Last week, the UK government used the Queen’s Speech to announce a Financial Services and Markets Bill that will contain two new objectives for the country’s financial regulators: to promote “growth” and “international competitiveness”.
According to the government, this is part of wider plans to ensure financial services continue to deliver for individuals and businesses. But what “international competitiveness” really means is letting multinational finance companies make huge profits by taking irresponsible risks with taxpayers’ money.
At a time of global financial volatility, grave climate risk and a cost of living crisis, we should be very concerned about the signals these plans send about government policy priorities – and the ability of these new objectives to deliver benefits for the real economy.
That’s why I’ve joined more than 50 leading economists, including Nobel Laureates and former ministers and regulators, in sending an open letter to the government opposing these misguided proposals.
The Covid-19 public inquiry is a historic chance to find out what really happened.
And there are good reasons for our concern – after all, we’ve been here before. In the years leading up to the 2008 global financial crisis, the cataclysmic event that cost the world economy some $10tn, the Financial Services Authority (now replaced by the Financial Conduct Authority) had a focus on competitiveness, which, in the aftermath of the crisis, was found to have helped cause the disaster.
As Andrew Bailey, now governor of the Bank of England, reminded us in 2019, Britain tried a competitiveness objective before, and “it didn’t end well, for anyone.” The government should listen to his warning, to prevent taxpayers across the UK once again bailing out the sector when excessive risk-taking explodes into another crisis.
Short-term risk-taking by the City of London threatens domestic stability and prosperity
We can’t let this happen again. Promoting global “competitiveness” will once again set the financial sector against the real economy, crowding out investment in vital sectors such as Britain's green economy and in skilled and well-paid job creation. Short-term risk-taking by the City of London threatens domestic stability and prosperity.
Questions should be asked about the government’s decision to prioritise this policy during a cost of living crisis. The last thing people need is for their employment and what small savings they have to be put at risk by policies that provoke another financial crisis.
Polling from charity The Finance Innovation Lab backs this up – more than 60% of people think a policy prioritising global risk-taking by the financial services sector is “out of touch and elitist”, and 90% think “international competitiveness” should not be a priority.
The public is right to be sceptical. This is a policy for the City of London, not everyday citizens. It will suck money out of the rest of the economy, increasing inequality across the country, and dumping risks and consequences on the rest of us.
Instead of leading us down the path of crisis, the government should be using this opportunity to ensure that our regulators are encouraging firms to invest in tackling climate breakdown and ecosystem collapse, and in the provision of full employment. It should also be focusing more attention on how it can provide support for households to manage the cost of living crisis.
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