Labour: the party of workers, right? Historically, they’ve stood shoulder to shoulder with the everyman—championing fair pay, worker rights, and railing against the fat cats sipping champagne in the ivory towers of the City of London. But under Rachel Reeves’ stewardship, it seems the party has swapped its overalls for pinstripes. And not everyone’s clinking glasses in celebration.
In fact, some very serious, very clever people (including Nobel Prize winner Joseph Stiglitz) are practically yelling at Reeves to slow her roll on deregulating the financial sector. They’re not exactly shouting it from the rooftops, but they’ve penned a scathing letter—signed by 50 economists and experts—that politely but firmly points out that her plan is, well, bonkers.
Deregulation Déjà Vu
Remember the “light-touch” regulation of the Blair-Brown years? It made the City a playground for big banks—right up until they broke all their toys, crashed the economy, and came running to taxpayers for a bailout. It wasn’t a great look. Reeves herself admitted last March that the underregulated financial sector of that era created immense wealth but posed “profound structural risks.”
Fast forward to now, and Reeves seems to be handing the City a pair of scissors and saying, “Go wild with the red tape.” She’s tweaked the remit of the Financial Conduct Authority (FCA) to prioritise growth and competitiveness—because apparently, consumer protection and financial stability were just too boring.
But here’s the kicker: this isn’t just a bunch of lefty academics clutching their pearls. Reeves is being called out by serious heavyweights, including the FCA’s own chief executive, Nikhil Rathi. Even Andrew Bailey, the governor of the Bank of England, has chipped in with a warning about “complacency” around financial risks. And these aren’t exactly people known for their bleeding hearts.
Growth at What Cost?
Reeves wants to inflate the financial services sector, which she’s hailed as the “crown jewel” of the UK economy. But her critics argue that the City is more like a black hole, sucking in talent and resources that could be better spent on productive industries. Most of its lending doesn’t go to exciting startups or innovative businesses. No, it’s largely used to pump up the price of existing assets like property—making the rich richer and housing even less affordable for the rest of us.
The letter from Stiglitz and co. points out the obvious: a bloated financial sector doesn’t just destabilise the economy; it actively harms it. Studies by the International Monetary Fund and the Bank for International Settlements show that once private credit exceeds 100% of GDP, the economy starts to suffer. The UK? We’ve been averaging a whopping 160% since 2000.
And let’s not forget what Simon Youel of Positive Money had to say. He dryly noted that if Reeves is serious about regional economic growth, “the last thing” she should be doing is further inflating the size of the City.
A Leopard Changing Its Spots?
Labour is supposed to be the party of the many, not the few. But Reeves’ rhetoric at the Mansion House dinner in November—where she told senior bankers that financial services must play a “central part” in Labour’s economic vision—felt more like a love letter to the few.
The Treasury, naturally, has jumped to her defence, pointing out that the financial sector employs 1.2 million people across the UK, two-thirds of them outside London. Fair enough. But if these jobs come at the cost of financial stability, is it worth it? And more importantly, who pays when things go belly-up again? Spoiler: it won’t be the bankers.
A Question of Priorities
The critics aren’t saying the financial sector doesn’t matter. They’re saying it’s time for it to serve the economy, not the other way around. They want Reeves to regulate more stringently, ensuring that the City’s immense resources are used to fund growing businesses and productive industries rather than fuelling property bubbles and risky bets.
Labour’s gamble on the City might win it some friends in high places. But if it leads to another financial crisis—or simply widens the gap between the haves and have-nots—it won’t just be Reeves who pays the price. It’ll be all of us.
So, Rachel, are you standing with the workers or the bankers? Because right now, it’s hard to tell.
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