debenhams, Anglia Water, Associated British Ports, British Airports Boots I could go on. No sector or name, no matter how well-rooted, was safe. Now at best, private equity provides management discipline. At worst, it operates by buying companies on the cheap, taking out a loan through the company, paying itself an immediate dividend and leaving the company very highly geared. So that was that stem from the cutting in capital gains tax. The second big, big step was light touch regulation. Now the city before 1997 was regulated by a rather, a rather complex set of arrangements which included a big dose of self regulation. The city was not just marking its own homework, it was, it was setting it to. Labour tackled this by introducing a new regulator, the FSA, which was a very good idea. But it then spoiled it by giving the new regulator a mandate to encourage new financial products and protect the UK's international competitiveness. On the one hand, and on the other hand, no wonder the message got mixed. On the other hand, no wonder the financial services loved it. One leading head fund manager told me the effort the new regulator, he said, it's a pleasure to work with. I bet it was. You know, this is, this is absolutely anything goes. And for a, but for a decade, light touch and low taxes seem to work. The next few years of this century seem to be, it seemed to be going incredibly well in 2006. Chancellor Brown tells a city audience at the mansion house it's the famous mansion house dinner he says, I'll use his words again. He says, as a result of following free market principles, a government debt in Britain is lower than France, Germany, Italy and Japan growth will be stronger this year than last and stronger next year than this. The following year, his Prime Minister elect, he tells the same dinner. The city of London has risen by your efforts in juniority and creativity to become a world leader. It's a great example of a highly skilled value added talent driven industry that shows how we can excel in a world of global competition. Britain, he said, needs more of the vigor, ingenuity and aspiration that you already demonstrate. The bankers purred, but they would be much better advised to have listened to the previous speaker at that dinner, Bank of England Governor Mervyn King. King warned them, higher returns come at the expense of higher risk. Are we really so much cleverer than the financiers of the past. I think we all know the answer to that and what happened next. Financial techniques based on parceling up loans sent from selling them on to other institutions led to slap credit standards in the US property market. Anyone, no matter what their credit history could get a mortgage, high yielding loans to these subprime borrowers were parceled up and sent around the world to income hungry investors. In 2006 in 2007, inevitably, of course, mortgage defaults rose interest payments dried up, and in a complicated House of Cards collapse, the great financial crisis of 2008 brought the global financial system to a shuddering halt. Now, to be fair to Gordon Brown, then Britain's Prime Minister, he was the most by far the most financially sophisticated and experienced of the global leaders, and he was a thought leader in seeing us through this. In a macabre twist, the only people who actually knew how to dismantle the whole ghastly machine with the very people who built it, the investment bankers, and they're employed by the UK and US treasuries to unpickle the mess. It's a classic case of heads, we win, tails, you lose. So financial institutions collapse everywhere, but the consequences of Britain were especially were especially serious. By the time of the crisis financial services accounted for over 10% of the economy, nearly as much as manufacturing. It's a bigger part of our economy than Luxembourg and Switzerland, 1.2 million people worked in the industry, it's providing 10% of government tax receipts. It's demise left a big hole in the in it's sorry it's demise contributed to Labour's loss of power in 2010, and to the Cameron Osborne years of austerity that followed. I think there's a straight line between shareholder value, the Chicago School, and authority and austerity. They did what Jack Welch would have done, cut expenditure, stopped investment, trimmed essential services, this was shareholder value applied to the public sector. Now the coalition government did get tough on the city with Liberal Democrat business, with Liberal Democrat business minister Vince Cable, notably influential. Light touch was well untruly dead and buried, and there was no more talk of promoting the city's competitiveness. Then came Brexit, Cameron's resignation and Theresa May. Brexit came to dominate Theresa May's rise and fall, but she had some interesting things to say about the state of corporate Britain, and here's another missed opportunity coming up. She gave a speech at the Tory party conference in Birmingham and she put forward a radical plan. The leaders and consumers would be represented on the boards of big companies. Shareholder votes on executive pay would be binding. The government would have the powers to block takeovers. The taxation would be reformed to ensure that everyone had their fair share. 