Lords urge chancellor to show how finance sector will support growth

The House of Lords Financial Services Regulation Committee has written to the chancellor, pressing the government to explain how growth in the financial services sector will translate into broader economic growth.

In a letter to chancellor Rachel Reeves, committee chair Lord Forsyth of Drumlean said the government had failed to engage with several key findings from the committee’s recent report, Growing Pains: Clarity and Culture Change Required.

Lord Forsyth asked the chancellor to clarify government policy on ensuring that the expansion of financial services supports wider economic growth. He also questioned whether ministers are satisfied with the Financial Conduct Authority (FCA) and Prudential Regulation Authority’s (PRA) understanding of their roles in promoting growth.

Further questions included what priority the government will give to requiring the FCA and PRA to set out long-term strategies for supporting economic expansion; why ministers rejected calls to review the metrics used to assess the regulators’ performance against their Secondary International Competitiveness and Growth Objective; and what has prevented the Treasury from comparing international regulatory performance.

The committee also asked how the government plans to identify aspects of the UK regulatory regime that impose higher business costs than in other jurisdictions, in order to target potential reforms.

Lord Forsyth said: “Our report identified key barriers in financial services regulation that inhibit the international competitiveness of the UK economy, particularly the financial services sector, and its medium to long-term growth.

“We found a significant gap in the government and regulators’ understanding of how regulatory mechanisms directly impact growth in the wider economy.”

He added: “Our committee expressed concerns that current capital requirements on lenders constrain their ability and willingness to lend. We also criticised the risk aversion of the FCA and PRA, which we felt held back the sector from facilitating growth in the wider economy.

“The success of the Secondary Objective, which is necessary to deliver economic growth the UK desperately needs, requires the government to properly engage with the findings of our report, which is underpinned by extensive evidence and testimony from leading executives across the financial services sector.”