Chancellor Rachel Reeves delivered her second Mansion House speech on Tuesday evening (15 July), in which she outlined her vision for Britain’s financial services to a room of senior bankers and company bosses. The announcements include a raft of financial changes aimed at drumming up investment and cutting red tape for businesses.
The Mansion House speech, which takes place at the official residence of the City of London’s Lord Mayor, is often used to sketch out future plans for the industry and is closely watched for clues on the government’s next steps on regulation.
The speech comes amid a bruising few weeks for the chancellor, in which she was forced to abandon £6.25bn of welfare savings by rebellious Labour MPs and was seen crying in the House of Commons among concerns she might be about to leave the Treasury.
Yesterday’s speech was a significant moment for Reeves as she seeks to reassert her authority and rekindle her relationship with the City by calling for regulators to allow more risk, to clear the way for economic growth.
“It is clear that we must do more,” Reeves said. “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. Regulators in other sectors must take up the call I make this evening, not to bend to the temptation of excessive caution, but to boldly regulate for growth in the service of prosperity across our country.”
Raft of new reforms announced
A host of plans were announced as part of a package Reeves has called the “Leeds Reforms”. The chancellor said these amounted to “the most wide-ranging package of reforms to financial services regulation in more than a decade”.
Among the plans put forward are proposals to reform ringfencing rules, which force UK banks to separate their retail and investment banking activities and to reduce reporting requirements. The reforms also include plans to “radically streamline” accountability rules for senior bankers and to reign in the powers of the Financial Ombudsman Service, which settles disputes between consumers and businesses.
Reeves announced the launch of a new Listings Taskforce to encourage businesses to list and grow in the UK, as part of efforts to revive the London Stock Exchange. Meanwhile, 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.
In announcing these measures, the chancellor argued that the government has been “bold in regulating for growth in financial services” and that less red tape will ultimately lead to trickle-down benefits for consumers and businesses. “I have placed financial services at the heart of the government’s growth mission, with a ripple effect that will drive investment in all sectors of our economy and put pounds in the pockets of working people,” she said.
There was no mention of the much-anticipated pensions adequacy review, which would increase auto-enrolment minimum contributions, despite rumours that Reeves would announced this in her speech.
Deregulation welcomed
The financial services industry has welcomed the government’s commitment to reduced regulation, as well as efforts to unlock the sector’s growth potential.
“Alongside the commitment to reducing the regulatory burden, we are pleased to see a focus on enhancing consumer confidence, as well as helping more people move from cash savings into long-term investments, areas where our sector plays a vital role,” says Liz Field, chief executive of the Personal Investment Management & Financial Advice Association (PIMFA). “Today’s reforms send a clear signal that the UK is serious about harnessing the strengths of its financial services sector to drive growth, innovation and prosperity.”
Paul Joyce, partner at Lava Advisory Partners, a financial advisory firm, believes the new reforms represent the start of a more positive outlook for the financial services sector. “It’s absolutely right that the UK prioritises growth at this point in the cycle and taking a more pragmatic approach to regulation is the right way to do it. The financial services industry has taken the brunt of the blame and pain post-financial crisis, but now is the time to take a more balanced approach to regulation and oversight so we can get back to encouraging firms to be entrepreneurial and positive.”
Others are more sceptical. Carrie Osman, founder and CEO of Cruxy, a UK-based consultancy, believes the reforms will fail unless the government goes “beyond cosmetic plans for bettering the UK’s broken investor culture.”
The chancellor’s speech at Mansion House signals the right intent, she says, but progress will stall if the government fails to confront the deeper issue behind the UK’s underperforming markets: a lack of investor culture.
“We still haven’t addressed the root cause of our stagnating capital markets: the UK does not yet have a culture of investment and share ownership,” Osman says. “Only 23% of adults in the UK have invested in the stock market. Until we fully democratise access to investing, through early education, employee ownership, smarter incentives and a clear narrative that investing is for everyone, we’ll keep fighting with one arm tied behind our back.”
Economic uncertainty persists
Others fear Reeves has failed to deliver reforms on the scale needed to transform the economy. Her push to ease regulation is set against a backdrop of disappointing UK growth after official figures last week showed the economy unexpectedly shrank in May by 0.1%, adding to speculation that she will be forced to raise taxes again in the autumn budget.
“The battle against inflation is far from over,” says Professor Joe Nellis, an economic adviser at MHA, the accountancy and advisory firm. “The bigger question on the economic horizon now lies with the chancellor as the road to the autumn budget continues.”
The OBR’s July report highlighted that the cost of the state pension triple lock is mounting, while sticky inflation threatens to keep this cost rising. “This raises concerns over how long the triple lock can remain intact,” Nellis says. “With economic growth still sluggish, the government has little wriggle room for manoeuvre. We head towards a budget where the chancellor will need to reconcile tax revenues and public expenditure. If she cannot do it through spending cuts, such as to pensions, then we are very likely to see tax rises.”
This is where Reeves’ speech provided no further answers.
Chancellor Rachel Reeves delivered her second Mansion House speech on Tuesday evening (15 July), in which she outlined her vision for Britain's financial services to a room of senior bankers and company bosses. The announcements include a raft of financial changes aimed at drumming up investment and cutting red tape for businesses.
The Mansion House speech, which takes place at the official residence of the City of London’s Lord Mayor, is often used to sketch out future plans for the industry and is closely watched for clues on the government's next steps on regulation.
The speech comes amid a bruising few weeks for the chancellor, in which she was forced to abandon £6.25bn of welfare savings by rebellious Labour MPs and was seen crying in the House of Commons among concerns she might be about to leave the Treasury.
