Financial Services Reform

Baroness Kramer Excerpts

Wednesday 23rd July 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I spent two years on the Parliamentary Commission on Banking Standards following the 2008 crash. We were all aware that the financial sector and the City would, over time, work hard to erode the protections that we recommended to prevent a repeat of financial instability, casino-type risk-taking and consumer abuse. The financial sector plays a long game. Inch by inch the erosion is well under way, while the Government are seen as eager for nominal growth and too eager to resist that erosion.

Let me give a short list on the erosion: the competitiveness and growth objective for regulators; the changing to matching adjustment in Solvency UK, increasing the illiquidity of the insurance sector; the removal of the cap on bankers’ bonuses; the permanent permission for pension funds to transact derivatives without using central counterparties and holding margin collateral; the watering down of the senior managers regime, which is key to accountability; the weakening of the Financial Ombudsman; the pressure on pension funds to invest in high-risk and illiquid assets; and the weakening of bank ring-fencing, which was absolutely at the heart of the commission’s recommendations, removing that incentive to take free deposits and roll them in the casino. That list is just what springs immediately to mind. It is far from complete.

Regulation cannot be written in stone, and adjustment and streamlining are always necessary, but will the Government now issue a compendium of all the changes, along with a proper assessment of the cumulative shift in risk? I mean changes by not just the Government but the various regulators. Parliament will then be in a position to make a proper judgment.

The financial sector has approved this move back towards what it sees as a return to the light-touch regime, a regime that made it very rich. But remember that when the inevitable crash came, leading financiers were pretty much untouched. Ordinary people bore the brunt. It is crucial that this is not repeated.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their questions and comments. I will do my best to address all the points they raised.

The noble Baroness, Lady Neville-Rolfe, spoke about the economy in general. She will be aware that we have had to take very difficult decisions on the economy to generate the stability that we all want to see—not least to restore stability to the public finances in the Budget last October. The stability that we have restored is already delivering. We have seen four cuts in interest rates by the Bank of England since the general election, reducing the cost of mortgages and business lending. Real wages have risen more in the first 10 months of this Labour Government than in the first 10 years of the previous Conservative Government. Investment is returning to our economy. At the spending review, the Chancellor set out £120 billion of additional public investment. The IMF has long identified the insufficient amount of investment in our public sector as a barrier to growth. The UK has attracted £120 billion of private sector investment in just the last 12 months.

The noble Baroness mentioned recent growth figures. Those growth figures were disappointing, but we are determined to go ever further and faster to deliver on our growth promise. That is why we are doing all the reforms that we have embarked on—not least the spending review and increased investment. We have increased investment in better city region transport, have committed record funding for affordable homes and are backing major infrastructure projects such as Sizewell C. We are investing in the parts of the economy that genuinely will be growth generative.

The noble Baroness also talked about the importance of financial services to the economy. The financial services sector is critical to our growth ambitions for our country. It is one of the largest and most productive sectors in the UK, worth around 9% of total economic output, as she said, employing 1.2 million people in clusters right across the UK. London is the financial centre of the world, home to the deepest equity capital market in Europe and the third-biggest venture capital market globally. It is right that we support the sector as we have in the strategy that we have set out, to see the growth that we want to see and for that growth to feed through to the real economy.

I am grateful to the noble Baroness, Lady Neville-Rolfe, for welcoming what we have said about the rebalancing between risk, growth and competitiveness. The noble Baroness, Lady Kramer, struck a very different tone. I know that she has huge expertise in this. I do not for a second intend to in any way doubt her expertise. I know that she played a huge role post financial crisis in putting together much of the architecture that is in place. I disagree, though, with the way in which she characterised our reforms. She asked for a compendium of those reforms. The financial services growth and competitive strategy is the compendium of those reforms. I think that what have been called the Leeds reforms are the totality of the reforms that she identified.

We are not removing the regulatory architecture that was put in place and that she played a major role in after the global financial crisis. As the Chancellor has specifically said:

“The protections that were put in place … were the right thing to do, with better protections for consumers and more accountability injected into the system”.


The core elements of that—adherence to international standards, ensuring robust MREL, remaining committed to ring-fencing, which we do despite what the noble Baroness said, and the structure to the regulatory system—all remain in place. But we believe that the pendulum swung too far in the opposite direction. The balance of regulation has gone too far towards regulating for risk and not enough towards regulating for growth. Clearly, this is a highly competitive sector, and no other globally competitive financial services hub imposes such bureaucracy on its businesses. Neither should we if we want to be competitive.

So, absolutely, we are recalibrating. We are rebalancing the approach to risk so that it is more proportionate and so that, in the right places, consumers and industry can take informed risk and create the space for the innovation and growth in the sector that we want to see.

The noble Baroness, Lady Neville-Rolfe, mentioned the Financial Services Regulation Committee of this House and the fact that it identified many of the issues that have been addressed in this strategy. Obviously, I pay tribute to that committee and the work it has done. I look forward to debating its report in due course. That points to a degree of cross-party consensus in some of the challenges we face and want to address. She specifically mentioned financial education, for example, which was one of the key recommendations made in that report. I hope we can find consensus on the importance of that, if nothing else.

As the noble Baroness said, we need to build confidence for retail investment among the general public on a platform of greater education. As part of the Leeds reforms, we are looking to take forward a series of measures to give consumers the confidence to invest, so that they can grow their savings and access the long-term benefits that investing can bring.

There are three specific measures for that. The first is a new targeted support framework, enabling people to access the help they need to make the right financial decisions. The second is a cross-industry initiative to reframe how firms talk about investing, so that they talk about the growth benefits and not just the risk and warning people off. The third is an industry-led, multiyear advertising campaign to showcase some of the benefits of investing for the general public.

As the noble Baroness, Lady Neville-Rolfe, said, that of course has to come on the basis of greater financial education. We discussed this previously and I have looked into it. Financial education does form part of the school curriculum in all UK nations. In England, financial education forms a compulsory part of the curriculum for mathematics at key stages 1 to 4, and citizenship at key stages 3 and 4. Together, they cover personal budgeting, saving for the future, financial risk, managing credit and debt, and calculating interest. But the noble Baroness is quite right that of course we should go further. The Government have established an independent curriculum and assessment review covering ages five to 18 in England. The review is considering whether the curriculum provides sufficient coverage of key knowledge and skills, including financial education, to prepare young people for future life and to thrive in a fast-changing world. The review’s final report and recommendations will be published in the autumn with the Government’s response.

On that note, the noble Baroness also asked about the timescale for a lot of what we have announced. Many of the reviews we have announced as part of these reforms will report in the autumn. At that point, we will see a lot of the things she spoke about coming to fruition.

The noble Baroness asked about ISAs. The Government will continue to talk to industry and others about the options for ISA reform. We recognise the potential for ISA reform to improve returns for savers and access to capital for UK businesses. Although there are differing views out there among stakeholders, we are all united in wanting better outcomes for savers and the UK economy.

Finally, the noble Baroness, Lady Neville-Rolfe, asked about pensions and quite rightly paid tribute to my noble friend Lady Drake, as I do too. I cannot think of anyone better equipped to take part in that review. Many of the questions she asked will be answered in phase 2 of the pensions review, so I shall wait until that is in place before commenting on the points she raised.