Once a month, Atticus Partners covers the topical stories relating to Financial Services in Westminster and Whitehall in "The Fiscal Dispatch".
In this edition, we look at how Reeves looks to drive growth, the shrinking of the Net Zero Banking Alliance, monetisation of online users’ data, and how the government’s growth plans impact regional growth.
Deregulation Plans and Meg Hillier’s Intervention: A Risky Balancing Act
The government’s plans to overhaul financial services regulation have raised significant questions about the risks and rewards of a more growth-focused approach. While Chancellor Rachel Reeves has made clear that deregulation is central to the government’s pro-growth strategy, there are concerns about the potential consequences for financial stability and consumer protection.
The Treasury's direction is unambiguous: regulation should facilitate growth rather than hinder it. Reeves has instructed cabinet ministers to audit the UK's 130 regulators, considering whether some should be scrapped or merged. Financial services are at the heart of this review, with the government actively seeking to cut red tape and encourage investment. This marks a departure from previous approaches that emphasised financial stability and consumer protection, and it aligns with broader international trends of regulatory rollback, particularly in the US and EU.
However, prominent figures are urging caution. Dame Meg Hillier MP, chair of the Treasury Select Committee, issued a stark warning in the Financial Times about the perils of excessive deregulation. She criticised what she described as a one-sided narrative that portrays financial regulation as an obstacle to economic growth. Hillier highlighted that many regulations serve their purpose precisely because they prevent crises—an absence of financial turmoil does not mean regulation is unnecessary, but rather that it is working as intended.
The aftermath of the 2008 financial crisis and the more recent liability-driven investment (LDI) crisis following the 2022 “mini” Budget serve as reminders of the risks of regulatory complacency. Hillier’s argument echoes concerns raised by Bank of England Governor Andrew Bailey, who has pushed back against the notion that there is a trade-off between growth and financial stability. Bailey pointed out that the UK’s sluggish economic performance since 2008 is not due to excessive regulation but to the long-term economic damage caused by the financial crash.
Consumer advocates have also raised alarms about Labour’s deregulatory trajectory. They argue that financial trade associations, which have significant resources, hold disproportionate influence over Treasury decision-making. By contrast, organisations lobbying for consumer protections often find themselves “massively outgunned.” The fear is that the Treasury is being captured by financial industry interests at the expense of ordinary consumers.
Reeves and Business Secretary Jonathan Reynolds have justified their approach by arguing that excessive regulation stifles business dynamism. The removal of Competition and Markets Authority chair Marcus Bokkerink and his replacement with former Amazon UK boss Doug Gurr signals that Labour intends to push regulators towards a more pro-growth stance. Critics argue this risks undermining regulatory independence, particularly in financial services where oversight is crucial for market stability.
Ultimately, the government faces a difficult balancing act. A well-calibrated regulatory environment is essential for maintaining confidence in the UK’s financial sector. While fostering economic growth is a priority, history has shown that financial deregulation, if handled recklessly, can have disastrous consequences. As the government pushes forward with its review of regulators, the warnings from Hillier and Bailey will bve hard to ignore. Critics of the government approach will argue regulation is not an enemy of growth—it is a safeguard against instability.
The Net Zero Banking Alliance shrinks again
Australian financial giant Macquarie has become the latest institution to leave the Net Zero Banking Alliance (NZBA), joining six major American banks in withdrawing from the initiative. The NZBA, a coalition of global banks committed to aligning lending and investment portfolios with net-zero emissions by 2050, is now facing increasing scrutiny as more members depart. This raises questions about the future of sustainable finance and whether similar trends will emerge in the UK banking sector.
The alliance currently boasts 130 members across 44 countries, managing approximately $56 trillion in assets. However, the recent wave of departures has cast doubt on its long-term viability. The primary reason for banks exiting the NZBA appears to be growing concerns over regulatory and political pressures. Many financial institutions feel rigid climate commitments could expose them to legal risks and restrict their ability to operate in markets where fossil fuels remain a significant economic driver. The political climate, particularly in the U.S., has also played a role, with some institutions fearing backlash from conservative policymakers who view ESG (Environmental, Social, and Governance) initiatives as “woke”, and wokeness is a sworn enemy of the Trump-Vance government.
Contrary to President Trump’s administration, the UK has been a strong advocate for sustainable finance, with stringent climate-related financial regulations already in place. Mandatory climate risk disclosures and the integration of sustainability into corporate reporting have positioned the UK as a leader in climate-conscious finance. However, the recent wave of exits from the NZBA raises concerns about whether UK-based banks might follow suit. While a mass exodus is unlikely, individual institutions may choose to reassess their commitments in response to shifting market conditions and investor expectations. The key question is whether UK banks will continue to prioritise collaborative action or shift toward more independent sustainability strategies.
For now, UK financial institutions remain actively involved in funding green initiatives. For example, NatWest Group has pledged £100 billion in climate and sustainable funding and financing between July 2021 and the end of 2025, and Barclays aims to facilitate $1 trillion in sustainable finance by 2030. The banks are being encouraged by the government’s action. Nearly £22 billion has been earmarked for carbon capture, usage, and storage (CCUS) projects, aiming to capture 20-30 million tonnes of CO₂ annually by 2030. Where the US is dropping the baton on green finance, the UK could well be picking it up.
