Rachel Reeves will claim that cutting red tape for City firms will have trickle-down benefits for households across Britain, as she tries to drum up support for a new financial services strategy.
A raft of regulatory reforms are due to be announced by the chancellor on Tuesday, in what the Treasury says will be the “biggest financial regulation reforms in a decade”. It will come before her Mansion House address to City bosses during a dinner at Guildhall in London on Tuesday evening.
Under the “Leeds reforms” – which Reeves will announce during a “summit” with top City executives in West Yorkshire – the chancellor will declare that paring down burdensome regulation is key to unleashing UK growth and ultimately ensuring that households are better off.
“I have placed financial services at the heart of the government’s growth mission – recognising that Britain cannot succeed and meet its growth ambitions without a financial services sector that is fighting fit and thriving,” Reeves will say. She will claim the reforms would have “a ripple effect that will drive investment in all sectors of our economy and put pounds in the pockets of working people”.
It follows strong lobbying by the City, which Reeves wooed in the lead-up to the election and has fought to keep on side throughout Labour’s first year in power.
But economists and campaigners warned Reeves that deregulating the City came with risks, pointing to the deep recession that followed the 2008 financial crash, when the last Labour government was forced to bail out major banks.
“It feels like groundhog day. We’ve been here before, expecting the financial sector to do most of the heavy lifting in terms of growth,” said Chaitanya Kumar, head of economy and environment at the New Economics Foundation thinktank.
“The 2008 crash and what followed should have been a very strong lesson to everybody in not completely letting the financial services sector off its leash: but that’s what we seem to be doing.” He added: “I just haven’t seen any evidence that deregulating the financial services sector is going to create significant growth.”
Jesse Griffiths, chief executive of the Finance Innovation Lab charity, said it was clear that prioritising the needs of international financial firms over domestic needs had “simply not worked for the UK economy”.
“Buying the City’s push for further deregulation risks derailing the government’s industrial strategy and increasing the risks of costly financial crises,” Griffiths said. “Instead of a more ‘globally competitive’ financial sector, we need reform to better serve UK businesses and drive domestic investment to where we need it, particularly for the green transition that will lower people’s bills and create the good jobs of the future.”
Reeves is expected to point to the recent loosening of mortgage rules as a tangible example of how reforms are helping consumers. That includes changes announced by the Bank of England last week, which will open the door to riskier lending by giving people the ability to take out bigger mortgages relative to their annual income. The move could end up helping 36,000 more first-time buyers on to the housing ladder each year, the Bank said.
Nationwide Building Society said it was already taking advantage of the changes, by lowering the annual salary needed to qualify for its 95% Helping Hand mortgage, to £30,000 from £35,000 previously. Joint applicants will need a combined salary of £50,000, down from £55,000.
The chancellor will also confirm the launch of a permanent government-backed guarantee scheme for mortgages. It is expected to cover banks’ losses on 95% mortgages if borrowers fail to repay and have their homes repossessed. The scheme, which was floated in Labour’s manifesto, is meant to encourage banks to offer riskier, larger-value loans.
Although bank incentives and looser mortgage rules could benefit some first-time buyers, campaigners at Positive Money said it was important not to leave consumers with more debt than they could handle.
“Put plainly, loosening mortgage rules really translates to saddling households with larger, less sustainable debts, instead of tackling the underlying causes of unaffordability,” said Sara Hall, a Positive Money director. “Even the Bank of England has suggested this move could actually push up house prices by flooding the market with greater demand, pulling the housing ladder even further out of reach for first-time buyers.”
Other reforms are expected to include speeding up changes to the senior managers regime, which ensures that bosses are fit and proper before they are appointed and holds them personally and financially responsible for problems that occur on their watch.
City regulators are also revealing plans to slash red tape as they try to appease a Labour government keen to tell City bosses that their concerns are being heard.
The Financial Conduct Authority (FCA) announced on Tuesday that corporate transparency rules would be pared back in order to encourage more companies to list shares in London.
That means companies floating their shares for the first time will only have to publish a prospectus – which provides key information about finances, risks and business plans – three days before going to market, down from the current six-day window. Meanwhile, those already listed, but trying to sell more shares to raise capital, will only have to issue a fresh prospectus if they are selling more than 75% of the company’s equity. That is up from the current threshold of 20%.
Fewer disclosures come despite efforts by the City and government to encourage more investment in UK stocks by everyday consumers.