The UK’s financial lobbyists hold a more powerful role in developing our financial policy now than at any other time in my 30 years as a financial campaigner.
The Labour government is continuing the work of its Conservative predecessors in promoting the financial sector’s interests on the unsubstantiated assumption that doing so will support national economic growth.
Even the watchdog charged with regulating the industry has been legally mandated to promote its growth and competitiveness. What was intended as a ‘secondary’ growth objective has become a de facto primary one, given equal status with other priorities, and threatens to compromise the regulator’s independence.
At the same time, civil society actors like myself, who are fighting to advance the financial interests of the general public, have never held less sway with ministers.
All of this has real-world consequences for the economy and society, risking undoing much of the work done to make our financial system safer and fairer for consumers since the 2008 financial crisis and notorious systemic misselling crises of the 2000s.
The scale of influence
Financial lobbyists’ undue influence in Whitehall can be seen in their dominance of the parliamentary working groups that inform government and regulatory policy, as the Financial Inclusion and Markets Centre revealed earlier this year.
We analysed the make-up of six key working groups that advise ministers on issues such as the role of AI in finance, financing critical public infrastructure, the National Wealth Fund’s role in providing corporate welfare to private finance, and financial consumer protection. Our findings were staggering.
These groups have a total of 130 members. Just 10 of these – one in every 13 – are dedicated civil society/consumer representatives (there are also three academics). If you discount the Financial Inclusion Committee, which has six civil society/consumer representatives, just four of the remaining 116 working group members are from civil society. (For full transparency, I am one of those four, as a member of the Central Bank Digital Currency Engagement Forum, which is tasked with understanding the challenges of introducing an electronic version of the pound.)
In contrast, the financial sector boasts over 100 of the 130 representatives across the working groups and task forces. It also has far more meetings with Treasury ministers than civil society groups, and submits far more responses to government and regulator consultations.
This disparity in influence is perhaps not surprising. The industry has significant and disproportionate financial and technical resources for lobbying and producing reports to support its arguments.
Eighteen financial trade associations in the UK have a combined annual turnover of £145m, according to a 2022 report by Positive Money, a not-for-profit campaigning to reform our economic system. We don’t have exact figures for the resources available to financial campaigners, but safe to say it is much, much less than this.
Positive Money’s report also found disquieting links between the finance sector and politicians. openDemocracy’s own work has done much to expose these connections, most recently revealing how Keir Starmer’s top business aide, Varun Chandra, set up a secretive meeting between finance executives and a Tory minister in his previous role at Hakluyt, a strategic global consultancy firm.
Why it matters
What happens behind the scenes in Westminster’s meeting rooms is important, as this is where finance lobbyists do much of their work. The dangerous imbalance in representation and access to power risks poor policymaking flying under the radar, particularly as civil society campaigns on complex financial issues don’t get much traction with the media and the public.
Real progress was made in protecting consumers and cleaning up the industry after the 2008 crash and the misselling scandals, the most prominent of which involved banks and other financial institutions misselling costly and opaque payment protection insurance to millions of customers who either weren’t eligible to make claims or didn’t properly consent to it.
But that work was unfinished. The retail finance industry still mistreats, extracts value from, or excludes millions of consumers, while the intersection of finance and AI/tech presents new opportunities to exploit consumers. Risk has also been shifted to the poorly regulated shadow banking sector – made up of insurers, investment funds and private markets – and the City still finances activities that damage the environment.
This should be no time to ease up on making markets work for society, let alone reverse progress made. But memories of the Noughties seem to have faded, and recent years have seen financial consumer protection and rights to redress weakened with a range of deregulatory measures, such as scrapping the cap on bankers’ bonuses and reducing the amount of compensation that can be paid to victims of authorised push payment fraud. The security of people’s pensions, especially those managed by insurers, is also still being undermined.
Worse may be to come if the government goes ahead with plans to weaken key financial stability measures, such as the ring-fencing regime, which aims to prevent banks from using UK consumer deposits to finance investments and activities. Even the limited progress on aligning finance with environmental interests is in jeopardy.
The economy and society are increasingly financialised, with private finance given opportunities to extract high returns from financing core physical, green, and social infrastructure. The finance lobbies have also persuaded policymakers to provide corporate welfare in the form of ‘de-risking’, deregulation and incentives to encourage powerful and wealthy City and overseas financial institutions to provide the financing. It’s a classic case of socialising the risks, privatising the rewards. Or, to put it another way, ‘heads they win, tails we lose’.
The government and regulators are trying to get (some would say coerce) pension funds to invest more in private assets and private equity, claiming that this will increase the investment returns earned by pension funds. Naturally, financial institutions are happy at the prospect (and likely lobbied for it), as these poorly regulated, risky private assets with questionable returns will allow them to levy higher fees on pension schemes than conventional assets, such as listed company shares, government and corporate bonds.
That ministers and regulators are promoting the growth of finance as a ‘good thing’ is a cause for concern. The government should heed the lessons from history about the economic damage that can be caused when finance gets too big.
And rather than achieving the government’s stated aim of promoting a fairer, more equitable and inclusive economy, encouraging greater financialisation is likely to exacerbate inequality.
Focusing on the growth of the City would widen both the income gap and the wealth gap, as those with assets see their value increase, and money shifts towards capital and away from labour. Firms investing in critical infrastructure will likely expect ordinary households to pay for their returns through higher bills or service costs. This is a vicious cycle, increasing the chances of financial crises as the economy becomes reliant on debt-fuelled consumption and growth.
We are at a critical juncture in the development of our financial regulatory policy. Sadly, ministers and regulators seem to have forgotten the financial sector’s embedded tendency to cause harm. Progress is already being reversed, and civil society will have a battle on its hands to prevent worse from coming down the line.
Mick McAteer is co-director of the Financial Inclusion and Markets Centre and a former Financial Conduct Authority board member