Macquarie’s departure from the NZBA may reflect nothing more than a blip in the financial sector’s climate commitments. While the UK remains a leader in sustainable finance, the risk of fragmentation in global climate efforts persists. The challenge moving forward will be ensuring that ambitious net-zero targets align with financial realities and recognition that ‘green’ investments are a luxury for many individuals and institutions alike. There is an opportunity, however, for the British financial sector to take a nuanced approach and become thought leaders on sustainable finance. This is an ideal opportunity to contrast the brashness and short-term approach taken by the US banks who have fled from their corporate social responsibility commitments.
Social media: Reddit leads the way in monetising user data
Reddit is the self-titled “Front page of the internet” and contains a treasure trove of information. In fact, 16 billion posts and comments exist on the website, covering just about every topic humans have ever discussed. Reddit has realised there is a significant opportunity to convert this data into cash, so it has partnered with Intercontinental Exchange Inc. (ICE), the parent company of the New York Stock Exchange, to create data packages capable of directing hedge funds’ trading strategies. Although this is an exciting innovation at the intersection of social media and financial services, there are issues encompassing regulation, privacy and responsibility in the harvesting of data for commercial use.
By tapping into the wealth of unstructured, real-time conversations on its platform, Reddit is positioning itself as an emerging player in the financial services ecosystem. This move could democratise access to market sentiment and trends, traditionally the domain of specialised firms like Bloomberg or Reuters. For financial professionals, the ability to analyse Reddit’s data could lead to more informed investment decisions. However, it also raises questions about data accuracy and the potential for manipulation by a terminally online army of notoriously mischievous users.
For the UK, the Reddit development has broader implications. London, as a global financial hub, is constantly seeking to innovate and maintain its competitive edge, especially post-Brexit. The integration of social media data into financial analytics could spur new fintech startups and attract investment to the UK’s financial sector. However, it also underscores the need for robust regulatory frameworks to ensure data privacy and prevent market abuse. The UK’s Financial Conduct Authority may need to revisit its guidelines to address the ethical and legal challenges posed by the new frontier of social media data in financial decision-making.
Politically, Reddit’s expansion into financial analytics could become a talking point in debates about technology regulation and data sovereignty. The UK government has been keen to position the country as a leader in AI and data-driven industries, and the Reddit development aligns with that vision. However, it also highlights the growing influence of tech giants in traditionally regulated sectors like finance. It is a potential tripping point for the government, which will need to strike a balance between fostering innovation and ensuring that these new tools are used responsibly.
Reddit’s foray into financial data analytics is a testament to the growing convergence of technology and finance. While it offers exciting opportunities for innovation and growth, it also poses significant challenges for regulators and policymakers. For the UK, this development is an opportunity to embrace changes in a rapidly evolving digital economy. However, Reddit’s new partnership also serves as a reminder that every aspect of digital life is of financial interest to somebody, and governments may become increasingly tetchy about the conversion of personal data for cash.
Are the government’s fiscal plans counterproductive to regional growth?
More than a year before entering Downing Street, Sir Keir Starmer emphasised he “profoundly disagrees” with a growth plan that centres London and the south east and allows for redistribution across the rest of the UK. However, seven months into a Starmer-led Labour government, there is now a disconnect between this rhetoric and the government’s actions.
The government’s October 2024 Autumn Budget introduced a host of measures to raise money and offset current levels of government borrowing, which stood at £2,686 billion at the end of last year. Most notable was the increase to employers’ national insurance contributions, which has raised concerns over businesses’ ability to provide pay rises and create new jobs. There was also scepticism over whether the government would be able to achieve its aims of economic growth when the disproportionate effects of the Budget would be felt most by smaller, independent businesses. These concerns may well have some validity to them, considering a survey conducted by the Chartered Institute of Personnel and Development (CIPD) of 2,000 employers showed redundancy intentions at their highest level in 10 years, blaming the rise in employer national insurance contributions and a 6.7% increase in the national living wage.
This could work against the government’s plans to turbocharge the economy across all regions and nations of the UK, stalling infrastructure projects and eroding business confidence, creating suboptimal conditions for investment outside of London. The British Beer and Pub Association (BBPA) has highlighted the crisis in hospitality, with six pubs closing every week due to rising costs and falling demand. If similar trends take hold in other key industries, the growth strategy may struggle to gain traction.
Similarly, when Rachel Reeves delivered her growth speech in Oxfordshire last month, many of her pledges remained focused on the south – namely the third Heathrow runway and the Oxford-Cambridge growth corridor. There was little mention of any considerable steps to harness the productive potential of all parts of the UK, bringing into question the tangible steps the government will or will not be taking to ensure all regions and nations across the country can prosper.
Regional growth has the potential not just to support local towns and cities, but also to drive UK-wide growth, reducing national unemployment and stimulating consumer spending across sectors. Looking ahead, the government must prioritise devolved funding reform, kick starting its proposed National Wealth Fund and ensuring local authorities have greater financial autonomy to drive investment, create jobs, and support innovation. This is especially key following a Budget which threatened to leave smaller, local businesses with less money and consumers with less confidence. The future of Sir Keir’s “decade of national renewal” will continue to appear bleak unless the government begins to act on its manifesto pledges of a Local Growth Plan covering every town and city in the country.
Regional growth has the potential not just to support local towns and cities, but also to drive UK-wide growth, reducing national unemployment and stimulating consumer spending across sectors. The future of Sir Keir’s “decade of national renewal” will continue to appear bleak unless the government begins to act on its manifesto pledges of devolution reform and a proposed Local Growth Plan covering every town and city in the country. This is especially key following a Budget which threatened to leave smaller, local businesses with less money and consumers with less confidence; the government must now seize the opportunity to show that the government is serious about positioning the north as a hub for investment.
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