Latest news with #Rachel Reeves
The Guardian
6 hours ago
- Business
- The Guardian
Rachel Reeves is hoping deregulation will save the economy. We know how that ends
Rachel Reeves was in full Iron Lady mode when she delivered her Mansion House speech to the City's finest this week. Regulation was acting like 'a boot on the neck' of business, choking off enterprise and innovation. Cutting red tape would have a 'ripple effect' on the whole economy. Regulators should not give way to the temptation of 'excessive caution' but instead boldly regulate for growth. It could have been any Tory chancellor since Nigel Lawson speaking. If Reeves seriously believes this stuff she is heading for a rude awakening. Chancellors don't need a crystal ball to tell them where financial deregulation leads; they can read the many books detailing what happened last time this was tried. The global financial crisis of 2008 came about because policymakers bowed to the pressure from big finance to sweep away 'burdensome' regulations, pledging that more funds could be channelled into productive investment as a consequence. Instead of providing backing for startup businesses, easy money led to ever more reckless speculation and a giant credit bubble. The inevitable crash led to a deep recession, the bailout of the banks and – in a textbook example of shutting the stable door after the horse has bolted – a tightening of regulations. By that point it was clear the Thatcherite experiment had failed. Britain's manufacturing sector struggled while finance became an end in itself, abandoning what should have been its prime function: providing long-term capital for businesses. In their haste to liberate the economy, Thatcher and her supporters had ignored the warning delivered by Keynes in the 1930s. 'Speculators may do no harm as bubbles on a steady stream of enterprise,' Keynes said. 'But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.' It is possible that Reeves is softening up the City with some deregulation now before walloping its high rollers with higher taxes on wealth in the autumn budget. If so, she could justifiably argue that the better-off were the main beneficiaries of rising share and house prices as a result of the £900bn pumped into the economy by the Bank of England through its money creation programme. The FTSE 100 rose above 9,000 points for the first time this week. But while it would be nice to think the Mansion House speech was part of a cunning plan to squeeze the rich, it doesn't feel that way. A more likely explanation for her deregulatory zeal is that the chancellor fears the economy is becoming stuck in a doom loop and in those circumstances any growth is better than no growth. Reeves is right to be worried because the economy is not in a good place. Activity as measured by gross domestic product contracted in both April and May, while inflation picked up to 3.6% in June. The increase in employers' national insurance contributions has made businesses reluctant to hire and the public finances are in a bad state. Borrowing is high and the U-turns on the winter fuel allowance and welfare payments, coupled with weak growth, mean Reeves is on course to break her self-imposed fiscal rule. To avoid doing so will require tax increases – and over the next few months there will be endless speculation as to how much will be raised and who is going to pay it. This is a rerun of last year, when the prospect of higher taxes hit both business and consumer confidence, slowing the economy in the process. There is an obvious risk that higher taxes stall the economy, adding to pressure for further austerity measures. Hence the doom loop. Borrowing more so that tax increases can be avoided might sound attractive but is fraught with risk. The bond markets have been keeping a close eye on the UK ever since Liz Truss's disastrous premiership three years ago, and if Reeves did decide to break her fiscal rules the government would almost certainly end up paying more – and possibly a lot more – in debt interest. Historically, Labour governments have been at their most vulnerable to a financial crisis in their second and third years. So, it's not hard to see why stronger growth is a more attractive option for the chancellor and there are ways of getting it. For a start, the Bank of England needs to sharpen up its act. With the economy on the brink of recession, the Bank's monetary policy committee should be cutting borrowing costs by more than 0.25 percentage points each