20 years after Tony Blair's speech, this is stakeholder value right out of Will Hutton's playbook. What happened next? Nothing. Just a couple of weeks later, the Financial Times reported this headline. Plan for UK to put workers on boards falters. Ministers explored ways to water down to Theresa May's conference pledge. The big end of town had spoken again. Much more was heard of reforming capitalism during the remainder of May's time in office, nor during the Johnson years as Brexit and Covid took centre stage. We'll pass quickly over trust's premiership, but quasi-quarté and quickly learn how important and powerful markets are. We'll move on to the current Prime Minister, former Goldman Sachs banker Rishi Sunak. Once the Covid crisis passed and Brexit turned out not to be the immediate solution to an underperforming British economy, growth rose to the top of the political agenda, and the city would be part of the answer. The new reforms of December 2022 chose, and I suppose because Edinburgh has a reputation for financial stability and prudence. Personally, I think it is the home of Fred Goodwin's RBS, but opinions differ. The Edinburgh reforms freeze up a lot of capital to invest in infrastructure and early stage companies. I think that's great. There's a little bit of a nod to the banks in the special taxes cart. Some of these bonuses are eased. Some of these measures are controversial, but it's fair to say that they could be beneficial without materially increasing risk. That can't be said of two further planned changes in the Edinburgh reforms. One of the Vince Cable clampdown was the senior managers regime which would hold senior managers in finance accountable should their businesses fail. It was meant to address the perception and the accurate perception actually that those responsible for the failures of our way never got to pay the price senior managers regime very important way of holding the sector to account. The second changes on now though is that the senior managers regime it's been consulted on at the moment and the expectation is that it will be dropped. It strikes me as unnecessary actually I think the holding people to account substantially improves focus on risk. The second change is is much worse than unnecessary. It's actually dangerous. This old regulator was replaced. There was no repeat of the mandate to encourage new products and protect London's competitiveness and other Vince Cable reform I think this gave regulators a very clear focus they're just there to regulate and it's working. We've been through a decade unusually in which there's no real. There's no there's been no major financial collapse that system is working. It's been a decade largely free of banking blow ups. But now there is new legislation proposed, which will give the present regulators a new secondary objective of delivering growth and competitiveness alongside their main objective of financial stability. We've heard this before it's back to the bad old days. The Vickers architect of the post crisis reforms describes this as this changes pointless or dangerous Lorda Der Turner former chair of a regulator calls it a mistake. It's hard to disagree. Removing the safety barriers. Removing the safety barriers because we haven't had an accident for 15 years isn't good traffic management. It's simply irresponsible. Just coming to the end now. I mean what I tried to describe this evening is an industry that during the last 50 years, moved from a cottage industry at the margin of society into an epoch defining force. Its values permeated society and its rise and fall have written the economic history of the first quarter of the 21st century. Its success before 2008 concealed fundamental problems in other parts of the British economy. It's demise after 2008 enforced in austerity on the public. There was nothing to take its place once the engine ran out of petrol. Going forward, we need to put some fuel back in the tank without over revving the engine. That means coming to terms with the big end of town, encouraging it. It's a sector that employs a million people and forms 8% of the economy, but we mustn't become over reliant on it. And that means investing in skills in science in R&D and not taking the easy way out. Stakeholder value anyone. That's it. Thank you. Thank you very much indeed. Thank you very much Philip. And as I say, if anybody has to go now is your chance. I think that was a masterful overview of the last 50 years of history and putting a whole lot of different things into the broad picture and trying to sort of bring the whole lot together. So thank you very much. Quite fascinating. I don't know if you saw but there was one particular photograph that caught my attention and I'm not quite sure if you slipped that in just to see that if we were all awake. And it was the one with the or grief banner, which must be a very recent one because if you saw they had dumped Trump and I know that Donald Trump is of some age and is surround but I wasn't aware he had a effect in the minor strike but there we are dumped Trump was there. But if you noticed right bang in the middle. There was somebody holding up a placard and it said let Philip drive. Anybody else see that. Yes. So there we are. So I think maybe that's the message let Philip drive. There's always something that is a surprise at these lectures and the surprise tonight is that are roving microphones and which usually sit in these little dockets here and we're absent. Now, I think Neil is kindly arranged that