Labour’s deregulatory race to the bottom should worry us all

Starmer’s drive to cut red tape could unleash a new wave of dirty money and corporate bad behaviour, writes Spotlight on Corruption’s Sue Hawley.

By Sue Hawley

Something significant happened last week. The UK government forced the chair of the Competition and Markets Authority to resign. Marcus Bokkerink’s crime? Not being sufficiently “pro-growth.”

The chair of a regulator who is supposed to ensure a level playing field for businesses has been replaced by a former Amazon executive.

The CMA story is part of a wider - and worrying - trend. Keir Starmer this week declared that regulation has spread through the UK economy “like Japanese knotweed.” His Chancellor has hauled in the bosses of rail, water and energy watchdogs to demand that they “tear down regulatory barriers” to unleash growth and investment into the UK.

But Labour’s assault on the independence of regulators is entering dangerous territory. It also ignores the lessons from the past and the risks in the future that excessive deregulation will undermine the UK’s financial security, create a new tide of dirty money and unleash serious corporate misconduct down the line.

The last time a government interfered as overtly in the independence of a regulator as Reeves and business secretary Jonathan Reynolds have with the CMA was when George Osborne dispatched the Financial Conduct Authority’s Chief Executive Martin Wheatley in 2015. Wheatley had overseen tough regulatory action against the banks for financial crash related wrongdoing.

The removal was widely condemned at the time. The following year the Committee on Standards in Public Life warned that “governments must not be involved in the operational decisions of regulators as this would influence and undermine their judgement and their authority.”

Wheatley’s defenestration also drew outrage from Parliament’s Treasury Select Committee – whose members included a backbench Labour MP named… Rachel Reeves. The Committee was so concerned that it demanded veto powers over financial regulatory appointments, so that the public can “have confidence that the government is not interfering with independent supervisors and regulators.”

The same Committee sent a warning shot across the Conservative government’s bow in 2022 when it warned that governments “must not pressure the regulators to weaken or water down regulatory standards, or to accept changes to the regulatory framework… the regulators have been made operationally independent for a reason.”

Labour’s move against Britain’s watchdogs is desperately short-sighted. While there is no doubt that some regulation could be smarter, clearer and more efficient, the first duty of regulators is to protect consumers and the integrity of the financial system. Truly independent and robust watchdogs, overseeing stable and predictable regimes, are crucial to protecting the UK’s reputation as a clean and stable place to operate.

As well as forcing UK regulators to cut ‘red-tape’ to increase investment, the government wants to roll back on audit rules and corporate governance measures - the kind of measures that were recommended in light of devastating corporate collapses such as Carillion. All this will leave the UK more exposed to financial busts and malpractice.

The risk here is not theoretical. The chief executive of the FCA has warned that “there will be failures” and that things “will go wrong” in the push for deregulation. More corporate misconduct is almost inevitable.

Dirty money and corruption

The government is gambling not just with our economic safeguards but also with our national security.

It’s less than five years since the Intelligence and Security Committee highlighted that Putin-linked Russian oligarch money was drawn to London by the UK’s golden-visa scheme “followed by the promotion of a light and limited touch to regulation.”

One of the proposals that the FCA has put forward to prove it is ‘pro-growth’ is to lower the costs of anti-money laundering rules – by ditching ‘know your customer’ rules for smaller transactions. It’s great news for crooks. The FCA’s Chief Executive warned that doing this will increase fraud and allow money mules to escape through the system. It will also encourage ‘smurfing’ – where criminals split funds so they fly below the regulatory radar.

The FCA has already promised, after pressure from Reeves’s Treasury, to go much further than the last government in paring back the Senior Managers and Certification Regime – a key tool for senior executive accountability. That regime has been woefully underused as it is: despite countless studies showing that individual accountability is crucial for deterrence, the FCA has fined 17 banks for money laundering but taken just one action against an individual.

Foreign secretary David Lammy has pledged to make the UK the “anti-corruption capital of the world” - but a Singapore-on-Thames style approach will make that almost impossible to achieve.

Instead, deregulation will undermine attempts to crack down on corruption and illicit finance, as well as the Home Office’s promise to reduce money laundering, combat kleptocracy and cut fraud.

Whose growth is it anyway?

Both Gordon Brown and former Treasury minister Ed Balls spoke publicly after the 2008 financial crash about their regret at deregulating too far following relentless lobbying from the City and banking sector.

Ironically after Conservative chancellor Jeremy Hunt unveiled the sweeping ‘Edinburgh Reforms’ of Britain’s financial services in 2022, it was the finance sector that put the brakes on too much deregulation, and lobbied for checks and balances.

That raises the question of who the government is listening to, and who is being excluded from the room. If the press is to be believed, Varun Chandra, the PM’s special advisor on business and investment is behind the deregulatory drive. Due to the UK’s shockingly poor lobbying transparency regime, which largely exempts special advisors’ meetings from scrutiny, we will never know who Chandra has been discussing this with.

It is time for Parliament to step up to ensure that this new deregulatory drive is subject to robust scrutiny as well as full transparency and that the independence of the UK’s regulators is staunchly defended.

With estimates that a new financial crisis would cost each person in the UK an average of £24,000, the public – who bore the brunt of the last crash with austerity, job losses and a reduced standard of living – has a right to know what risks are being taken in our name and what we stand to lose if the gamble goes wrong.

If voters are left carrying the can for future regulatory failures, there are real risks that it will fan the flames of populism in the UK, and pave the way for an even more extreme agenda.

Sue Hawley is executive director of the campaign group Spotlight on Corruption.