quarter. Threadneedle Street is also making life more difficult for Reeves by gradually selling back the bonds it bought under its quantitative easing programme in the 2010s and early 2020s. This is leading to lower bond prices and higher government debt interest costs than would otherwise be the case. This process – known as quantitative tightening (QT) – should be halted. It is also absurd for the government to be proposing cuts in welfare while the commercial banks are being paid interest at 4.25% on their risk-free reserves being held at the Bank of England. In 2023, NatWest, Barclays, Lloyds and Santander received more than £9bn between them – a rise of 135% on the previous year. There are far better uses for this money. Reeves could order the Bank to halt QT and she could stop the payouts to the commercial banks. Judging by her Mansion House speech she would rather rely on the financial sector to dig her out of a hole. Good luck with that, chancellor. Larry Elliott is a Guardian columnist
BBC News
a day ago
- Business
- BBC News
Rachel Reeves inadvertently breached rules on gifts, says MPs watchdog
Chancellor Rachel Reeves inadvertently breached parliamentary rules by missing the deadline for registering gifts, the MPs' watchdog has April, Reeves referred herself to the parliamentary commissioner for standards after she failed to declare in the list of MPs' interests tickets given to her by the National Theatre within the required 28 days. In a letter to the commissioner, Daniel Greenberg, Reeves said that "due to an oversight" she had initially only listed the donation in the register for ministers but not for MPs. The commissioner noted Reeves' apology for the late registration and said he would be closing his inquiry. The investigation related to two donations made by the National Theatre in central first was for two tickets to a performance and a dinner in March 2024, valued at £265. The second was for four tickets to a performance in December 2024, valued at £276. MPs are expected to declare gifts or benefits above the value of £300 within 28 days of receipt. Ministers who receive gifts worth more than £140 in their ministerial capacity have to list the donation in the list of ministers' interests. Reeves registered the tickets from the National Theatre on 27 March 2025. Reeves told the commissioner "the oversight which led to the late entry relates to the ambiguity around accepting hospitality which is neither clearly in my ministerial capacity nor my capacity as a Member of Parliament"."In general, it is likely that my ministerial position means I am offered hospitality of this kind more frequently, and in this case, as you know, my team and I initially declared the hospitality on my ministerial register only," she said."In order to be maximally transparent, I subsequently took the view that it would be better to consistently record the hospitality on both registers."Replying to Reeves, Greenberg said he believed she had breached rule five of the MPs' code of conduct."It should have been clear to you that the gift related to your membership of the House or political activities, and it should have been registered within the 28-day time limit set by the House," he said. "This has been a difficult decision," he wrote but added: "I have concluded on balance that your failure was inadvertent, although greater attention to the rules could and should have avoided it."Replying to Greenberg, Reeves said she accepted his decision and reiterated her apology for the added that she had put in place "more regular communication" between her Parliament and Treasury teams "to ensure information on gifts and hospitality is shared in a timely manner".She said she would seek "more thorough advice" from Treasury officials about ministerial gifts but added: "I am also not intending to accept further tickets of this kind going forward."Last summer Reeves, along with the prime minister, became embroiled in a row over accepting freebies from clothing to concert tickets. Earlier this year, she defended accepting free tickets to a Sabrina Carpenter concert at London's O2 arena saying: "I do now have security which means it's not as easy as it would have been in the past to just sit in a concert."A few days later she told ITV she faced a "balancing act in my job to try and be a good parent" alongside security added: "I felt I was doing the right thing, but I do understand perceptions. I recognise the feeling here. I have no intention of doing that again."