we're going to have a teeny weeny microphone for questions so if those of you who like to ask questions if you could put your hand up and try and speak loudly into this teeny weeny might because as well as being teeny weeny has got a teeny weeny sound and so any questions to Philip. Yes, there's somebody over over there yes yep. Although the financial services act 1986 supposed to bring in the regulation of the market which has been liberated 10 years earlier or so 20 years earlier. Sorry, just liberated time. The financial services act was had its holes and it has been discovered later, but was one of the big problems with the regulation not the fact that the regulator seemed to be instructed to give a very light touch. Even after the reformed act of 2000, they should say revised act, just the financial services markets act 2000. Both of these acts and the regulators could and should have plenty of rules to enforce much better standards in the whole financial service industry, just frankly took a very the regulators themselves to come very, very, you know, stand back attitude. The question was about the two acts of parliament that aim to enforce improve regulation in application. They got the nudge that they had to have a very light touch and did this have a very deleterious effect. Thank you very much for a very perceptive question on a very good very good summary. You use the word nudge and that's that that's really how it worked. The question is absolutely right there. There would have been ample room in these pieces of legislation. If the regulator had wanted to be to be pretty tough. Why wasn't it pretty tough but it's tough because as Richard said, the nudge coming from number 10 and the Treasury is actually like touch we want this to be like touch. There was an enormous amount of publicity given to light touch the Wall Street Journal was full of articles saying to us regulators why can't we be like touch like like they are in London. The financial services industry in the in the 2000s was a great appeared to be a great success. You know, you wouldn't do anything to spoil this not not when the Chancellor and the Prime Minister are kind of exulting in its success. It would have been possible but in your words Richard the not the nudge was different. The other thing I would would just say actually in answer to the question actually is that I think it's, it's fairly easy if you give someone one objective, they'll follow it.  If you give them three objectives and actually the ball gets dropped.  That's fine. Then I give them three and it would all fall over the place except that one guy came in and his father was a juggler. You didn't mention the development of Silicon Valley and the economy of the West Coast of America and the Southwest of America in your discussion at all. And the fact that in the last 10 years, these economies have developed hugely without any, any benefits coming to such developments happening in Britain. There was a talk at one point in Scotland of a Silicon Glenn but it never evolved, it just disappeared. Do you see any possible side effects from that coming over here through Brexit perhaps? The question roughly was, as well as the financial development, a big change in recent times was all the electronic Silicon Valley in the United States of America, all the development of presumably the internet and all this sort of other things like that. There was a great promise that as well as Silicon Valley in the US where we're going to have Silicon Glenn in Scotland, that didn't seem to come to anything. Has this sort of evaporated? Has it given anything to the UK economy? Yes, I didn't mention it. You're right. I had it in an earlier draft but I needed to cut some things away so I'm glad that you've brought it up. We have got a successful technology industry. My home now is in Cambridge. There are more technology workers in the greater Cambridge area than there are in greater San Francisco. It is happening in parts of Britain. When I lived in Edinburgh in the 80s and early 90s, the industry was taking off and I'm sorry if it hasn't happened. One thing that has occurred though is that British investors seem very reluctant to invest in early stage start-up businesses. And one of the intentions of the Edinburgh reforms of December, of which I was critical in a couple of respects, but freeing up £100 billion of capital tied up in the life insurance sector with the intention of having that invested in infrastructure and start-up companies. I think that might fix the problem that you've identified. Can you pin this on to the sort of failure to nurture unicorns as they're called? Can you pin that on to shareholder value and the market economy? I'm not actually sure you can. What does happen is that too often these start-ups actually choose to invest on the New York Stock Exchange and we lose head office and we lose influence. There's something there though still to be built on and I feel quite encouraged. I think if the wall of capital that the Edinburgh reforms unlocked flows the right way, we could have a pleasant surprise there. I think the hand was up here. The hand was up here first of all. Yes, just wait for the microphone. Thanks. Three years ago was that the financial industry would move to Paris and Frankfurt. It's the Paris and Frankfurt were going to be the key financial centres looking forward. What's happened