Rachel Reeves has told City bankers attending her Mansion House speech that regulations put in place to protect the economy after the global financial crisis had “gone too far”.
Speaking at the glitzy annual gathering in the Square Mile on Thursday, the chancellor called the financial services sector the “crown jewel” of the UK economy.
She argued that tighter rules on banks and investment institutions after the 2007-8 crash had created “a system which sought to eliminate risk-taking”.
“While it was right that successive governments made regulatory changes after the global financial crisis, to ensure that regulation kept pace with the global economy of the time, it is important that we learn the lessons of the past,” Reeves said.
“These changes have resulted in a system which sought to eliminate risk-taking. That has gone too far and, in places, it has had unintended consequences, which we must now address.”
The last Labour government had encouraged the City regulator to take a “light touch” approach to regulating the financial services sector, but was then forced to step in and bail out a string of banks when the US sub-prime mortgage crisis prompted a catastrophic chain reaction.
At the time, regulators were accused of failing to rein in the risky behaviours that had led to the crisis, which plunged the UK into recession.
But Reeves suggested she now believed it was time to loosen some of the constraints that were subsequently imposed on the sector.
“We cannot take the UK’s status as a global financial centre for granted. In a highly competitive world we need to earn that status and we need to work to keep it,” she said.
The Bank of England governor, Andrew Bailey, also addressed the Mansion House dinner, stressing the UK’s longstanding support for free trade, as Donald Trump prepares to slap US tariffs on imports.
“I will own up to being an old fashioned free trader at heart. It’s a British characteristic, I like to think. My point is this: amidst the important need to be alert to threats to economic security, let’s please remember the importance of openness,” Bailey said.
Economists have said that if Trump goes ahead with his plan for a universal tariff of 10% on all imports, it could cut the UK’s growth rate next year to a sickly 0.4%.
Bailey also underlined the continued impact of Brexit on the UK economy. “The changing trading relationship with the EU has weighed on the level of potential supply,” he said, adding that the government should, “be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people.
The chancellor set out a series of changes, some of which were proposed by her immediate predecessor, Jeremy Hunt. These include obliging regulators to take into account growth, as well as financial stability; and replacing the current “certification” regime for investment professionals, with a “more proportionate approach”.
The Financial Conduct Authority has already announced plans to streamline its rulebook for firms to reduce compliance costs, in the hope of promoting growth.
Reeves believes that bolstering private investment is key to improving the UK’s growth rate. She has also announced plans for a mega-merger of public sector pension funds, in the hope of unleashing capital to back UK infrastructure projects.
The chancellor is keen to stress Labour’s pro-business credentials after her first budget, which increased employer national insurance contributions (NICs) from April.”
