Below is the text of Mr Major’s speech made at the opening of Smith New Court in London on Wednesday 1st May 1991.
The last time I came to the City was in fact the day I became Prime Minister. I am not entirely sure how you are going to beat that and I hope on this occasion at least you won’t try. I am very grateful to you Sir Michael for the invitation to join you today. It is always a splendid thing to be able to declare open magnificent new offices like these. And also to congratulate a successful British enterprise. Because of its importance both domestically and internationally it is especially welcome to be able to do so in the City.
I am particularly pleased to be opening these new offices for a special reason. I believe they do symbolise the continuing growth and global interests of the City of London. In the last twelve years or so, in my judgement, no one can deny that the City has thrived. It has been a success story. It has secured London its prime international position. That is the position that everyone in this room and beyond it in the City must keep.
The achievements of London and the City are formidable and some-times I think we overlook them and push them to one side. They deserve a far greater importance than many people will sometimes give them.
– London has built up the largest foreign exchange market in the world.
– It is second only to Tokyo as an international banking centre.
– It was the birthplace of the Eurodollar. The Eurobond market could have settled anywhere, but although the world’s bankers and brokers looked everywhere around the world, in the end they chose London. London is now the base also for three quarters of the trading in Eurodollar bonds.
– London has long been a world centre for insurance and for fund management, a role it is of course happy to share with the Scottish financial centres. It remains, well perhaps not quite happy, but it will jolly well have to be happy because the Scottish financial centres are extremely good too!
– It remains by far the largest centre in the world for international equity trading.
– More foreign companies choose to be listed in London than anywhere else in the world.
– In 1990 the turnover on the London Stock Exchange was the third highest in the world behind only Tokyo and New York. Of that turnover almost half was in overseas stocks. A far higher share than any other mainstream stock exchange.
That is a very remarkable record and one that London can be proud of. London’s markets are growing day by day, all the time. In only a few years we have become a leading centre for futures and options and that will be reinforced When LIFFE merges with the London Traded Options Market.
I think we may occasionally ask ourselves why is it? Why is it that London has been so successful? I believe that answer is clear cut and simple. It is the skill and innovation available in the City that has made London so pre-eminent. I think there is a second reason too, that I hope you will forgive me if I mention.
That is that Government policy on many occasions has been vital to that progress. From the abolition of exchange controls in 1979 right the way through to the other changes in the 1980’s and the corporation tax reductions in the latest budget, Government policies have clearly contributed to the success that we have seen in the City. By de-regulating and by privatising and by reducing the burden of taxation, Government has created the freedom which has allowed the financial sector to flourish. At the end of the day it is the enterprise of the City, your enterprise, that has actually grasped that freedom and turned it into the success that London has been over the last decade.
There are I believe two recent developments which will have a particularly vital role in strengthening London’s position and long term prospects.
Firstly, our decision to join the Exchange Rate Mechanism last November was in my judgement a matter of enormous importance to our future prosperity and our efforts to stay competitive in Europe and beyond Europe. Second, and in consequence of that, we are achieving real success in the battle against inflation. Already the headline retail price index figure is down by nearly 3 per cent since last October. The April figure to be released later this month will show a further dramatic fall from the present level and inflation will then go on falling throughout this year and into next year.
There is an important message there for the future. The initial impact of a financial deregulation, which caused the surge in lending and distorted the statistics we need for economic management, has now worked its way through. We have put in place measures to improve those statistics. But most important of all we are now members of the Exchange Rate Mechanism with all the anti-inflationary discipline that that entails. With those barriers against inflation, we are now better equipped than ever before to prevent a recurrence of inflationary trends and I regard that as being of immense importance.
Looking to the future, London is well placed to benefit from new challenges. Not least the challenge immediately in front of us, indeed in many ways here and now, of the European single market. There is no way whatsoever that we can rest on past achievements, unless of course we wish to stagnate. In a world of highly competitive, highly mobile markets, even the achievements that outlined a moment or so ago in no way guarantee our future. Competition has become more intense in the last few years and yet despite this I am confident London will be able to compete, to build on its role as Europe’s financial centre of the future.
We are looking forward in Europe both to the single market in finance and to the global market that is developing around us so very rapidly.
– We already have in SEAQ the cornerstone of a pan-European market in shares. It is a market created not by and for Government but by and for the users and suppliers of capital.
– London’s stock market has created European share indices. London will soon be trading futures on those indices, opening up a pan-European market in derivatives. All remarkable moves forward in London.
– London too is already the centre of the cross border market in bonds. We were, after all, trading Eurobonds decades before the 1992 programme was ever thought of. We will be able to dedicate this expertise to the increasing integration of domestic bond markets.
– We can look forward to growing business links with Eastern Europe as those countries join the commonwealth of market economies. The opportunities that exist at present and will be there throughout the 90’s and beyond are very substantial indeed.