to Paris and Frankfurt that we heard a lot about? Is that right? And where are they now? And if they're not there, why not? Thank you. Yes, we heard a lot about the time of Big Bang and the expectation was in 1986. The expectation was that Paris and Frankfurt would rapidly follow suit and there will be three European financial services capitals clustered around. Actually London won out quite spectacularly. It won out because actually London has critical mass. It speaks English which is the international language of finance. It has a very good legal system for adaptation to international business. It's got a whole network of support companies, legal accounting all around it. It had critical mass that made it very difficult for any other sector to compete and of course it's nurtured and encouraged by government. Then we come to Brexit and so we have a second run on this. I'm not sure if you meant this one, didn't you? So Brexit happened and the financial services industry isn't included in the post-Brexit settlement. We left to one side and that it was held would lead to a substantial flood of financial services business away from London to Paris and Frankfurt. There has been a trickle, but it's really no more than a trickle and in fact as a result of, as I understand it, as a result of yesterday's Winsor reforms, we seem to call all reforms out of place now, don't we? But as a result of yesterday's Winsor agreement, this has opened the window I think for a new agreement potentially between the EU and the city, which would give British financial institutions equivalence, so British regulations would be held to the equivalent to those in Europe. And so that danger which actually never really materialised potentially could go away if all of this happened. Just one thing I would add, actually it was the threat of losing business to Paris and Frankfurt was a stick that the industry used to beat the government with. I don't blame them for that, but I think that sort of led to this scare story really. Thank you. Somebody over here had their hand up just, what was it? Yes. By coincidence, as I switched my phone off before your lecture, I got an email in from my bank saying I've been no longer able to use my credit card for cryptocurrency. What do you think the scale of this problem is? Of this new development? Well, the Bitcoin has risen at last. The question was that the bank has told the customer that they can't use their bank card to trade in Bitcoin anymore, and is this, well, the implications of this and where might this be going? Well, first of all, I'm very sorry for you. I've had similar, similar episodes and I've foolishly been caught out on a. The bank is saying that I don't think you've been caught out. I think I've been, I don't think you've been caught out, have you? No, no, no, I think it's just one of these things that the banks are trying to forestall people prevent people getting caught out. Then I retract my sympathy, but thank you for the question. I mean, it's some, it seems to me it's something that the banks actually I think are dealing with quite well.  I think they are, they are being very quick to, to put it right. I think that if we just to talk about FinTech, as it's called for a moment, the some some results from one of the, the sort of leading FinTech banks called Revolut are out today. And I think FinTech is great. I think it can bring great benefits to the consumer and great can bring great benefits to the economy. But to be very careful, though, the pace at which this has grown is quite remarkable. And I was interested, Revolut is one of the biggest of the FinTech startup banks. And their auditors are qualifying their accounts for 2021 saying they're not quite sure they can rely on revenues. That's ringing all sorts of alarm bells for me, red flags all over the place. I suspect we'll hear more of this, either for Revolut or other companies. Bitcoin, I simply don't understand. I'm really sorry. I'm the wrong person to ask it. It's, it's had the, I've been saying that it had the, the hallmarks of a speculative bubble, the Dutch tulip crisis, I've been saying that all the way up as my son and his friends made fortunes from it, but I don't get it. Sorry. The follow up to the Bitcoin. What do you think about the way there's been talk of the Bank of England trying to sort of sort of say that this should be regulated and regulation can be taken by crooks to mean approved. I spoke about my my book agent Twister, which we can, which was about John Stonehouse and the, I wrote that as it really is an attempt to stop writing about banking but it turned out that when my co-author and I got into it we found out that the heart of the problem was a failed bank and Stonehouse had started a bank pretending that he'd got Bank of England approval when he hadn't really bang the dash. So it's a great, I mean, it's a, it's, it's a risk. On the whole, I don't believe that regulation is a bad thing. I think that a proportionately run, a sensibly run regulator does a great deal to protect the consumer and to deliver a solid foundation for a financial services sector. I think I welcome it and I well when I was a practitioner I welcomed it as well. It's, you know, it provided me comfort that the people I worked with knew that we were accountable to a regulator. It's, it's a good thing. Yes. I was asked, as I come in, not to ask an