We probably won’t see the return of shoulder pads, big hair, or yuppies swilling champagne in the bars around Liverpool Street. Even so, the Chancellor Rachel Reeves will promise a return to the go-go spirit of the 1980s in her Mansion House speech this evening, with a pledge of ‘Big Bang’ style deregulation to boost growth and get the financial markets moving again. There is just one catch – and it’s a big one: Reeves is making the wrong reforms, and all Labour’s other policies are destroying confidence. The Chancellor’s shake-up is doomed to fail.
There is no point in promising a ‘Big Bang’ for the City while also driving out the nom-doms
Mrs Thatcher is not one of Reeves’s political heroes, but nonetheless the Chancellor is planning to emulate the Iron Lady with a round of deregulation for the City. In her speech this evening, she will promise to slash red tape, make it easier for global firms to invest in London, and, perhaps most significantly, allow the banks to lend larger sums of money to anyone buying a house. It will all be portrayed as Labour kick-starting growth.
In fairness, it is not a terrible idea. The City has been stuck in the doldrums, with few deals being done and a constant stream of companies moving their listing to New York. Financial services used to be one of the key drivers of growth for the UK, and generated huge tax revenues. We badly need this sector to start expanding again.
It won’t. One of the Chancellor’s big plans is to loosen the rules on mortgage lending. The last thing Britain needs right now is yet more debt. And the main reason why people can’t afford homes is that we don’t build nearly enough of them, and prices are too high, not that the banks are not allowed to lend potential purchasers enough cash. All easier lending rules will do is stoke a housing bubble, with all the risks that involves. Do we really need another 2008 financial crisis?
While Reeves talks the talk tonight, she is being undermined by the fact that she is part of a government which is destroying confidence in almost every other area. There is no point in promising a ‘Big Bang’ for the City while also driving out the nom-doms, threatening a wealth tax, freezing thresholds for the top rate, and taking up a windfall levy on the banks.
In reality, Reeves’s reforms won’t do anything to accelerate growth; they will make her even more unpopular on Labour’s backbenches, where her support has already dwindled away.
The Chancellor can make all the 1980s-style promises she wants. It is not going to save her now.
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