Margaret Thatcher is dead. Many bankers in the City of London will lament her passing. Without Thatcher, the City would be a very different place in which to work. Bankers who lived through Thatcher’s transition tell us ‘the Lady’ should be celebrated for the following particular services to Britain’s financial services industry.
1. She abolished exchange controls
It seems strange now, but when Thatcher came to power in 1979, Britain was under the influence of exchange controls which restricted overseas sterling investment – except where it had a favourable effect on the balance of payments. Among other things, the controls stated that UK residents could only hold restricted amounts of foreign currency.
“By abolishing exchange controls in 1981, Margaret Thatcher pulled the trigger that made London the international financial centre of the world,” said David Buik, the City veteran who retired from Cantor earlier this year.
2. She cut income tax
In 1979, the top rate of income tax in the UK was 83%. Margaret Thatcher promptly had this cut this to 60% in the 1979 budget. In 1988 the top rate of income tax was cut again, to 40%.
Buik said the tax cuts made a huge difference: “They changed the whole culture of life in the United Kingdom and gave ordinary middle class lads like myself the chance to make a bob or two.”
Christian Robbins, a headhunter who was working as a money broker when Thatcher’s tax cuts were implemented, said a cheer went up on the trading floor when the move was first announced. “There was a great hurrah,” he recalled.
By cutting income tax, Thatcher also made it worthwhile for banks to pay people more. Pay crept up slowly at first, however, rising most dramatically during the years that Tony Blair was prime minister. In the mid-1990s, there were only a handful of people being paid £1m at Barclays, said Martin Taylor, the former chief executive of Barclays: the really dramatic increases in City pay came around the turn of the millennium.
3. She made the City a meritocracy
Thatcher’s government championed the October 1986 Big Bang deregulatory measures that heralded US investment banks‘ rampant expansion in the City of London. In 1984, for example, Goldman Sachs only had 140 people in the City. By 1988, it had 800. Today it has around 6,000 working in the UK.
“Margaret Thatcher took a very elitist, sleepy, classist place and opened it up to everyone,” said Louise Cooper, financial analyst at Cooper City and a former employee of Goldman Sachs in London. “I came from a state school and although I had 5 As at A level and a first degree, British banks didn’t want to know me simply because I was a comprehensively educated woman.
“Margaret Thatcher paved the way for American banks to come into the City. Without US banks, a comprehensively-educated girl like me would never have been hired by the old British firms. She opened up a career that would never have been possible,” said Cooper.
4. She made the City of London a world leading financial services centre
Without Margaret Thatcher’s support the City would be a shadow of its current self, said Brian Winterflood, president of Winterflood Securities.
“Margaret Thatcher was at the forefront of the Big Bang, which provided a huge boost to the City of London,” said Winterflood. “Before the Big Bang, London was number one in Europe and a much more important financial centre than Frankfurt or Paris, but we were dealing with much smaller volumes of securities. Thanks to the Big Bang, London became the pre-eminent financial services centre in the world.”
“By abolishing exchange controls and pulling the trigger on the Big Bang, Margaret Thatcher made London the leading financial services centre in the world,” agreed Buik.
“Had it not been for Thatcher’s reforms, I would guess that we would have a major competitor somewhere in Europe,” said Adam Pollock, head of broking at Panmure Gordon and a former banker at Lazard. “London would find itself one of two major European financial centres – there would be us, and there would be Frankfurt.”
5. She created financial services jobs
As the UK’s financial services industry expanded, so did financial services employment.
The Centre for Economics and Business Research cites statistics from the Office of National Statistics which show that financial services employment in the UK increased from 818,000 in 1979, to 1.2m in 1990.
6. She facilitated a massive increase in banking pay
Although banking pay may not have risen instantly upon Thatcher’s deregulation of the City, deregulation of the financial services industry has been directly linked to increasing banking pay. The chart below, from analysts at SocGen, demonstrates the correlation between average pay in the banking sector and bank deregulation in the US.
Tony Greenham, a former banker at Barclays and Credit Suisse who is now head of business and finance at thinktank the New Economics Foundation, said Thatcher and Reagan were a major force for deregulation and that both propagated blind faith in deregulated financial markets. “Pay in the City increased a lot after the Big Bang. Allowing American banks into the London market brought a bonus culture and allowed the creation of very powerful unified investment banking institutions,” said Greenham. “Those banks had monopoly power, meaning they were able to raise their fees and to pay more. You could argue that Thatcher directly paved the way for the crash of 2008,” he added.