The writer chairs the Treasury select committee of the House of Commons
Politicians are often put in one of two boxes when it comes to regulation: either seen as creating obstacles or removing them. This characterisation can obscure the reality of developing complex policy — such as the government’s proposals on economic growth — in a responsible way.
The UK chancellor, embracing the binary, has left no room for ambiguity about which box she intends to occupy. In deciding to replace Marcus Bokkerink at the Competition and Markets Authority with the former boss of Amazon UK, the government sent a signal other regulators couldn’t have missed. The Treasury may also choose to make a further statement when Nikhil Rathi’s term at the top of the Financial Conduct Authority comes to an end later this year.
This government has not been shy about where it stands on regulation. Ministers regularly make their views heard on issues for which independent regulators are responsible, including the chancellor herself during her Mansion House speech.
Rules which don’t strike the right balance between stifling innovation and protecting consumers should be removed as a priority. What concerns me is the seemingly one-sided narrative that stripping back financial regulation is the holy grail for raising living standards across the UK. Sometimes it feels as though the Treasury is wilfully forgetting that the rules which attempt to change the behaviour of financial firms are having the desired outcome — the absence of a problem. The governor of the Bank of England made this point: rates have risen from near zero to 5.25 per cent but without large arrears in the mortgage market or the housing repossessions we had in the financial crisis or the early 1990s.
I do not dismiss the merits of a refined regulatory regime. Our financial services industry should be given all the tools it needs to help grow our economy. This may include rebalancing risk-taking. But, as chair of the Treasury select committee, which scrutinises our biggest private and public financial institutions, I must be led by the evidence. Rhetoric and vested interests aside, where is the proof that stripping away financial services regulations will generate meaningful growth across the UK?
I was elected to parliament in 2005, three years before the world was rocked by a devastating financial crisis. While that may have originated in the markets, I have spent close to two decades seeing first-hand who pays the price when the financial system needs bailing out — ordinary people. That memory may well be receding for some, but not for me. We need only look at the more recent LDI crisis following the disastrous 2022 “mini” Budget, to remind ourselves how important it is that we never grow complacent about hidden threats lurking in the system.
Last year, my committee asked City and consumer voices to come to parliament and tell us what they thought of the FCA. Industry representatives said that they were frustrated at the regulator’s risk-averse approach. Miles Celic from TheCityUK told us: “I despair every time I walk into a bathroom and there is a sign over the hot water tap saying, ‘Caution: may contain hot water.’ We need to be much more realistic about allowing people to make decisions and equipping them.” Celic went on to highlight the need to improve financial education so that people can take decisions with full knowledge of the risks.
Most would agree; improving financial literacy will take a huge, concerted effort. The noises from the Treasury are that they share this view. But does that mean the government is comfortable with people, many potentially vulnerable, getting their hands burnt in a more risk-positive culture?
Consumer advocates described themselves as “massively outgunned” when trying to make their case to Treasury ministers and officials that protections should be preserved. Predictably, organisations lobbying on behalf of consumers simply don’t have the resources to match the efforts of financial trade associations, which those groups told us had a combined turnover of £145mn.
All this leads me to a troubling conclusion. Risk vs protection looks set to dominate the debate over the course of this parliament and the information I currently have lays bare an uneven playing field. We know about the dangers of regulatory capture but it appears there is also a severe risk of Treasury capture.
Being a politician is about responsibility. Where a decision requires somebody to listen to opposing expert views and decide a way forward, we earn our crust. Political messaging is useful for sending a clear signal of intent but it must not be allowed to force policymakers into a box. The most successful governments have always given themselves the flexibility to think outside of one.