awkward question, but I believe that our problems are actually all should be deregulation and the banks. When we were deregulating and running the banks when they were trying to run the British industry, the French and the Germans were patriotically supporting their own industries and not running down BMW and Mercedes as we now support them. And it's even worse than that when the American big banks decided to help Perestroika and help the Russians. They let the olia gas of all the oil, all the gas, all the steel, all the aluminum, all the big industries, and now Putin is wanting to take them back because he was cheated. And we now have on the verge of world war three, because of the American investment banks. Is that true? Yes. I think you've thrown down a wonderful challenge to try and summarize that but I think it's on the basis that if you have an open economy then foreign people as Philip said in his talk and come and buy and sell. There isn't the same patriotism that we didn't think much of British Leyland cars at that time. The Germans thought BMWs and Mercedes were wonderful, the Americans. I don't know, they had their dodge and all the other sort of cars and I think that's so we run ourselves down and are we suffering from that. I don't know if that's a fair summary but something like that. Yeah, so this, yes, yes, so the privatization of all the Russian things that they handed vouchers out to all their citizens and then one or two people went around to these people that got their vouchers and got them off them for a ruble or whatever and then made a killing with assets stripping and things. Yeah, but thank you for the question and the summary. I do believe in, I believe in, I said a lot about what I don't believe in but I do believe in a few other things as well, I do believe in market forces. I think market forces are probably the only way to run the global economy. I do believe in the benefits of competition. I do believe that there is a national interest in certain core strategic industries and I think that these have to be protected. I don't welcome Britain's leading semiconductor manufacturer being sold off, I think there are core industries that need protecting in the national interest, I think actually banking is one of them. But it's been a very unpopular belief that throughout pretty much all of my career I've been working in and writing about this industry for, you know, well getting on for 50 years and I've always held this view and I've always been told there's no such things as a national interest. You have to open things up to market forces and competition. You do but there has to be a point where you say actually no we need this. We need a defense industry. We need our own semiconductor industry, and we need an independent financial services industry that can set its own values and that doesn't suck it all in from Wall Street. It's probably not a very good answer to your to your question but those are my core beliefs and that's how I see it. Gentlemen and gentlemen of the third rule back or forth through back in inside young. Thanks. This is a little an answer. Right. Not that many years ago, we were all encouraged to embark on peer to peer investing. My idea was that we would invest loans for people to do anything from build a new shed to start a small business and whatever. And some loans succeeded and paid quite well and some failed and didn't, but by and large we did all right. We invested in three platforms rate setter, Zulpa and funding circle, all of whom for whatever reason have decided that my money isn't good enough for them. So consequently this opportunity to take part in a stakeholder value exercise has been taken away. Have you any thoughts as to why this has happened and when are we going to get it back. This is the question about there's a time when people would deposit money in the banks and get a very, very low rate of interest and there was a huge interest margin between what you got as a depositor and what people would borrow. And the banks were very nasty and wouldn't lend to everybody. So people came up with this idea that there are people that would be willing to lend money direct through a platform. And there was a win-win there because the lender would get a better rate of interest borrowers that would not otherwise be able to get access to loans would get them. And it would be a win-win by cutting out the bankers and the platform would be the intermediary. This has all sort of happened and then the gentlemen said all these platforms have said we're basically closing up shop and you're losing this opportunity. So why is it common? Why is it sort of disappeared? Thanks. I'm not clear whether they've closed up shop or whether they've closed up shop to investors of a certain size. So it's essentially becoming an institutional market and that's what I... I mean peer-to-peer is a really good idea. It's potentially a great way to open up new sources of capital for the kind of company that can't borrow conventionally from the banks. But actually what's happened and I'm kind of sorry to hear about your experience. What's happened is essentially it's matured and it's got drawn back into the sausage machine again, isn't it? It's becoming another form of bank. Oh yes, yes. Liddy here and then gentlemen over there. Very much for a very interesting talk. Do you see any possibility that the kind