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Editor Letter
New Coalition government and Islamic finance in the UK - Will they get along?
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The UK General Election has result- ed in the country’s first hung parlia- ment of any significance since 1974, with none of the political parties hav- ing enough parliamentary seats to form a majority government. 5 days after the election, Gordon Brown (former Prime Minister) jumped in his Jaaaaag and drove to Bucking- ham Palace to hand in his resigna- tion. Not long after David Cameron
(Conservative) jumped into his Jaaaaag, popped into to visit the Queen and finally he became Prime Minister. Conservative leader David Cam- eron has become Britain’s youngest prime min- ister for almost 200 years and the Conservatives have formed a full coalition government with the Liberal Democrats. Cameron’s pact with Liberal Democrat leader-and new Deputy Prime Minister- Nick Clegg’s pact signifies the UK’s first coalition government since World War II.
To us, one of the important unanswered questions is: New coalition government and Islamic finance in UK - will they get along? At the core of the Brown government’s policy was the stated ambition of developing the City of London into a major inter- national centre for Islamic finance, which already generates millions of pounds of revenues every year for UK law firms, fund managers, investment banks, auditing and advisory companies, and aca- demic and professional training organizations. Will the new government’s policy continue in the same vein?
On one side some argue the government policy will remain unchanged. They believe the UK govern- ment’s policy on Islamic finance will be “business as usual” and that all of the three main parties- Labour, Conservatives and the Liberal Democrats- confirmed, before the election, cross-party sup- port to continue the Labour government’s Islamic finance initiative that has proved such a success in recent years. A few days before the election, the City-based international law firm, Norton Rose, published a report, “The Election Briefing: Implica- tions for Business”, which is effectively a roadmap of the positions of the above three parties on a cornucopia of issues including Islamic finance. The report concludes that “Islamic finance is an area with clear potential for development. The UK government and the City of London are both pro- moting its growth, in both the retail and wholesale
6 GlobalIslamic Finance June 2010
markets. London’s emerging role as a centre of excellence for Islamic finance seems likely to con- tinue to develop irrespective of which party wins the election.” On the face of it, private and public statements indicate that the Conservative party are broadly supportive.
The Liberal Democrats also have privately stated cross-party support for the Brown government’s Is- lamic finance initiative. It is good news for the City of London and Islamic finance industry that there is cross party support for the promotion of Islamic finance and that the helpful legislative changes that have been made will be continued under the new coalition government.
On the other side, some City observers stress that the coalition government may revise the Labour government approach on Islamic finance. They argue that with a hung parliament suggesting po- litical uncertainty, international markets that were already reeling from recent events in Greece have further fallen. The subsequent weakening of the pound will no doubt repel international investors, making it unlikely that any UK government will go ahead with the previous Government’s tentative plans of a sovereign sukuk issue.
Eventually Islamic finance, hitherto strongly sup- ported by the UK Government, may have to take a back seat in terms of further legislation to en- courage corporate sukuk issues and other indus- try developments. The situation isn’t helped by the stringent policy of cutbacks the new Govern- ment is expected to implement in order to counter Britain’s critical budget deficit. In Global Islamic Finance Magazine we strongly believe Islamic fi- nance is an increasingly important part of British business and UK government policy has in recent years recognized this. Measures have been taken to promote and facilitate Britain as a centre for Is- lamic finance. We very much hope the policy will be continued and that the Islamic finance indus- try, which could play an important part in Britain’s economic recovery, will benefit by having support from the new coalition government.
Farhad Reyazat
PhD in Risk Management Editor in Chief
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