Chancellor Confronts 'Hard Truths' About City's Status at Critical Moment
Chancellor Rachel Reeves has received a stark warning that Britain's financial ecosystem stands at a "critical juncture", despite her recent promotion of a potential "golden age" for the City of London. The alert comes from a comprehensive report by lobby group TheCityUK and consultancy giant PwC, which challenges optimistic narratives with what it terms the "hard truth" about the sector's performance.
Report Reveals Decade of Underperformance
The influential study, which surveyed 300 key figures from City government, regulators, and academia, reveals that Britain's financial sector has lagged behind wider economic growth over the past ten years. It outlines five critical imperatives for action that could generate nearly £53 billion in additional economic output by 2035 if successfully implemented.
Miles Celic, chief executive of TheCityUK, emphasised the urgency in comments to the Sunday Times, stating: "If we keep going the way that we're going, we are risking a period of relative decline: the industry declining as a share of the economy but also the industry declining comparative to our major competitors." He described London as a "burning platform" requiring immediate changes to supercharge growth.
Golden Age Speech Overshadowed by Market Turmoil
This sobering assessment arrives just one week after Chancellor Reeves was scheduled to deliver a speech at the London Stock Exchange proclaiming the "first signs of a new golden age for the City" following regulatory changes. The Chancellor ultimately cancelled the Monday 19 January address after President Trump's latest tariff offensive sent shockwaves through global markets, prompting an emergency press conference by the Prime Minister at Downing Street.
The PwC and TheCityUK report urges the government to double down on supporting the City, highlighting its crucial role in generating more than 11 percent of national economic output and contributing £12 in every £100 of tax revenue collected.
Tax System Branded 'One of Least Competitive'
Key recommendations from the report focus squarely on regulation and taxation, calling for accelerated implementation of proposed measures. It specifically targets Britain's tax system, branding it "one of the least competitive in the world" due to levies imposed on financial services firms.
The report notes that London lenders' total tax rate increased by 0.6 percent to 46.4 percent in 2025, according to lobbying efforts from industry body UK Finance ahead of the November Budget. Banks currently face a sector-specific surcharge of three percent (reduced from eight percent under the previous Conservative government) on top of corporation tax, VAT, property taxes, national insurance, and other business levies.
Regulatory Hurdles and Talent Drain Concerns
The study calls for simplification of the Financial Conduct Authority's authorisation process for senior individuals seeking to work in the City, which is currently under review. It also emphasises the importance of advancing tokenisation initiatives – converting ownership rights of real-world assets into digital tokens on blockchain – and urges the government to create a stronger regulatory framework for this emerging technology.
Addressing the UK's personal tax regime was described as "critical" in the report, which warned that current policies are driving senior professionals toward other financial sectors. The decision to scrap the non-dom regime in Chancellor Reeves' first Budget was said to have "weakened" Britain's ability to attract entrepreneurs and internationally mobile talent.
Investment Culture and Pension Potential
The report further highlights Britain's struggle to remain a "destination of choice for talent" as tax regimes in locations like the UAE and Milan threaten to draw wealth creators overseas. It calls for incentives to lure back talent alongside fast-tracked visa arrangements.
Beyond talent retention, the study identifies reforming Britain's investment culture as crucial, noting that just eight percent of household wealth is invested in equities, mutual funds, or bonds compared with 30 percent in America. Pensions were highlighted as another major avenue to inject capital into the UK economy and help meet the government's goal of investing £725 billion in infrastructure by 2035.
However, the report cautioned that the rapid increase of public finance bodies like the National Wealth Fund and the British Business Bank has made it more difficult for entrepreneurs targeting innovation to secure funding.
Government Response and Reform Agenda
City Minister Lucy Rigby responded to the report's findings, stating: "This government's ambitious reform agenda is designed to unleash the full potential of the financial services sector including by ensuring regulation is fit for purpose, backing innovation and ensuring that we retain our competitive edge."
The comprehensive assessment presents Chancellor Reeves with both a challenge and roadmap as she navigates what industry leaders describe as a pivotal moment for London's financial sector, balancing optimistic projections against structural realities that require immediate attention.
