Boosting economic growth is the one objective that trumps all others for Sir Keir Starmer’s government. Ministers hope that rising Gross Domestic Product (GDP) will provide the funds needed to fix crumbling public service and deliver the change that Labour promised voters at the last general election.
Yet despite their efforts, growth remains disappointingly sluggish. GDP fell by 0.3% in April and 0.1% in May. Meanwhile, the Government’s room for spending without breaking Treasury borrowing rules has shrunk, partly due to policy retreats on cutting winter fuel payments to pensioners and reforming the welfare system.
This forms the backdrop to Chancellor Rachel Reeves’s Mansion House speech and accompanying announcements this week, branded as the “widest ranging reforms to financial regulation in over a decade.” Looking to encourage consumer spending and investment, Reeves is concerned about the way households are incentivised to save and the dampening effect this has on GDP growth.
Cuts to City of London regulation lie at the heart of her package. Her measures include reducing ringfencing requirements between retail and investment banking, trimming the Financial Conduct Authority’s consumer protection rules and overhauling insurance regimes to allow businesses to take more risks. A campaign to encourage members of the public to buy shares aims to boost investment in companies.
Treasury officials dubbed her deregulation proposals ‘the Leeds Reforms’ after the North of England financial centre where the Chancellor made her announcements on Tuesday morning ahead of her keynote speech that evening at London’s Mansion House. The name was chosen to signal that the impact will be felt far beyond the City of London. Reeves promised a “ripple effect” that will lead to the benefits trickling down from the financial sector to voters’ pockets.
Critics of the Chancellor’s financial reform measures point to the risks. Some have pointed to the failure of previous attempts to promote “trickle down” redistribution of wealth to lower income groups. Others have referred to past negative consequences of City deregulation, citing the 2008 financial crisis. Defying those critics, Starmer and Reeves have concluded that risks must be taken if their dream of faster economic growth is ever to be realised.
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