Yahoo
a day ago
- Business
- Yahoo
Bank of England governor warns tariff hikes risk 'fragmenting the world economy'
Bank of England (BoE) governor Andrew Bailey believes "tariffs creates the risk of fragmenting the world economy" and weighing on activity. Referring to Donald Trump's trade policies, Bailey made the comments in a pre-prepared speech shared ahead of the annual Financial and Professional Services Dinner at Mansion House. Chancellor Rachel Reeves is also due to make a speech at the dinner on Tuesday. "To say that the state of the global economy and the impact of tariff announcements is in the news and significant is an understatement," Bailey said. "The shifts we have witnessed — and continue to witness — mark a generational change in the system of trade amongst nations." He said: "Recent events have exposed fault lines in the multilateral system of relations between nations, including in the global trading system, and a perceived failure to deal with what are seen as persistent global imbalances." The BoE governor explains that these trade imbalances are expected to self-correct over time, if the global economic system is working efficiently. Bailey highlights the examples of China and the US, which between them, account for nearly 40% of the world's current account imbalances. A country's current account balance of payments is a measure of its international transactions with the rest of the world, tracking the flow of goods, services and income. Bailey said that China has a current account surplus of 2.3% of national gross domestic product (GDP) and 0.4% of global GDP, according to IMF data. A current account surplus is when a country is exporting a greater value of goods than it is importing. "It appears that the surplus primarily reflects the weakness of domestic consumption in China, which in turn reflects an investment and export-led growth strategy and weaker social safety nets domestically," Bailey says. Read more: Rachel Reeves plans boost for savers with cash in low-interest accounts He said: "As Chinese incomes have increased, the self-correction mechanism has been weaker because the domestic incentives to save have remained strong". Meanwhile, the US has a current account deficit of 3.9% of national GDP and 1% of global GDP, meaning the value of its imports are higher than its exports. Bailey said he believes that there are two reasons why this trade dynamic has not self-corrected. One of which, he says, is that as a consequence of its stronger productivity and economic growth, "domestic wealth has risen and foreign capital has flowed into the US allowing it to run a larger external deficit, thus reducing the downward pressure on domestic demand." The second reason is that "people outside the US have been willing to take on its obligations — i.e. buy its assets". Bailey said that one of the key points from these examples, is that "the underlying drivers of imbalances are domestic macroeconomic policies". The other is that "the US does need to explain how it can regard its internal imbalance as sustainable and its external imbalance as not so, and how it envisages the internal balance responding to an adjustment of the external balance flowing from tariffs taking effect. And China needs to explain how it will tackle its persistently weak domestic consumption." Read more: Bank of England could cut interest rates faster if jobs market slows, Bailey says He added that the pressure to adjust these imbalances "can come more through threats of tariffs and trade barriers. But increasing tariffs creates the risk of fragmenting the world economy, and thereby reducing activity." "There is therefore a common interest globally in tackling excess imbalances before dangerous levels of trade restrictions come into play, and before we face the prospect of difficult adjustment with macroeconomic volatility and financial instability," he said. Markets have been rocked this year by Trump's fast-moving tariff agenda, with concerns that the US president's trade policies could tip the global economy into a recession. Data released on Tuesday showed that US inflation rose to 2.7% in June, up from 2.5% in May, as investors continued to look for signs that Trump's tariffs may be starting to work their way through to consumer wallets. Meanwhile, JPMorgan (JPM) CEO Jamie Dimon warned in the investment bank's latest earnings release on Tuesday that "significant risks persist — including from tariffs and trade uncertainty, worsening geopolitical conditions, high fiscal deficits and elevated asset prices." Trump announced sweeping tariffs on what he dubbed "Liberation Day" on 2 April but later announced a 90-day pause on many duties and has since added a further extension to this deadline to 1 August for countries to negotiate trade agreements. However, over the weekend, Trump has threatened the EU and Mexico with 30% tariffs and Canada with a 35% levy rate. In addition, on Monday, the US president also threatened Russia with "severe" tariffs if a deal is not reached to end the war with Ukraine within 50 days. Read more: How to make pension pots tax-efficient Stocks to watch this week: Goldman Sachs, Netflix, TSMC, ASML and Burberry Bitcoin price hits all-time high as 'crypto week' beginsSign in to access your portfolio
The Independent
a day ago
- Business
- The Independent
‘Urgent' need for digital reform of banking payments, says Bank of England boss
