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Reeves Says Regulators Are Holding Back Britain’s Growth
(Bloomberg) -- Chancellor of the Exchequer Rachel Reeves said regulators are holding back the UK government’s efforts to lift the economy, her latest bid to convince wary markets that she’s taking action to boost the country’s sluggish growth rate.
Holding the first in a series of planned meetings, Reeves on Thursday urged a group of major watchdogs to “tear down regulatory barriers” and focus on growth. Attendees included bosses of the Competition and Markets Authority, and the regulators for the communications, water and energy industries: Ofcom, Ofwat and Ofgem.
“We are not going to be able to grow the economy if the regulators keep doing what they’re doing,” Reeves told the BBC in an interview Friday. She said she would encourage regulators to “do what is needed.”
Reeves is trying to fight back from a market slide that has cast doubt on her economic plans and led to questions about her future. While the market pressure has eased in recent days, with UK borrowing costs coming down from a 17-year high, there was more negative economic news on Friday with a surprise drop in UK retail sales around the crucial Christmas period.
The challenge for Reeves is to convince investors she’s taking action to address Britain’s weak economic performance, especially since her government presided over a decline in consumer confidence and business sentiment after last year’s general election, while also hitting companies with a major payroll tax increase at her budget in October.
Growth Mission
“Every regulator, no matter what sector, has a part to play,” Reeves said in a statement after the meeting. “I want to see this mission woven into the very fabric of our regulators through a cultural shift from excessively focusing on risk to helping drive growth.”
Reeves’ comments came as the Bank of England delayed a major set of banking rules for a third time due to concerns over their effect on UK competitiveness and growth. The Prudential Regulation Authority, “having consulted with HM Treasury, has decided to further delay implementation of the rules,” it said.
That decision — in which growth played a part — was very much made in consultation with the Treasury, according to a person familiar with the situation.
The UK is wary of bringing in strict new rules that may not be matched by similar measures in the US under the incoming administration of president-elect Donald Trump.
On Friday, the Financial Conduct Authority published a letter to Starmer and Reeves outlining a series of steps it’s either planning or considering to help spur growth. They include accelerating a review of capital requirements for specialized trading firms, introducing a new open banking payment method, and potentially lifting the £100 ($122) limit on transactions using contactless debit and credit card, a proposed measure first reported by Sky News.
Mortgage rules introduced in the aftermath of the global financial crisis could also be diluted, according to the Times. Banks are currently barred from lending more than 15% of their total mortgage book to those borrowing more than 4.5 times their earnings, and are required to stress test borrowers to ensure they can cope with potential interest rate rises. The rules effectively exclude borrowers with smaller deposits from getting mortgages, a growing issue given house prices across England are currently more than eight times average incomes.
The FCA said it would “begin simplifying responsible lending and advice rules for mortgages, supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults.”
“To achieve the deep reforms necessary, your acceptance that we will take greater risks and rigorously prioritize resources is crucial,” FCA Chief Executive Nikhil Rathi said in the letter, dated Thursday. “Growth will be a cornerstone of our strategy, through to 2030.”
The FCA also pressed the government to define clear metrics for “tolerable failures.”
Economic Worries
Reeves last weekend traveled to China to expand economic ties between the countries, accompanied by leaders from the FCA and BOE.
Labour was elected on a promise to grow the UK economy, but since it won July’s general election in a landslide victory, GDP has stagnated. Controversial decisions in October’s budget, such as a tax hike on businesses and changing inheritance tax rules for farmers, have caused Labour’s popularity to plummet.
Reeves appears keen to be seen taking action, especially after UK gilts were targeted during last week’s bond selloff. The government’s borrowing costs soared, eroding away the headroom she enjoyed in the public finances, but have eased back in recent days, with the chancellor emphasizing her commitment to fiscal responsibility and pro-growth reforms in a series of public comments.
“Imagine that I hadn’t addressed that problem and now when financial markets look at the UK, they would be saying ‘this is a government that is not real about the situation that it faces, it is spending more money than it is bringing in. It’s having to borrow more and more’,” she said in the Friday morning interview.
--With assistance from Jack Sidders.
(Updates with more details, context, FCA letter starting in fourth paragraph.)
