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Rachel Reeves said Britain has a “culture of risk aversion to the point of obsession with stamping risk out”, as she vowed to extend a purge on City of London red tape to the rest of the economy.
Writing in the Financial Times, the chancellor said an excessive safety-first approach was not seen in any of Britain’s global competitors, adding: “It is bad for businesses, bad for growth and bad for working people.”
Reeves, who is under intense pressure to pull levers to boost growth as Britain’s fiscal position deteriorates, unveiled what she claimed was the biggest cut in financial services regulation in a decade.
She said Britain needed a cultural change, and that the “pendulum has swung too far in the opposite direction” after the re-regulation of the City following the 2008 financial crisis.
“The same flawed judgment that has seen newts and bats block major infrastructure projects is the one that requires almost 140,000 finance professionals to certify they are fit for their roles on an annual basis,” she added.
Her comments followed her annual speech at the Mansion House in the City on Tuesday evening, in which she called on watchdogs to “boldly regulate in the service of prosperity across our country”.
“It is clear we must do more,” she told City grandees. “In too many areas, regulation still acts as a boot on the neck of businesses, choking off the enterprise and innovation that is the lifeblood of growth.”
Reeves’ overarching message was Britain needs to take more risks. In the City, that meant reforming ringfencing rules that force UK banks to separate their retail and investment banking activities — a change introduced after 2008.
She also announced cuts to capital and reporting requirements, the scaling back of the onerous senior managers regime in the City, and an overhaul of the much-criticised Financial Ombudsman Service.
Reeves also launched a new task force to support businesses to list and grow in the UK as part of efforts to revive the London Stock Exchange.
She said she had retained reserve powers to mandate pension funds to invest in a wider range of riskier assets — but did not expect to have to use them — and was still considering “further changes to ISAs” to encourage more investment in stocks and shares and less in cash.
In the meantime the public will be encouraged by banks and through a national advertising campaign to take more risks with their savings, investing in stocks and shares to boost returns.
Reeves is grappling with a deteriorating fiscal situation and the prospect that she will have to raise taxes significantly in her autumn Budget.
She said that a riskier regulatory environment would be married to an ongoing commitment to economic stability, reassuring the City that she would not be blown off her fiscal course by increasingly rebellious Labour MPs opposed to spending cuts.
“Fiscal stability is a choice that reflects economic reality,” Reeves said, noting that national debt was at its highest levels since the 1960s. “That’s why the prime minister, this government and I remain committed to our non-negotiable [fiscal] rules.”
She made light of her recent tearful appearance in the House of Commons. “Recently on a visit to a school, a girl asked me ‘What job would you do if you could do any job in the world?’ Given the events of the last few weeks, I suspect many of you would sympathise if I had said ‘Anything but chancellor’. But I didn’t.”
Her comments on growth drew a sceptical reaction from observers who said Labour had failed to deliver reforms on the scale needed to transform the economy during its first year in office.
Despite policies to boost public investment that would pay off in time, “it doesn’t feel like a radical change”, Helen Miller, director of the Institute for Fiscal Studies think-tank, said earlier on Tuesday.
“Growth should be the number one mission,” she added. “We should be throwing the kitchen sink at it but it doesn’t feel like that.”
Miller said the government’s new focus on raising defence spending had overtaken other priorities, limiting the scope to invest in areas such as local transport or non-military research and development.
Meanwhile Richard Hughes, chair of the Office for Budget Responsibility, struck a gloomy note about the state of the public finances.
Hughes said there were “reasons to worry” about the level of public debt in the UK given the country’s exposure to economic shocks and the hefty impact of events such as the financial crisis and the Covid pandemic.
“We have also already raised taxes quite a bit in this country — the tax burden is getting close to an all-time high, so we have used some of that policy flexibility,” he told MPs.
Additional reporting by Sam Fleming