Last month, the Warwick Economics Summit (WES) premiered on its YouTube channel a 36 minute exclusive interview with Sir Howard Davies, Chairman of the NatWest Group, a British banking and insurance holding company. In the interview, topics discussed included financial regulation, Brexit’s consequences on the UK’s financial markets, and the government’s stakes in NatWest. This dialogue mainly sheds light on the broader implications and challenges faced within the post-Brexit financial landscape.
On June 23, 2016, the United Kingdom made the pivotal decision to exit the European Union, establishing a sense of uncertainty about the implications of Brexit, particularly for European financial systems and the UK’s capital markets.
As a result of Brexit, the UK pulled out of the single market and customs union in 2021, causing EU member states to face new rules, paperwork, and checks on goods when trading with the UK. This led to an initial dip in the amount of goods exported to the UK, as Brexit promoted integrated, free trade within EU member states. As seen through a recent survey conducted by the British Chambers of Commerce, this trend has continued as more than half of previous trading partner firms are still grappling with the new system. The Office for Budget Responsibility notes that the UK’s “trade intensity” (trade as a proportion of GDP) has fallen significantly, and considerably more than in other advanced economies. Brexit’s imposition of new non-tariff barriers has also had a large negative impact specifically for smaller firms. These firms have fewer resources available to face the great export disruption and supply chain segmentation arising from new trade barriers between the UK and EU.
When asked about Brexit’s impact on the UK financial markets during the interview to WES, Sir Davies spoke about his concern about the UK moving away from being the the “onshore center of Europe”, but noted that he still believed London would keep being the “offshore centre of Europe” for finance due to its relative competitive advantage in many sectors. Brexit poses a drawback for London as most firms are not inclined to work under a distinct set of UK-specific regulations — they would much prefer that both the EU and the UK had similar legislation the way it was prior to Brexit. For Sir Davies, “the disadvantages of Brexit have turned out so far to be somewhat less than many people forecast, but the advantages of Brexit I think are very hard to see.” While the predicted drawbacks of Brexit have not been as severe as anticipated, Sir Davies remains skeptical about its tangible benefits.
Brexit has also cast a shadow on investment within the UK, as businesses and firms remain reluctant to invest in the economy. Analysis done by the think tank UK in a Changing Europe, which conducts social science research on Brexit and its consequences, suggests investment would have been 25 percent higher than it currently is if it were not for Brexit. Thus, the current hesitance to put money into investments has resulted in an economy that operates below its potential, functioning with reduced efficiency and performance.
The next topic addressed in the discussion was financial regulation. Sir Davies stated that “if you write the story of financial regulation for the last 25 years it’s a story of reaction to events.” Past global events, notably the 2007-2008 financial crisis, has significantly influenced the global economic landscape, leading to a shift towards regulated markets. Regarding digital technologies in finance, the interviewee also stated that within the banking industry there has been an impulse in the financial system to push customers towards digital methods “because it’s cheaper.” This, as he later pointed out in the interview, fails to consider demographics, like the elderly, who might be less proficient in using technology, highlighting how digital services might not effectively contribute to financial inclusion. According to the World Bank, financial inclusion means that individuals and businesses have access to financial products and services that meet their needs, delivered through responsible, sustainable, and accessible means. It is also a key enabler to reduce poverty and boost property within countries.
Turning to his views on the government stakes at NatWest, the Chairman believes the winding down of government ownership of the company would “change things for the better,” as the bank would receive long-term freedom. The government originally intervened in NatWest with the objective of protecting financial and economic stability during the 2008 Global Financial Crisis. Now, however, the government selling its shares poses several benefits for the company, including reduced fiscal risk, generation of revenue, and increased investment attractiveness, as NatWest will no longer be limited by government restrictions and guidelines.
For more information and insight into this discussion, the full interview, which is the second of the series “WES Perspectives” for the 23rd edition of WES, can be watched on the Warwick Economics Summit’s official YouTube channel at “Sir Howard Davies, Chairman of the NatWest Group.” This interview is a glimpse into the discussions awaiting attendees of WES2024, the next edition of the student-led conference hosted at the University of Warwick that brings together scholars, policymakers, and global leaders to delve into pressing matters. Beyond the traditional realms of economics, WES shines a spotlight on a diverse tapestry of disciplines, including politics, journalism, international relations, psychology, and more. At its core, WES aims to promote an exchange of diverse perspectives on these topics.
The heart of this summit is centered on keynote speeches, specialized discussion panels, and workshops. Notably, WES has had the privilege of hosting esteemed speakers, including nineteen Nobel Prize laureates and heads of state. Among these remarkable figures are Edmund Phelps, the laureate of the 2006 Nobel Memorial Prize in Economic Sciences, and Tarja Halonen, the former President of Finland, who graced the stage during last year’s summit.
Joe Lynman, a BBC journalist and moderator, attested to the conference’s growing prominence and array of speakers, stating, “I’ve attended dozens if not hundreds of conferences. I’ve spoken at plenty which were shambolic with non-entity guests. The WES certainly wasn’t one of those. The calibre of speakers was as good as anything I’ve seen — including Davos. The team who run WES are a role model in thoroughness.” WES 2024 is set to take place from February 2 to 4, 2024, welcoming both in-person and virtual delegates.
- Warwick Economics Summit – Home Page
- WES – Speakers
- Discussing the Future of the UK’s Financial System: A Warwick Economics Summit Exclusive Interview with Sir Howard Davies, Chairman of the NatWest Group – Newsletter
- WES 2024 Perspectives – Sir Davies Interview
- NatWest – About
- International Journal of Financial Studies – Impact of Brexit on Financial Markets
- Global Times – EU Economics Continue to Reel
- BBC – What Impact has Brexit had on the UK Economy?
- Office for Budget Responsibility – Economic and Fiscal Outlook
- Journal of the Academy of Social Sciences – Brexit, trade and UK advanced manufacturing sectors: a Midlands’ perspective
- The World Bank – Financial Inclusion
- Gov.UK – Government sells £1.26 billion of NatWest shares reducing stake to 38.6%