It was a bold move for the Labor chancellor: Rachel Reeves went to Davos and told an audience of global plutocrats that she wanted to make their lives easier by creating a riskier regulatory environment for British consumers.
Far from the Swiss Alps, Reeves’ offensive against regulators right-wing conservatives cheered, but some Labor MPs despaired that their chancellor’s quest for growth was taking the party into dangerous territory.
“People are holding their heads in disbelief,” said one senior Labor MP.
Reevesspeaking at the World Economic Forum, he was adamant: “You have to strike the right balance. I think the balance has shifted too far in regulating risk. You have to be able to protect consumers, but people also need to be able to take risks.”
Marcus Bokkerink, President of the Competition and Markets Authority, became on Tuesday the biggest victim Reeves’ new approach, as ministers forced him out of the job over his allegedly lukewarm appetite for growth-oriented reforms.
His dismissal was intended to serve as a warning to other regulators, according to government officials. This month, Reeves demanded that 17 watchdogs draw up action plans to boost growth and warned they would be scrutinizing.
John McDonnell, Labour’s former shadow chancellor, said Reeves could deliver a propaganda victory to Nigel Farage, leader of the populist Reform UK party, if she aggressively pursued her agenda at the expense of consumers.
“I am becoming increasingly concerned that all of this will give our opponents, particularly the Reformers, an opportunity to portray the Labor Party as a defender of corporate abuse and profiteers,” he said.
Reeves’ efforts to protect business from what is seen in government circles as a harmful “compensation culture” have taken many forms in recent months, with a common theme: less money for allegedly aggrieved consumers.
This week, Reeves asked for intervention in a Supreme Court case to protect banks and other car loan providers from paying out multi-billion pounds in a landmark case of mis-selling, arguing that it would “damage the UK’s reputation as a place to do business”.
Last year, the Ministry of Finance successfully put pressure on the regulators to slash a proposed cap on compensation for victims of payment fraud from £415,000 to £85,000, amid fears the new regime could seriously damage some fintech firms.
Reeves also pushed for a review of the Financial Ombudsman Service to prevent more massive consumer redress events, such as the £50 billion paid out by banks over the Payment Protection Insurance scandal.
The Conservatives found themselves in an odd position, urging Reeves to continue a program that began in 2023 under Rishi Sunak, when regulators were given a “secondary objective” of promoting economic growth and competitiveness.
Andrew Griffith, the shadow business secretary, wants to see a wider removal of regulators and has been a critic of the Financial Conduct Authority, the City’s watchdog. He thought firing Bokkerink was “a strange place to start”.
Bim Afolami, a former Tory City minister, said: “The chancellor is doing the right thing by the regulators. My advice to her is to continue.” Another former Tory Chancellor of the Exchequer said simply: “I think he’s probably right.”
But conservatives also believe Reeves, who is presiding over a stagnant economy, is using regulators as a scapegoat. Harriett Baldwin, a senior Tory, said the chancellor should “own up to some of her mistakes rather than blame everyone else”.
With Sir Keir Starmer’s government in the process of introducing a wave of employment regulations, many business leaders agree with Tory criticism that deregulation should start closer to Number 10. Ministers could still water down that package.
Regulators say that in exchange for focusing on growth, Reeves has given a clear signal that she will stand by regulators when things go wrong – as they inevitably will. “We feel like he’s got our back now,” said one.
Nikhil Rathi, chief executive of the FCA, told the House of Lords on Wednesday that proposed rule changes – such as easing controls on mortgage lending – could lead to more defaults. “One or two things are going to go wrong here,” he said, arguing that parliament should give the watchdog a “tolerable failure metric.”
Consumer associations expressed concern. “The combination of anti-regulation rhetoric – and now the sacking of the CMA chairman – signals to consumers that the government is ready to remove the protections that have been built for them,” said James Daley, head of research group Fairer Finance.
Rocio Concha, director of consumer group Which?, said the government was “absolutely right” to focus on growth and the role of regulators. But she added: “Strong consumer protection is not an obstacle to growth.” They are vital to economic growth because they help create a level playing field for dynamic competition while ensuring that consumers are protected from fraud.”
Professor John Thanassoulis of Warwick Business School, who is also an independent member of the CMA panel, said the government should “resist the temptation to beat the CMA“.
He added: “It will not drive productivity growth across the market. Instead, it will reward a few well-connected companies at the expense of the countless but silent majority who want a market that is inexpensive, fair, and whose companies put the consumer first.”
Dame Meg Hillier, the Labor chair of the Commons finance committee, said that while she supported Reeves’ aim to encourage regulators to promote growth, it was “crucial that economic stability and consumer protection are not unduly compromised”.
For now, most Labor MPs are not mobilizing against Reeves. “There are a few murmurs about not going back to 2008,” said one Labor bigwig, referring to the “soft touch” of the regulatory landscape before the financial crisis. “But it’s not yet in the mainstream of the party – it’s still seen as a small niche.”
