IEA releases report on financial services and the benefits they bring to all

Industry News | 06/03/18

The much-maligned financial services industry is a crucial part of everyday life. Contrary to popular misconceptions, its greatest benefits are felt by the less-well-off and middle classes. The economic function of the financial services industry is to reduce transaction costs for saving, for protecting against major risks, providing for an income in old age, acquiring capital to start a business and for making every day transactions. The costs of these things for most people would be prohibitive without the modern financial services industry.

A new report from the Institute of Economic Affairs debunks the commonly held idea that financial services are “socially useless”, and demonstrates that, despite having intangible outputs, the sector is vital to consumers regardless of income. Moreover, the oft-proposed remedy – increased statutory regulation – may heighten rather than mitigate the exposure of taxpayers and households to recessions and speculative bubbles

The financial services industry is one of the UK’s most productive and the increased regulation of the sector has contributed to the decline in productivity. Half of the UK’s financial services output is exported, thus helping to finance the import of (mainly) manufactured goods.