Keir Starmer cannot outcompete the Conservatives on financial deregulation
It is as unprincipled as it is electorally stupid.
The financial crash, just under 15 years ago, laid the ground for the political turbulence which now characterises the world. It showed, plain as day, that our financial system operates like a giant casino, with no care for the livelihoods of ordinary people or the health of our planet. When things go wrong, the poorest pay the price, while the bankers are bailed out – business as usual.
Facing another financial crisis, it’s clear that governments never made the big changes necessary to prevent a future crash. They tinkered around the edges, putting in a rule here and a regulation there, sticking plasters used to prevent major haemorrhaging.
This week, the British government will try to rip away these sticking plasters, with the new Financial Services and Markets Bill. The Bill would trigger, according to its author, former chancellor Rishi Sunak, a post-Brexit ‘Big Bang’, recalling Margaret Thatcher’s 1986 deregulation package which ‘set the City of London free’, unleashing a wave of speculation and financialisation, instability and unrestrained greed.
We expect that at the heart of the Bill there will be a new statutory duty imposed on regulators to promote the ‘international competitiveness’ of the financial industry, a wholly inappropriate obligation which would turn the very people trying to hold the City to account into its cheerleaders instead. The UK parliament has already acknowledged that a focus on competitiveness by regulators contributed to the financial crash.
This would turbo-charge that dynamic.
Boris Johnson’s government was always interested in a programme of financial deregulation. It saw breaking with EU financial rules as a key rationale for Brexit. In fact, even within the EU, successive British governments repeatedly blocked progressive reforms to the financial system, with George Osborne fighting caps on bankers’ bonuses, blocking proposals for a financial transactions tax, and opposing limits to speculation in basic food goods.
More astonishing is that Keir Starmer seems determined to try to compete with the Tories in this financial race to the bottom. Last week the Labour leader told City AM we could have a better future outside the EU if we slash ‘red tape’ on the bankers, while shadow city minister Tulip Siddiq has called for overhauling overly ‘prescriptive’ financial regulation in an attempt to woo the City.
Even less power
It’s clear now that Keir Starmer sees the acceptance of Brexit as his path to power. But his comments last week go far beyond accepting it as a reality and making the best of a bad deal. They point to an embrace of the most extreme, free market form of Brexit, in which Britain becomes the under-regulated host to dodgy financial practices that wouldn’t be acceptable anywhere else. Economic growth produced under this model would not help ease the cost of living crisis but would continue to fuel Britain’s over-centralised, highly unequal economy, with ordinary people feeling they have even less power over their lives, not more.
Globally it would be disastrous too. We know already that the energy crisis and the food crisis are driven less by real shortages than by financial trading and speculative activity. Any regulation we pass should constrain such activity, not encourage it. We don’t know the content of the Financial Services and Markets Bill in detail yet, but we know the government dislikes the regulations which constrain commodity speculation. If the Bill this week sweeps away these rules or gives the government the power to make such changes without parliamentary approval, the end result will be an even more volatile global economy, in which people are locked out of access to the food and energy they need, not because there isn’t enough, but because speculators can make a quick buck.
It’s unclear what Keir Starmer thinks he can gain by trying to outcompete the Jacob Rees-Mogg and David Frost wing of the Tory party on their own terrain. Financial deregulation is not electorally popular, and it leads in directly the opposite direction from the sorts of economic policies that Labour will have to adopt to win an election. There is growing concern about what these proposals mean across the political spectrum, with former coalition government minister Vince Cable warning that forcing regulators to prioritise competitiveness will create a “race to the bottom”, and leave the UK in danger of experiencing another financial crash.
Of course, financial reform is much needed. Rather than prioritising competitiveness, we should look at the way in which financial technology is locking people out of the financial services they need to participate in society and give regulators a duty to ensure inclusion. Given that UK banks and asset managers fund nearly double the annual carbon emissions produced by Britain itself, we should force the financial sector to comply with internationally set climate change goals. And given the atrocious impact that speculation and financial shenanigans have on so many people’s right to live a dignified life around the world, we need to bring in rules which prevent this international damage from taking place.
A new coalition – Finance for our Future – has been established to fight for this better form of regulation. But efforts will come to nothing unless Labour abandons its attempts to cosy up to the financial sector.
This will be the biggest reform to financial regulation in a generation. Labour must put the needs of Britain, the environment and the world ahead of playing games on Brexit.