London, 16th May 2022
58 leading economists have written an open letter to the Chancellor, Rishi Sunak MP, and the Economic Secretary to the Treasury, John Glen MP, outlining their concerns regarding proposals to make ‘competitiveness’ a greater focus in financial regulation.
A landmark post-Brexit Financial Services and Markets Bill was announced at the Queen’s Speech last week, and the government intends to use that to introduce objectives for financial regulators to promote the “international competitiveness” of the finance sector.
The proposal has come under fire from civil society groups, who warn that it could erode the ability of regulators to act in the public interest and catalyse a global ‘race to the bottom’ on social and environmental standards.
The letter signatories, who include pre-eminent British economist Sir John Kay, former UK Minister Sir Vince Cable, former UK regulator Mick McAteer, and Nobel Prize laureate Joseph Stiglitz, argue that competitiveness is an inappropriate objective to charge financial regulators with because:
- It risks another financial crash.
- It will harm the real economy.
- It will reduce economic growth.
- It is a poorly defined objective, which will lead to poor policy making.
- It will generate a regulatory ‘race to the bottom’.
- It will undermine the work regulators do to promote healthy competition.
- It will force the regulators to act as cheerleaders for big city institutions.
The letter can be read in full here.
“Economists are right to raise the alarm on the government’s plans to force regulators to promote ‘competitiveness’, prioritising big city firms over the health of the domestic economy. Current proposals to water down the rules governing big finance are completely at odds with the government’s own goals on climate, levelling up, and financial inclusion.”
Marloes Nicholls, Head of Policy and Advocacy at the Finance Innovation Lab commented:
“It is truly shocking that the government is proposing we reintroduce the mistaken regulatory rules that helped cause the global financial crash, and economic turmoil and misery for millions. In the midst of a cost of living crisis, their focus should be on making financial regulation work for the public, not narrow City interests, for instance through climate and inclusion objectives for regulators.”
New polling published last week by the Finance Innovation Lab reveals that two thirds of the public believe the government’s proposal is out of touch and elitist, while nearly seven in ten (67%) people think the proposal puts the needs of the City of London first, undermining the government’s levelling-up ambitions.
- ‘New law to protect access to cash announced in Queen’s speech’, HM Treasury, 10th May 2022: https://www.gov.uk/government/news/new-law-to-protect-access-to-cash-announced-in-queens-speech
- ‘Poll shows widespread concern over Chancellor’s financial reforms’, Finance Innovation Lab press release, 9th May 2022: https://financeinnovationlab.org/queens-speech-2022-poll-shows-widespread-concern-over-chancellors-financial-reforms/
- ‘37 civil society groups come together to oppose plans for financial regulators to prioritise ‘international competitiveness’, Positive Money, 22 March 2022: https://positivemoney.org/2022/02/public-says-no-to-financial-deregulation/
- Positive Money is a research and campaign organisation working towards a money and banking system which supports a fair, democratic and sustainable economy. Set up in the aftermath of the financial crisis, Positive Money is a not-for-profit company funded by charitable trusts and foundations, as well as small donations from its network of over 65,000 supporters. www.positivemoney.org.
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