Since the start of Starmer’s time in power it has been clear this is a neoliberal government pursuing policies intended to boost the capitalist economy as the only way to create ‘growth’. Starmer is keen to carry on austerity, cuts to government spending – in particular welfare payments – and to roll back the state, denigrating the public sector as he goes. 

The latest plan is to cut regulation of parts of the economy. This is portrayed as a war against red tape stifling growth with unnecessary bureaucracy, fees and anti-business practices. This argument comes straight from Thatcher and Regan in the 1980s. The war against ‘regulation’ is also being driven by Trump in the USA, particularly around environmental protections. 

In an exclusive article written for City AM on 17 March, Starmer announced his plans to “cut regulation and unleash the animal spirits of the private sector”. His choice of publication – City AM is daily reading for people working in finance in the City of London – and his Keynesian language are palpable attempts to wake the markets up and get them on side. Starmer has realised he’s presiding over a stagnant economy and he’s doing anything he can to spark change.

The cost of cutting financial services regulation

Starmer has said he wants to “cut the administrative cost of regulation on business by 25%” to “make Britain the best place to do business and drive economic growth”. But particularly in relation to the financial services industry, the cost of complying with regulations pales in comparison to the massive profits to be made. Even for small financial services firms, it’s reasonable to expect businesses to spend some money to ensure they’re complying properly with regulations.

Regulations that allow the FCA to check they’re not selling vulnerable people risky investments or employing convicted grifters to give financial advice. The costs to the British public of not properly supervising the financial services sector are far greater than the costs to business of complying. 

Other than the cost of complying, the costs Starmer might cut are the fees firms pay to the FCA. But the reality is that regulatory fees make up a tiny percentage of cost to firms. And unlike other government regulators which are tax-funded, the FCA and PRA are entirely funded by the fees paid by its members. And these regulators can only charge fees to recover their budgets for the work they’re doing. Any discussion about cutting those fees is essentially offering a tax break to financial services firms. And any cut in fees will also mean a direct cut in the regulatory activity done by the FCA and PRA and less supervision of banks. 

In the aftermath of the 2007 crash, there was a huge public appetite to regulate the banks. But that was 20 years ago and Starmer now feels empowered to offer a tax break with one hand and less supervision with the other. 

The benefits of regulating key economic activities like finance are clear to anyone. Without effective supervision people are more likely to be scammed by untrustworthy lenders and financial advisers or invest their life savings in risky ventures. And on a macro-level, less scrutiny of the banks and their investment activity means we are more likely to have a banking crisis due to financiers and bankers doing whatever they want. 

To be clear – capitalism operates through a cycle of booms and busts. Regulation won’t stop banking or economic crises. But without the brakes and supervision provided by it, those crises are going to be more devastating and more common. 

The government is relying on the lazy narrative that regulation is “indulgent” and unnecessary. But these regulations exist for a reason. Banks wouldn’t bother to balance their risk taking if they weren’t forced to. Because it doesn’t serve their interests. They know they are too big to fail and that the government will simply bail them out if their risks don’t pay off.

Moreover, if the risks do pay off, then they create huge amounts of wealth for people working in their sector. The classical rules of the free market simply do not apply to industries like banking.  It is notable that this ‘bonfire’ of regulations has been aggressively pushed by the bosses union the Confederation of British Industry (CBI).

The tune from Labour is that “unnecessary” regulation chokes competition and stifles business. But what constitutes unnecessary?

Let’s take one example. The new proposals include “support for homeownership as the Financial Conduct Authority (FCA) simplifies mortgage lending rules, including making it easier to re-mortgage with a new lender and reduce mortgage terms.” This sounds good on paper to some (ecosocialists don’t support a market in housing), but in reality it is a worrying proposal.

What we saw in the lead up to 2007 was the unchecked rise of a housing bubble fed by easy access to loans. This drove up house prices. And resulted in a lot of people who couldn’t really afford the houses, buying them anyway. And because mortgage repayments were the basis for millions of financial instruments, when those repayments started to fail, so did the financial instruments.

Just as it was in 2007, housing is still the bedrock of a lot of financial services instruments. So Starmer proposing measures that make it easier for people who can’t currently afford houses to get loans is worrying. The answer to the housing crisis is not making it easier to get loans to afford ever increasing house prices. It’s making it harder to flip houses for commercial gain. It’s putting caps on the amount people need to pay to access housing security. It’s regulating the buy-to-rent market and putting checks on commercial landlords. It’s building sustainable and safe housing and infrastructure based around communal needs. 

