Economists David Aikman (director of the National Institute for Economic and Social Research) and John Vickers (University of Oxford) have blasted chancellor Rachel Reeves for her deregulation of the big banks.
Rachel Reeves slammed
Aikman and Vickers note that the Bank of England (BoE) should be increasing protections, not loosening them:
Since the last major review of capital settings in 2015, economic and financial risk has clearly increased. And the government’s fiscal capacity to address a future crisis has plainly diminished, if not evaporated. This suggests that, on economic grounds, the financial stability regulator should, if anything, be tightening, not loosening, policy.
Indeed, over in America the Federal Reserve has quietly delivered half a trillion dollars to Wall Street, suggesting deep financial instability.
Lowering post-financial crash protections
On 2 December, the BoE announced it will lower the capital requirement of banks to 13% relative to their assets. That means the amount of money banks need to have has been lowered relative to the assets they hold, which are weighted by risk. While the BoE brought in the change, Reeves is ultimately responsible for the regulation of the economy, despite the central bank’s independence.
Aikman and Vickers warn that the changes will only increase the amount of dividends the commercial banks pay to shareholders because they are now required to hold less shareholder capital in order to remain upstanding.
The economists point out:
The most likely practical effect of this weakening of financial stability regulation will be higher payouts to bank shareholders, rather than increased lending to the real economy.
Indeed, as 50 economists and experts warned in a letter to Reeves in 2024:
Lending to the real economy has consistently made up around just 10% of bank lending in recent decades. The vast majority – around 80% – of bank lending goes towards inflating the price of pre-existing property and other assets.
Inequality: the real issue
In order to increase lending to the real economy, the UK must reduce economic inequality. That’s because there is a huge lack of demand for products and services in the UK as people struggle to meet basic needs. They can’t afford to buy a home, let alone upgrade one. So banks aren’t lending to electricians or plumbers to start their own businesses because the demand isn’t there for those businesses to thrive.
In the UK, the Office for National Statistics (ONS) has pointed out that:
The wealthiest 10% of households held 43% of all the wealth in Great Britain… in comparison, the bottom 50% held only 9%
In other words, the richest 10% own almost five times as much as 50% of the country. The scale of inequality is only getting worse, resulting in the public cutting spending at the fastest pace in five years in November 2025. This is the reason there is very little economic growth.
Unprecedented inequality is destroying the UK and the world. The 2008 financial crash happened because people didn’t have enough money to account for inflated house prices. So banks gave them too much credit to make up for it. And these issues have only gotten worse since.
It’s worth noting that traders also make a lot of money betting on crashes and increased inequality.
Other than the climate crisis, the reduction of inequality should be the main priority.
Featured image via the Canary
By James Wright
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