Emma Barrett is a doctoral researcher in Modern History at the University of Birmingham. Her research interests are the ideological and material interests behind financial deregulation in the 1980s.
So began John Redwood’s 1984 ‘“fairy tale” on reform of the Stock Exchange’, in which he likened stockbrokers to medieval barons who operated the Exchange like a cartel and pillaged from hardworking peasants.
My research into Thatcher’s financial revolution follows networked individuals, chiefly ‘financial politicians’, those like Redwood, who possessed City backgrounds relevant to performance of their role as politicians; and ‘political bankers’, financiers who exercised political influence in or beyond their own sphere.
This conceptualization affords a network analysis of financial deregulation, revealing differing motivations for reform, and importantly, the working of power in modern Britain. Broadly, key political bankers acted to protect and enhance London’s status as a world financial centre, while principal financial politicians eschewed a rigid plan for the City in favour of an overarching strategy of purposeful intervention. Their objective was to create and maintain markets which would endure a period of rapid change.
Redwood was the consummate ‘financial politician’: He moved seamlessly between City and Government and in 1984 was Head of Thatcher’s Policy Unit, a strategic operator who formulated City policy underpinning financial deregulation.
According to Redwood’s fairy tale, the wise and benevolent Government ended abuses associated with monopolistic practices by introducing free market competition.
Reform of the Stock Exchange was planned by the Government and City from 1983 and was effected on 27 October 1986, thirty years ago this week, when restrictive trading practices ended and computerised trading began.
Changes were implemented on one day to ensure market stability, giving rise to the term Big Bang. The moniker also anticipated an explosion in the volume of transactions resulting from technological capability and Thatcherite Government policy – notably privatisations and the pursuit of a share-owning democracy.
Demolition of the Stock Exchange castle opened the City to international competition, confirmed London as a world financial centre, and established a global economy by freeing capital of any origin to be traded anywhere in real-time.
Culturally, Big Bang marked the ‘death of gentlemanly capitalism’ as new market entrants, mostly foreign multinationals, were impervious to traditional informal methods of ‘moral suasion’ famously exercised by the Governor of the Bank of England. New regulation accompanied Big Bang – notably the 1986 Financial Services Act which introduced a system of self-regulation under a statutory framework, granting the industry a high degree of autonomy.
From 1983, merger and acquisition activity was rife: firms expanded as stockjobber and stockbroker operations (which had previously functioned distinctly) were bought-up by those seeking to offer a full range of services. Changes in ownership structures meant well-capitalised multinational corporations quickly dominated the landscape, seeking easy access to European markets, and the advantages of Britain’s relaxed operating conditions. Their presence led to a ‘Wimbledonisation effect’, as small domestic firms were absorbed and increasingly top players on City turf were foreigners. Geographically the City expanded from the Square Mile to Canary Wharf, fuelled by North American investment capital. Cultural change associated with financial liberalisation was compounded by big City salaries and the phenomenon of the yuppie.
London emerged from Big Bang as a global city for world finance – alongside Tokyo and New York. Its physical location between the two facilitated 24-hour world trading. Language; London’s established infrastructure and access to markets; and its desirability as a place to live added to its attractions. Yet these natural advantages were augmented by political actors who intervened to protect the City by pursuing free markets, light-touch regulation and a low tax regime.
The City, from the time of Big Bang, has evoked a North/South, haves/have-nots binary divide, which is part of a Thatcherite legacy embedded in the British psyche. Thatcherism embraced structural change whilst its policies and practices hastened Britain’s shift from a manufacturing to a service sector economy. Strengthening London as a world financial centre was a strategy to arrest Britain’s domestic and international decline, while providing for the UK economy as a whole.
However distasteful and amoral light-touch tax and regulation is perceived to be, Big Bang ensured the centrality of financial services to the UK’s growth model. In the absence of a viable alternative strategy, UK plc is heavily dependent on its financial sector as the City contributes disproportionately to UK GDP, with financial and related services accounting for 14.5% of GDP in 2014.
In the context of Brexit this truly matters – for the City, in general, was pro-Remain and has since denounced the effects of a hard Brexit for it and implicitly, therefore, the country. During the referendum campaign the Bank of England was accused of acting politically, and while it surely had a duty to articulate concerns, it does have a long history of political intervention on behalf of the City, especially when its status as a world financial centre is at stake.
More recently American giants Goldman Sachs and Morgan Stanley expressed concerns about the potential loss of EU pass-porting arrangements which allow seamless transactions throughout Europe. They have issued warnings about relocations and tens of thousands of job losses in the City. Clearly competitive advantages obtained with Big Bang are now considered at risk.
The rationale for Big Bang was to win competitive advantage in world markets. If London is to retain its status as a world financial centre and provide for the UK as a whole, it must have easy access to world markets. The history of Big Bang tells us that political actors, particularly those at the heart of Government, are highly likely to intervene to protect the City in the interests of the economy. Yet it is difficult to reconcile Big Bang and Brexit, for there is a contradiction between Conservative advocacy for free markets and a desire to knock down the Stock Exchange castle on the one hand, and advocacy for withdrawal from the EU, and thus the single market, by building a wall around fortress Britain, on the other.