London in my view is more than just a financial centre for the European community. The Eurobond market should remind us that financial services are now truly international. The Eurobond market is a global capital market. Banking and insurance of course have long been global. Securities and other sectors are now clearly going in the same way. We cannot, and we should not, try to draw arbitrary lines around one country or even a group of countries, even those as important and influential as the European Community.
There are now well over 500 foreign banks in and around the Square Mile. They are most welcome. Of course I am gratified to read of the success of British companies, but it is the cosmopolitan nature of the city that I believe is its true glory. The City and Government collectively issue an invitation to the world: come to London and compete here in London against the best there is in the world. Many have accepted our invitation. The European Bank for Reconstruction and Development, a very welcome addition which arrived only last month, is the latest to do so. I hope that many more will follow.
The Government has been working hard to develop links with New York, Chicago, Tokyo, links to change regulatory systems and facilitate cross border business. Now Michael, I of course am only too well aware that there is still too little understanding of what the financial services sector really does. The enormous contribution that the City makes to the economy. That contribution is, and I use this term literally, immense.
It is easy enough to quote the bald figures showing the net contribution of financial and other services to the balance of payments – between £6 billion and £9 billion in recent years. All the main sectors make a positive contribution.
One perhaps in another way could quote the contribution of the financial sector to our national income: together with other related services it provides one job in every eight and an even larger share of GDP. Beyond that there is a deeper sense in which the role of financial services needs to be understood: as a support system to the rest of the economy. To manufacturers, retailers and to ordinary people in their daily lives.
Imagine for a moment and I invite you to stretch your imagination. Imagine for a moment a world without banks. I saw in some sectors a shudder of apprehension at the thought. But imagine a world without banks. All your money stuffed in a mattress. A world without fund management or pensions. It would have to be, you can see, a very large mattress indeed. A world without insurance as well. So it had better be a very well guarded mattress indeed.
Imagine then a world without securities. No one would be able to raise funds for investment, except by traipsing round the world begging from each and every wealth-owner. Without commodity markets we would still be at the mercy of the harvest and acts of God. Without shipbroking we would never know whether our goods would ever reach us. A modern economy needs a healthy financial services sector. Of course the City and industry don’t always see eye to eye. It would be odd if they did. But neither side should ever question their inter-dependence.
There are perhaps as many reasons for London’s success as there are firms that have settled here. There are London’s long standing virtues: an enterprising tradition, an international outlook, a concentration of expertise in all the main areas of financial activity. There is a willingness to innovate and take up new challenges. In addition to that there is the very tangible gains of having the international language of business, English, and a tradition of probity based essentially on English Law.
All those are important. The City offers a host of contemporary advantages as well. Freedom from exchange and capital controls. Sympathetic tax treatment of new financial products. A firm but flexible system of supervision. And a Government committed to de-regulation and liberalisation. As an example of this perhaps I may mention Britain’s lead in developing an advanced telecommunications system on which so much of modern business depends. Now I could continue upon that theme, though you will be familiar with many of the matters I would raise.
London can boast the world’s largest urban regeneration project. Four new international air terminals in the last four years. New railway connections to the heart of the City are now being planned. All of those collectively, and indeed individually, help to give London the edge over other financial centres. The City combines a tradition of service and enterprise with the very best of modern technology and professionalism. These impressive new offices, formally being opened today, demonstrate Smith New Court’s determination to equip itself with nothing but the best.
In recent years the City has undergone a revolution. A time of change in which talented people have seized opportunities, worked to compete and taken the lead in financial innovation. In financial services Britain continues to lead the world. Not through the imposition of Government plans, nor by sheltering behind protective national barriers or clinging to outdated practices; but by tapping our own enterprise in the City and by challenging the rest of the world to meet it.
That is a very remarkable achievement. Those people who think the glories of the City lie in the past should look at what has actually been achieved in the period of even just the last decade to see how inaccurate that would be. This pattern of innovation, of change and raising and changing one’s mind to move ever ahead with the new technologies and new ideas that come before one: that must be the way ahead in the 1990’s. It was, it is and will be in my judgement the only way ahead for us in the 1990’s.
That is the spirit of the Britain that we need to create if we are to compete successfully in an ever more competitive world. Michael I am delighted to have had your invitation to join you here today. For this simple reason. This building symbolises that attitude. I am delighted to be here today, to be part of this occasion and to formally declare it open.
MICHAEL HARKS – CHIEF EXECUTIVE OF SMITH NEW COURT
Smith New Court is part of what has become to be called The Securities Industry. It is an important industry for Britain and one of the few industries where we have a legitimate claim to be a world leader. This, I suggest Prime Minister, is acknowledged by your presence and your speech here today. On behalf of us all, thank you.