of responsible capitalism that we read about from... Well, we heard of a thing from Ed Miliband. The ideas in Piketty as he called... Do you have any hope that any of those reforms will come out in my lifetime? So the question was really will we see responsible capitalism during our lifetimes? It'll be very interesting, won't it, to see what the labor manifesto is going to be next time round. What I observe actually is labor cosying up to business again and business cosying up to labor. I should say incidentally that I'm not personally politically aligned. I don't speak for any party and I have my views but I'm not politically aligned. We shall see. I spoke quite a bit about Will Hutton whose book The State We're In I think actually is, well as Tony Blair said it's going to be a Bible. Will has been chairing a group called The Purposeful Company and he's signed up quite a lot of big companies who are committed to the kind of operation that you describe. Businesses running the interests of suppliers, customers, employees as well as shareholders. It's been a useful initiative. It's had more traction than I expected. I don't see it developing into a steamroller movement. In America there's an influential group of executives. It's called the Business Round Table. They all signed up, they all signed 100 top US executives, signed a letter saying they were all going to do it. It's nibbling away at the margins. We actually need to have a massive change in tone from government. Will it come from labor? If labor form the next government, we'll see. We've had some near misses. Blair in 96, Theresa May in 2016 in Birmingham. These were very, very near misses. Maybe it'll be third time lucky. Sergio back again. Yes, yes. Thank you. Is this on? I think it's on now. Thanks for the talk. Very interesting. I don't think this is, it's on. Okay, I'll try and speak bigger. My question is that in my awareness of the financial situation in Britain, one of the big distorting factors has been the low interest rates and the inflation in the property market, which has been, I think, the highest persistent inflation in my awareness. And is this collateral damage? Is this deliberate economic policy? Is this Bank of England? So maybe I'm fair to ask a bank of this, but with, I think it's a big problem. It's distancing parents from children. It hasn't solved the housing shortage, etc. Thank you. In recent years, when the Bank of England has pumped money into the system under there called quantitative easing, free money comes with its cost, and the cost is loaded return for depositors. And the other cost is that if you were buying a property, then if nobody's charging you any interest, you can pay more huge house inflation and the disconnect in society between those that do have the property and those that are trying to get a property which get even further out of reach the implications for society of that. Thank you. So two sort of separate issues, really low interest rates and property inflation. Where do low interest rates come from? Well, low interest rates starting to start with low inflation, actually. So when inflation is when inflation is low, real interest rates, nominal interest rates are going to be very low as well. So that that is must be born in mind. The central bank policy Richard spoke about quantitative easing, but at a particularly post financial crisis. The judgment of central banks was that economies weren't robust enough to handle real substantial real interest rate increases. So that's why that's why interest rates are so low. Why does that feed through into into into property inflation what it's partly quantitative easing pumps a lot of money into the system. Partly it's because there's been growth in real wages. Partly it's because financial institutions fit able to take on more risk because of this, this financial technique called securitization where they take on a loan, parcel it up and pass it on to other institutions, it could be a bank it could be a hedge fund it could be a private equity firm. One of the reasons is it changes the lender's appetite for risk. If you're carrying the risk on your balance sheet, then the the inclination is to be is to be risk averse. If you're passing it on to someone else, then credit standards drop, and you start to get a kind of an explosion in the in the mortgage market it's it's a kind of combination of all of those things I think. You have something big you give you some exercise and you'll go right to the very back. We are he's running as well so that's quite impressive. Thank you. Thank you. You're still showing the slide of the safety barriers, which ended your talk. And I wonder if this isn't a bit of a euphemism, which is as obsolete as the old boys club attitude system which you described at the beginning of your talk. We're not up against the system which produces mishaps and accidents, which is what safety culture would engineer against. We're up against organized criminals and gangsters, one of whom is in command of a nuclear superpower. What can the financial services industry do to reform its governance to deal with the organized criminality within its ranks. The regulation of financial services is wider implications. I'm how do you deal with a world in which somebody who the question or referred to as a gangster is running a country and seems to be able to finance his country and