Rachel Reeves is beginning to look awfully like Gordon Brown. Study the actions of this government so far and you would hardly say that deregulation was its big idea. True, Keir Starmer did claim at his investment summit last month that he was going to slash red tape. Angela Rayner wants planning laws relaxed to allow new homes on the green belt and Ed Miliband wants wind farms, solar farms and pylons just about everywhere – without the locals being given much of a say.
But look at the Employment Rights Bill, the legislation being piled on landlords, the law to impose duties on village halls and the like to prepare for terror attacks, the bill to ban sales of cigarettes to anyone born after a certain date, the bill to ban gay conversion therapy. This is a government, which like that of the last Labour lawyer to occupy Downing Street, Tony Blair, lives and breathes legislation. Deregulation, in the eyes of many Labour MPs, is a nasty Tory concept which puts the public at risk in order to line the pockets of reckless capitalists.
Yet as in the Blair-Brown government there does seem to be an exception: the City of London. In her Mansion House speech yesterday the Chancellor attacked regulations introduced after the financial crash of 2008/09, saying: ‘these changes have resulted in a system which sought to eliminate risk-taking. That has gone too far and, in places, it has unintended consequences, which we must now address.’
Reeves did not elaborate on which regulations she intends to tear down in her quest to boost the City of London. But it is worth remembering what happened before, during and after the financial crash. Brown deregulated the City, seeing financial services as a great engine of growth. We ended up with Northern Rock issuing 125 per cent mortgages, and with many lenders offering long-term fixed loans financed by short-term borrowing – which proved disastrous when the credit crunch arrived.
This was all weirdly at odds with the general direction of the Blair/Brown government which was to load businesses with pettifogging rules. To cite one example, hundreds of care homes were forced to close because of new rules dictating door widths and floor areas – even in existing homes which had been operating happily for decades.
Following the crash, and once he had been ejected from office, Brown had his mea culpa moment and admitted that he got it wrong. He had listened too much to Wall Street and failed to take into account the risk of a progressive collapse of the banking system because he hadn’t fully understood it. Lord Turner was hired to come up with heavier regulations. For a while it seemed that high loan-to-value mortgages would be banned – until George Osborne positively encouraged them with his Help to Buy scheme, which had taxpayers underwrite the risks.
What has changed now to make Reeves think it is now safe for the financial institutions once again to dictate what regulations they would like to be subjected to? It is far from clear. One gets the impression that so long as banks employ sufficient women and minorities, and allow bankers the right to work from home – thereby satisfying the demands of the Equality Act and Employment Rights Bill – the government will be happy. Never mind whether loose banking practices once again plant a bomb beneath the financial system.
The Mansion House dinner was also noteworthy for Andrew Bailey’s contribution. The Governor of the Bank of England declared that Britain must seek closer ties with the EU, especially following Donald Trump’s election. This rather neatly coincides with Labour policy. It isn’t the first time which Bailey has been somewhat accommodating to the new government. Having staved off lowering interest rates for months while the Conservatives were in power, the Bank has since cut them twice – this in spite of the Office of Budgetary Responsibility (OBR) warning that the Budget will be inflationary. There does seem to be a somewhat cosy meeting of minds between the Bailey’s BoE and Starmer’s Downing Street. A revival in inflation of another financial crisis could well end up felling them both.
