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Finance is as important to our economy as the NHS is to our health. David Pitt-Watson FRSA and Hari Mann FRSA set out why the finance industry needs to act urgently to support companies and individuals during the pandemic – and how it should build a better economy once it is over.

The NHS ensures the health of the nation. The financial system ensures the health of the economy.

In the face of this pandemic, few doubt that the NHS carries out that role with skill and dedication. The financial system needs to show that it too has the skill and dedication to fulfil its purpose.

Finance needs to get on the front foot. Not for PR reasons, but because finance – banks in particular – are urgently needed. The life of thousands of businesses, and the jobs of hundreds of thousands of people, will depend on whether the finance industry is prepared for the challenges ahead.

We don’t know exactly what will happen. But the scale of the problem looks enormous. According to the Inland Revenue, 800,000 businesses have placed 6.3 million workers on furlough. Over a million people have claimed Universal Credit.

So what does the finance industry need to do?

In response to Covid-19, the health system has gone into overdrive: opening hospitals, recruiting staff, buying equipment.  The finance industry needs a similar response. Banks should be in overdrive helping companies prepare financially. They need to help companies and individuals find the support they will need – either directly, or with government help.

The finance industry needs to report back to the government what is happening, so that policy makers can make better decisions. We all know that, sadly, some companies will not survive. But if they are to fail, the finance industry must show, like the medics in our ICU wards, that they have strained every sinew to help companies stay in business. Small businesses need to hear from their bank about what to do and what help is available.

Any response will need financial resources. Banks need to hold on to all the capital they can find, not quibble over the payment of dividends. However uncomfortable it may seem, they surely can’t pay bonuses if the profits on which they have been calculated have evaporated and the money is needed to fulfil the very purpose of the bank.

Universal banks that have investment banking operations could redeploy their capital away from the investment bank, to support the real economy. Indeed, banks should consider whether they should take advantage of the relaxed rules for raising more capital.

Our finance industry also needs to think longer term

We need a new finance industry that recognises its purpose in using people’s savings to support a prosperous economy. One central benefit which savers should receive from an effective system is financial security; whether that be to ensure we have an income in retirement, or that we have adequate funds when we are out of work, or that our dependents are protected should we die. 

That goal will only be secured if our savings are put to work, building a new, and better, economy when the pandemic is over. Deploying the people’s capital to build sustainable prosperity. We need pension funds that can invest long term in the infrastructure we will so desperately need.

We need to find ways to stop our savings being spent on a costly ‘arms race’ where fund managers are no longer concerned about who owns the money they invest, and instead spend billions in trying to ‘outperform’ one another. We need leadership to stop those expensive activities that are ‘not socially useful’. We should no longer be quibbling about whether those who invest money should tell customers how much it has cost to manage their savings – of course they should.

This pandemic should be a wake up call on the need to tackle the climate emergency

Global warming is an existential threat. The disruption we face today as a result of Covid-19 is minimal in comparison to the disruption faced by the threat of climate change and its effect on our world. If there are lessons from Covid-19, they are to be sure we work together and don’t leave things too late.

Some simple changes could make all the difference. The investment institutions use our savings to invest in company shares. In turn, those shares are used to vote for the boards that manage our major companies. From now on those votes should only be used to appoint people who will run their company in a way that is compatible with a sustainable world.

Covid has also taught us the value of innovation. The finance industry needs to ensure we are armed with new and faster ways to innovate, leading the way for more effective technological solutions on the road to lower emissions.

This tragic pandemic is the opportunity to show how vital finance is. The financial system needs a unified voice, and a will to show the same skill and dedication in its care of customers as the NHS has shown to its patients. Finance is as important to our economy as the NHS is to our health. This is its opportunity to be fulfilling that purpose, now and in the future.


David Pitt-Watson is a fellow at Cambridge University, Judge Business School. He leads the RSA’s Tomorrow’s Investor project. He was formerly a director of Hermes Fund Managers and founder of their responsible investment activities.

Hari Mann is a Professor of Strategy and Innovation and has worked with the RSA Tomorrow's Investor project for over ten years. Previously, he was an investment banker in the City.

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