Joseph Stiglitz and experts warn City deregulation threatens Labour's future
- Fifty economists and policy experts voiced concerns to Rachel Reeves about the implications of deregulating the finance sector.
- Key signatories included Nobel laureate Joseph Stiglitz, amongst others, who argued against the government's focus on increasing competitiveness through deregulation.
- The statement highlights the risk of financial crisis and the negative effects on the economy due to excessive financial sector growth.
In the United Kingdom, fifty economists and policy experts have raised concerns regarding the government's plan to encourage deregulation in the financial services sector, which they believe could threaten financial stability and economic growth. This warning follows an ongoing call for evidence by the Treasury and comes amid Rachel Reeves' push for a more competitive financial environment by urging the Financial Conduct Authority (FCA) to prioritize growth alongside consumer protection. The experts, including notable figures like Nobel laureate Joseph Stiglitz, have emphasized that increased deregulation carries inherent risks that could undermine the government's broader economic strategy. The economists argue that a more relaxed regulatory framework would be counterproductive, potentially exacerbating issues that the last Labour government faced when a lack of oversight led to a financial crisis. Deregulating the City has been chastised by the signatories, who assert that it channels resources away from productive endeavors and disproportionately inflates asset prices, rather than supporting business growth. In response to the Treasury consultation, the experts presented evidence that sustaining a healthy financial sector is vital to the broader economy, citing studies which indicate that when private credit exceeds 100% of GDP, negative consequences follow. Currently, UK private credit is around 160% of GDP. Furthermore, the chief executive of the FCA, Nikhil Rathi, echoed these sentiments, suggesting that leniency in the regulatory landscape could invite more risks into the financial system. Pivotal figures like the Bank of England governor, Andrew Bailey, have also urged caution regarding potential complacency towards financial risks. The experts' statement serves as a reflection of the lessons learned from previous financial crises, vibrating the same cautious tone heard from policymakers who fear another significant meltdown in the financial sector, which could result in severe economic repercussions.