Starmer might argue that we live in a safer world than 2007. One in which risky financial instruments do not receive a AAA rating. Or where banks do not over-leverage themselves by buying complex financial instruments they do not properly understand. There is reason to be sceptical that this is the case. But how much more dangerous would it be if we lived in the world Starmer envisages, where regulation has been slashed to promote growth?

Posturing as opposed to actual change

Despite the hype, for now, the “bonfire” of financial services regulation seems superficial. In finance the government has announced it’s going to abolish the PSR and streamline regulation. This is a punchy headline, but the measures being taken will just see the PSR absorbed into the FCA (they already work in the same building and staff at both entities are eligible to join the same Unite branch).

The government clearly is not scrapping payments regulation. Announcements about contactless payment limits are things the public can understand, but it’s work the FCA and PSR were already undertaking. Many insiders agree that this merger will be time-consuming without delivering meaningful change. 

Starmer also talks about setting up a new “concierge service” for international financial services firms. Perhaps trying to mitigate some of the international damage caused by Brexit. But even with Brexit, London is still one of the biggest international financial centres in the world. There are already plenty of private sector firms that provide advice on UK regulations, not to mention the work that the FCA already does in this sector. What actual change will result from this concierge service, aside from optics, is unclear.

That said, the government has not undone some of the more controversial and substantive changes made by the Tories in the last 15 years. 

Most notably, the cap on bankers’ bonuses was removed under Rishi Sunak. Starmer has done nothing to reinstate it. This was one of the fundamental changes after 2007. Pre-financial crisis, there was no cap on the amount a banker could receive in bonus payments. This encouraged them to take risky financial positions, because if they worked out then they would receive a big pay off. After the crash there were attempts to decouple (or at least distance) the connection between bankers’ risky behaviour and their personal pay packet by requiring bonuses to not be above a certain percentage of their underlying salary. This was scrapped by the Tories and has notably not been reintroduced by Labour. 

Changing the nature of financial services regulation

The stance taken by Starmer’s government is pushing the narrative that regulators need to regulate to promote growth and protect against risk. Even before Starmer, the FCA had a new “secondary objective” imposed on it that means it has to prove that each new initiative or policy needs to further “international competitiveness”. The overwhelming emphasis of the Treasury’s remit letter in November 2024 – the first under the Labour government – is on growth. There is almost no mention of protecting consumers. 

The point of a regulator in any sector is to ensure quality products, to identify and punish wrong-doers, and to make policies that prevent or minimise wrong-doing in the first place. The point of the financial services regulator is not to encourage growth. The financial services sector is one of the most well-funded and well-lobbied industries in the world. They can take care of their own growth. 

Starmer is revealing himself for what he is: a weak leader. He is going cap in hand the financial markets and asking them to please be positive, please keep investing, please keep the money cycle spinning. His rhetoric is much more reminiscent of Thatcher and Reagan even than that of the Tories. He appears to be hoping for his own “Big Bang”. 

But the only kind of growth that can be guaranteed by deregulating finance is growth of the financial markets sector. This is distinct from the so-called “real economy” of business and day-to-day productivity.  Since the huge financialisation of most Western economies, those same economies have seen decelerated growth. Deregulation hasn’t translated into sustained and meaningful economic development for the vast majority of people. 

The more one considers Starmer’s tactics, the more obvious it becomes that these are desperate attempts to shift the optics. And while the measures proposed so far are perhaps not fatal, the direction of travel is alarming.    

Conclusion

Ultimately, the fight for regulation is to protect people from the rapacious and dangerous instability caused by capital. We don’t want people to lose their life savings or for there to be another collapse. As Brad Pitt’s maverick investor character says in the 2015 movie The Big Short: 

If we’re right, people lose homes. People lose jobs. People lose retirement savings, people lose pensions. You know what I hate about fucking banking? It reduces people to numbers. Here’s a number – every 1% unemployment goes up, 40,000 people die, did you know that?

But regulation on its own can’t make the fundamental changes we need. We can – and should – regulate finance more, have more protections for the environment and require housing trusts to build stronger houses. But as long as capitalism remains the economic basis of society, it will continue to exploit and extract for profit, and it will continue to lobby politicians to scrap any meagre attempts to hold back their business interests.

Often what is good for business is not good for people. That’s the reality of life under capitalism. 

Art Book Review Books Capitalism China Climate Emergency Conservative Government Conservative Party COVID-19 EcoSocialism Elections Europe Fascism Film Film Review France Gaza Imperialism Israel Italy Keir Starmer Labour Party Long Read Marxism Palestine pandemic Protest Russia Solidarity Statement Trade Unionism Ukraine United States of America War