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How to fix the broken economic system

15 September 2017

Regulation alone is not enough, says Hector Sants — and there is a crucial part for the Churches to play

THE Archbishop of Canterbury made headlines last week when he argued that the British economic model was “broken” and in need of fundamental reform (News, 8 September). Writing in the Financial Times, to coincide with the launch of an interim report of the Commission on Economic Justice, Archbishop Welby lamented “a profound state of economic injustice”, and said that most people wanted an economic system that was “in the service of human flourishing and the common good”.

The Archbishop was right to say that the economic system is not working. Consider these alarming facts: 1.5 million people do not have access to a bank account; 2.9 million people are in financial distress; the charity that I chair, StepChange, estimated in 2015 that 8.8 million people were over-indebted, and a quarter of the population had savings of less than £500; and 13 million people lack adequate savings to deal with an income shock.

The personal cost of this is harrowing. For example, more than two-thirds of Christians Against Poverty’s clients visited their GP owing to the negative impact of their financial problems, and one third of them have contemplated or attempted suicide.

There is a strong argument to be made that financial distress is the biggest cause of social detriment in this country today.


IT HAS traditionally been argued that these problems should be solved by the public authorities: the Government and the regulator. This is combined with exhorting the management of financial-services firms to “behave better” and to improve their culture.

Speaking as a former regulator, I believe that this approach will not deliver a fairer financial system. A new, holistic, integrated approach is needed, of which regulation is but one component. An integrated approach would include significant change in the following areas:

Regulation. In my view, we need to recognise its limitations. The best approach is a mix of principles and rules, combined with flexible supervision and determined credible enforcement. Furthermore, we need a duty of care to consumers, and a recognition of the specific needs of the vulnerable.

Industry Standards. We need an approach that combines industry standards with official regulation. Industry standards are necessary to ensure the support of practitioners, and ensure that the regime is responsive and flexible to changing circumstances.

Financial Education. Financial education and capable consumers are vital to any successful financial system. This will require a considerable investment by the Government, and intervention throughout the curriculum to ensure that it is given sufficient time in schools.

Culture/Ethics. It is recognised that, without the right culture, and however good the regulation is, the outcomes will still be poor. Companies need to increase their focus on serving the common good through the actions of their institution and their employees. This requires the right culture.

Delivering a good culture requires clear corporate purpose, strong leadership, and the right incentives and deterrents. In my experience, there is still much more that financial firms could do in this area. My suspicion, however, is that, without statutory intervention, the desired results will not be achieved.

Firms should be explicitly required by legislation to ensure that they act in the common good, besides delivering value to their shareholders. Company legislation should be changed: it must be made clear what it is to act in the common good, and employees must learn to act as stewards of their institution, not as individuals optimising their personal financial circumstances .

Governance/ownership. The focus of shareholders should not be exclusively on their fiduciary responsibility to maximise returns for their investors, but also on contributing to the common good, and promoting stewardship by the companies in which they invest. This would require some specificity to be placed into legislation. For example, pension funds and insurance companies could be required to invest a percentage of their funds for social-action purposes.

Market Structure. Encouraging competition and greater diversity of institutional ownership structures would be good for promoting consumer choice and financial stability. For example, most developed economies have a significantly larger mutual sector than the UK. In the United States, 25 per cent of savings are held in credit unions, compared with three per cent in the UK.

Even if all these changes are made, however, we could still not be sure of achieving a more just economic system. There also needs to be a change in the attitude and behaviour of those who finance the companies, and those who run them and work in them.

For change to be effective, three key elements are needed. First, companies need to be led by individuals who value stewardship and focus on the common good, not just their own personal financial gain. Second, people should be allowed to make honest mistakes without being blamed. We need thoughtful accountability for premeditated wrongdoing, but this can easily slide into damaging unjust ad hominem attacks. Addressing these issues would require a shift in society’s values.

Third, a consensus needs to be established about the balance between protecting consumers, particularly the vulnerable, and people’s freedom to make their own choices, with the consequent obligation to take personal responsibility for one’s actions.

It needs to be recognised that the root causes of the “broken“ economic system are essentially behavioural, not economic; and that shaping behaviour to support the collective good requires a complex set of interventions in which we all have a part to play.

The central point here is recognising that money itself is not an ethical issue. It is not a value: it is a transmission mechanism through which people’s intentions are expressed.


THE Church has a key part to play in resetting the economic agenda.

First, it could lead the public debate on altering the way the system works. It could encourage changes to the statutory framework that determines the priorities of boards and shareholders. A stronger obligation to act in the public good, and as stewards of their institutions, would drive significant change. Such changes would require specificity to work, and an obligation to demonstrate results. This would have the additional benefit of promoting trust and rebuilding confidence in the system.

In a democracy, such fundamental change can ultimately only happen if driven by policy-makers. But we should draw hope from the Church’s success in setting the agenda in respect of high-cost credit providers, which led to regulatory change and the effective collapse of their historic model.

Second, individuals in the Churches could do more to support the development of community finance institutions, such as credit unions, and help people who are in financial distress. Tackling financial difficulty is as important as addressing any form of mental distress or physical deprivation. This was the mission of the Archbishop’s Task Group on Responsible Credit and Savings, and has been taken on by the Just Finance Foundation, of which I am a trustee.

Action in this area requires the engagement of congregations and their clergy. Good progress has been made in this respect in the past two years, but I still feel that some clergy are hesitant to get involved. Many give the “annual sermon on tithing”, or preach occasionally on stewardship, and that’s it.

Third, the Church as an institution could do more to lead by example both at the parish level and from the centre. This is already happening in financial education: the Church is leading the way in introducing financial education in its primary schools which educate a quarter of the nation’s children. Also, the Church has created its own credit union for its employees, which is one of the fastest-growing credit unions in the country. Both these initiatives demonstrate the power of leading by example — action not words.

There is much more that could be done, however. For example, the Church could do more to support credit unions. Does every individual parish church have a credit-union account? I think not. Opening an account would show support for and help grow the institutions most capable of helping the vulnerable and excluded. Supporting local community finance also strengthens the Church‘s role as a focal point of the community — as an institution that cares about community and works to strengthen it.

Above all, the Church of England’s own financial institution, the Church Commissioners, could show leadership through the actual investments that it makes. It is already a leader in ethical investment principles, but it could demonstrate leadership in the field of social-impact investment: for example, by creating its own social-impact fund and bringing in other external investors, or a programme of direct investment in existing community finance organisations.

The common theme here is that, rather than lobby for particular outcomes, the Church should focus on changing how the system works as a whole, in order to create a fair and ethical financial system. Central to this approach would be the recognition of the validity of the Church’s seeking to influence public policy. The focus would be switched from talking about taxes and expenditure on specifics to encouraging radical change in the drivers of individual forms of behaviour.

I am not a theologian, but I passionately believe that creating a fair financial system should be a goal that the Church, both as an institution and a community, sees as central to its mission. I also believe that it is an achievable mission.


Sir Hector Sants is a former chief executive of the Financial Services Authority. He is a trustee of Just Finance, and chairs StepChange. He writes in a personal capacity.

This is an edited extract of a talk delivered at a conference at Ripon College, Cuddesdon.



Sir Hector Sants is interviewed for Episode 26 of the Church Times Podcast, which will be posted late Friday afternoon: www.churchtimes.co.uk/podcast

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