Bank of England governor Andrew Bailey has said that 'urgent' reforms of retail banking payments should be a priority as he remains to be 'convinced' over the need for a digital pound. In his annual Mansion House dinner speech, Mr Bailey said the UK needs to 'harness the potential of digital technology for retail payments' both within Britain and internationally to help future-proof payments infrastructure and ensure it can play its part in boosting growth in the UK. But he added a dose of scepticism over any plans for a digital pound and reiterated concerns over so-called stablecoins – a type of cryptocurrency which is backed by a traditional asset such as a currency or commodity. Mr Bailey said: 'There is an urgent need for innovation now in the area of payments, and the opportunity is there, no doubt about that.' He said the Bank would collaborate with authorities and industry to 'design and deliver the next generation of UK retail payments infrastructure'. 'This must be a priority, both to replace ageing infrastructure and as part of promoting growth in the UK,' he said, echoing financial services reforms outlined by Chancellor Rachel Reeves on Tuesday to help boost the economy. Mr Bailey added: 'There may well be a role for stablecoins going forward, but I don't see them as a substitute for commercial bank money. 'Moreover, our job will be to ensure that those stablecoins that purport to be money are safe. 'Perhaps there may also be a role for retail central bank digital currency, but I remain to be convinced why the natural next step is to create a new form of money rather than put digital technology into retail payments and bank accounts.' His comments follow just days after he warned global banking giants against issuing their own stablecoins, which he said threaten to take money out of the banking system and therefore leave less available for lending. Mr Bailey has also appeared to be increasingly cooling on the idea of a digital pound in recent months, raising doubts over whether it would ever be officially launched. In his speech, Mr Bailey cautioned over the ongoing impact of the global trade war, with the current shift in policy marking the 'most sudden and fundamental in the post-war era'. 'The shifts we have witnessed – and continue to witness – mark a generational change in the system of trade amongst nations,' he said. 'Increasing tariffs creates the risk of fragmenting the world economy, and thereby reducing activity,' he said. 'Recent events have exposed fault lines in the multilateral system of relations between nations, including in the global trading system,' he added. He said the International Monetary Fund (IMF) and the Word Trade Organisation (WTO) can both work together and play a part in cooling the current trade war by helping 'achieve agreement amongst its members on the global rules of the road and how they are adhered to'. But he stressed he cannot 'underestimate the challenges' in addressing the current trade tensions.
The Independent
a day ago
- Business
- The Independent
OBR boss denies forecast drove welfare cut proposals
The Chancellor could have met her fiscal rules without proposing £5 billion worth of welfare cuts, the head of the Office for Budget Responsibility (OBR) has said. Richard Hughes rejected the suggestion that the OBR's forecast was now driving policy, saying it was up to chancellors to decide how much headroom they wanted against their targets. In March 2025, it was reported that Rachel Reeves had expanded planned cuts to welfare shortly before her spring statement after the OBR forecast the Government's previous proposals would not save as much money as thought. That enabled her to maintain the £9.9 billion of headroom against her debt target that she set out in her October 2024 budget. But it also prompted an outcry from Labour backbenchers, leading to the Government dropping most of the proposals in order to avoid its first Commons defeat. Appearing before the Commons Treasury Committee on Tuesday ahead of his proposed reappointment as the OBR's chairman, Mr Hughes denied that changes in the OBR forecast had driven the proposed welfare changes. He said: 'I don't really accept the characterisation that it was changes in our forecast that forced the Government to make any particular sort of policy decision. 'Back in March, the Government decided to make £5 billion worth of welfare savings. They had £10 billion worth of headroom against their fiscal rule. They could have settled for five.' Mr Hughes went on to characterise the decision on welfare, which has now been largely reversed, as 'an entirely political choice' and added Ms Reeves could also have decided to break or change her fiscal rules. Asked about a perception that the forecast was now driving policy, he said: 'Chancellors can make a point about how much headroom they want against their fiscal rules. Recently they have left themselves very little.' Mr Hughes also pushed back against criticism from the Prime Minister, who had complained to the Commons Liaison Committee in April that the OBR's forecast had not included the effect of the Government's welfare reforms on employment. He said the Government had failed to provide enough detail on the employment support programme for it to be included, saying: 'There were no specifics. 'They couldn't tell us who was going to benefit from this programme, which groups, what kind of support they were going to get. 'There was no policy for us to score in our forecast.' A series of U-turns on the Government's welfare proposals at the start of July have left the Chancellor looking for another £5 billion in savings or tax rises if she wishes to maintain the headroom against her debt target she had last year. Ms Reeves is also likely to face a further squeeze thanks to a weakening economy and a commitment to partially reverse cuts to the winter fuel allowance.
