How we could pay for Reeves's race for growth

Telegraph

18 hours ago

Labour made no secret of wooing businesses ahead of the general election last year, promising to cut red tape to boost Britain's economic growth.
However, the Government's deregulation drive since coming into power has rung alarm bells with consumer groups.
James Daley, of consumer group Fairer Finance, said: 'We've been increasingly concerned by the Government's deregulation agenda over the past few months.
'While we all want to see a return to sustainable economic growth, it's a mistake to think that the key to this is removing consumer protections that have been thoughtfully built up over the course of several decades.'
This year, Rachel Reeves has been accused multiple times of putting the needs of the financial services industry before consumers.
The Chancellor attempted to intervene in the Supreme Court case on the car finance scandal in January, fearing a negative judgment for banks could reflect badly on Britain as a place to do business. She was reportedly considering overruling the Supreme Court if it decided to hit lenders with a £44bn compensation bill.
In the end this was not needed because the Supreme Court largely sided with banks.
The Treasury said that it intervened over concerns that a judgment in favour of consumers could reduce the availability of car finance for those who need it. But Liberal Democrats MP Bobby Dean told The Guardian the attempt to intervene was 'disgraceful' and sent a 'bad message' to consumers.
Prioritising the City
Now, Ms Reeves is understood to be pushing for Revolut to become a fully authorised bank as quickly as possible, despite lingering concerns about the app bank's reputation on fraud prevention.
It was named in more fraud reports than any other major bank in 2023-24, according to data from Action Fraud, and The Telegraph revealed last year that Refund had pushed back against refunds for some scam victims despite recommendations by the Financial Ombudsman Service (Fos).
Revolut said it was continually enhancing its security and prevented over £600m in potential fraud against customers in 2024.
Revolut was granted a provisional licence last year after a three-year wait but has yet to become a fully-fledged bank. The Chancellor is desperate for a potential $65bn (£56bn) flotation to happen in London instead of New York. She had tried to secure a meeting with regulators and Revolut but this was blocked by Bank of England governor Andrew Bailey amid concerns about political interference.
Retirements at risk
The Treasury has also been accused of putting retirements at risk in order to accelerate economic growth. Under the Mansion House Accord, pension providers agree to invest at least 10pc of so-called 'default' funds in private markets by 2030. The Government estimates this will unlock up to £50bn for the UK economy.
But Tom Selby, of stockbroker AJ Bell, said there was a risk this could leave savers worse off in retirement.
'The Government has chosen to conflate its understandable, but increasingly desperate, desire to deliver economic growth with other people's pensions by pushing workplace schemes to increase their allocations to higher risk, often higher cost, illiquid assets such as private equity.
'While it has stopped short of mandating investments in these assets, it has created a power to do this if it doesn't get what it wants, essentially putting a gun to the head of pension schemes to do this voluntarily.
'There is, of course, a world where this approach works and delivers better returns for members and more investment for key UK infrastructure for the Government. But it is also entirely possible that shoe-horning money into illiquid UK investments will deliver lower returns for savers, which would ultimately mean millions of people get less from their pension in retirement.'
'Firms over fairness'
At her Mansion House speech in July, Ms Reeves said that rules and red tape were a 'boot on the neck' of British businesses. But aspects of her financial services strategy – dubbed the Leeds Reforms – have been lambasted by consumer groups.
Mr Daley said: 'It's particularly alarming to hear talk of plans to scrap the protections that were put in place only a few years ago after the financial crisis.'
Ms Reeves has proposed weakening so-called 'ring-fencing' which separates retail banking services from investment banking activities. This regime was introduced in 2019 as a result of the 2008 financial crisis to shield customers' deposits from financial risks emerging elsewhere in banking groups.
The Leeds Reforms also include a crackdown on the Fos, the body responsible for settling disputes between businesses and consumers. Ms Reeves wants the Ombudsman to refer to the Financial Conduct Authority (FCA) on ambiguous complaints and give the regulator the power to intervene in mass redress events.
The Chancellor said this is to ensure the Fos 'no longer acts as a quasi-regulator'. But consumer advocacy group, the Transparency Taskforce, has warned that increased cooperation between the Fos and FCA could lead to unfair decisions for customers in cases where businesses have technically followed FCA rules but still acted unfairly.
In a letter to the Treasury Select Committee, the group wrote: 'This represents a fundamental shift from principles-based regulation to a rigid, legalistic approach that prioritises certainty for firms over fairness for consumers.'
Diluting the Consumer Credit Act
Separately, the consumer association Which? has raised concerns about the Government's plans to reform the Consumer Credit Act. The Act, which sets out customers' protections in credit agreements, played a key role in the car finance scandal.
Despite siding with lenders, the Supreme Court found that consumers could still bring claims under the Act where lenders paid 'excessive' commissions to dealers. But the Treasury is reviewing the Act in order to better align it with the FCA's rules. There are some concerns this could lead to the weakening of protections in the CCA.
Rocio Concha, of Which?, said the Government should 'tread carefully with its plans to reform this important piece of legislation'.
She added: 'Far from being a blocker to growth, consumer protections are essential for a healthy, functioning economy.'
A Revolut spokesman said: 'We are progressing through the final stages of mobilisation and continue to work constructively with the Prudential Regulation Authority. Given Revolut's global scale, this is the largest and most complex mobilisation ever undertaken in the UK. A thorough review is an expected part of the process and getting this right is more important than rushing to meet a specific date. We are looking forward to launching a fully regulated UK bank for our millions of UK customers this year.'
A Treasury spokesman said: 'We are balancing growing the economy – our number one mission – with strong consumer protections to deliver for working people. The Leeds Reforms will help more people get on the housing ladder, drive better returns for savers and ensure the Fos provides a cost-free route for consumers to resolve disputes without acting as a quasi-regulator.'