and mentioned was made of the safety barrier up here what effective regulation could be done to actually work in the real world I think. So that feels like another talk. Frankly, probably given by someone else. I mean it's a, it's a, it's just very, very hard to make these things stick unless absolutely everyone sticks to the safety barriers, and they don't. And that's the world we live in. I'm glad you mentioned the safety barriers, because I think it's, it's a really important job of government. This mantling the barriers is not just risky it's absolutely irresponsible, and that I really hope that there's a consultation going on in this country at the moment about the relaxation of some other regulations I hope that consultation produces a sort of a balance proportionate and safe response. I have my doubts but I hope it does. Yes, I'm just a few yes Neil a few. Yep, that's fine. Given the current focus on growth. Is it realistic to expect the achievement of growth through tackling the ills of productivity, rather than resorting to usury is that feasible. We want to get some growth back in the economy. Can it be achieved by increasing productivity rather than by what ramping up loan interest rates and squeezing things out financially. Really, really, a really, really important question. So how do we get growth back into our into our economy. And let's let's be clear the financial services sector has a big part to play in this. It's still providing 10% of tax receipts. It's still employing over a million people. It is a highly skilled knowledge based sector, and we have to we have to grow it but we have but we have to grow it responsibly. The explosion of the financial sorry that's not an appropriate word, the rapid growth of the financial services industry in the first few years of this century concealed fundamental weaknesses in the rest of the economy. And while we were congratulating ourselves on what a great success financial services was, we were forgetting to invest in, you know, in other industries. The right conversation is happening. We need we need to we need to find growth. So where does growth come come from. It comes from it comes from investment. It comes from increased expenditure on R&D. It comes from science. It comes from innovation. And it comes from skills. There's a serious skills gap in this country. It's it's there at absolutely every sector. In the in the sort of entry sector. There's a skills gap in care homes in agricultural workers in the trades. There's a skills gap. It's hard to get a plumber or a carpenter where I live at the higher technical level. We don't have enough by our scientists data scientists at the at the graduate level. We have critical gaps in software engineering. It's all the way through. I think actually addressing the skills issue is is we have to go right back to the beginning. There are no quick fixes here. We have to start and build from the bottom up. And I think the combination of skills and investment probably start to start to get us there. But this is going to this is going to take time. It's really going to last it's going to take longer than one government cycle and and it really needs absolutely wiring into our into into our fabric essential. Our president has indicated that she would like to ask a question I think, and I think my life wouldn't be worth living if I didn't allow the president to have the last question pat. Thank you. I thought you were ignoring me all together. You said higher education, for example, or the National Health Service and other areas is competition, always a good thing. Question about the market economy and whether competition should be restricted to or should not be present in certain presumably monopoly public service things like the health service and education, and whether competition is a bad thing and causes more harm than good. I think that's what the lawyers would call a leading question. I don't personally I don't think that competition belongs in the public sector. And my definition of the public sector will be much broader than the current definition. I think a lot of the privatized utility utilities actually belong back in the belong back in the public sector. I don't want to see competition in the in the water industry. Lots of places I don't really want to see competition in the health service. I want the public sector to be run by in the in the in the interest of the public properly run by by by sensible managers properly resourced and delivering the kind of thing that the electorate in throughout Britain expects and deserves competition is a good thing in the right place. And for me that's the that's the private sector. Well thank you very much for that I think we've come out for I don't know what you're expecting always with these talks one never knows quite and whether it's going to be wonderful or whether it's going to be exceed or reduce expectation I think tonight it's been a breathtaking perspective over the last 50 years, a whole lot of things coming together and we much appreciate, as Philip says in memory of sport, having come up to give us this fascinating talk and to be willing to answer even the questions that he was thinking was beyond his ability so thank you very much indeed from all of us. Thank you very much and thank you all for staying for to the end I much appreciated great questions to thank you. Thank you.