Secondary International Competitiveness and Growth Objective (FSR Committee Report)

Baroness Bennett of Manor Castle Excerpts

Wednesday 11th March 2026 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, in following the noble Lord, Lord Lilley, I thank him for giving me the opportunity to reflect on the life of Adam Smith. The noble Lord said that Adam Smith wrote that it was not benevolence that ensured that he got his dinner. I point the noble Lord to a book by the Swedish feminist writer Katrine Marçal, Who Cooked Adam Smith’s Dinner? Through all his life, not just when he was a child but including when he was writing The Wealth of Nations, the answer was his mother. The benevolence of his mother kept Adam Smith fed all through her life. Perhaps we should think a bit more about benevolence and caring and those aspects of our society. The inability to see that is, of course, one of the great faults of our current mainstream economics.

I thank the noble Baroness, Lady Noakes, for her clear introduction and I thank her and her committee for their labours, even though I come at the issues covered in this report largely from a different perspective, one that is not represented in the report, although it is widely represented in civil society by organisations such as Positive Money, the Finance Innovation Lab, Transparency International and Spotlight on Corruption. While the noble Lord, Lord Vaux, and I often agree, I have respectfully to disagree with his statement that we all want to see lighter-touch regulation. I do not agree with that statement. I will, however, commend the noble Lord, Lord Eatwell, for raising concerns about the engines of systemic collapse that we face and his commitment to radical institutional reform that is so urgently needed.

In response to the noble Baroness, Lady Mayo, who asked whether in the future the economy will be bigger, smaller or the same, I think that there is a far more important question than that. Will the economy—our financial systems, enterprises and activities on these islands—be able to feed us, house us and not threaten the security and stability of our society and state or those of other states on this single, fragile planet on which we all depend? Will the financial sector be harming or threatening us or supporting our well-being and survival?

It is notable that I am one of few speakers in this debate who does not have to declare financial interests or a past record of working in the financial sector. That is a grave pity. I address this comment to noble Lords who are not in the Committee today but perhaps are reading Hansard tomorrow. It is far too important to the state of our country—to the issues of poverty, inequality, housing and food security, which I will come back to—for these issues of financial regulation to be left only to insiders. These are crucial issues for all of society and we need far broader perspectives on them.

On those broader perspectives, during the passage of the now enacted Financial Services and Markets Bill, I spoke at Second Reading, in Committee and on Report against the inclusion of a competitiveness and growth objective for the Financial Conduct Authority and the Prudential Regulation Authority. In its report, the committee focuses on

“the progress made in driving the regulators”—

the word “driving” is interesting—

“to support growth, both in the financial services sector and, crucially, in the wider UK economy … while maintaining the UK’s position as a global financial centre with a robust financial regulatory system”.

As I said at Second Reading, the final cause or aim—robust regulation—is essentially incompatible with growing the sector. Corruption and fraud are so enmeshed in the system that growing it inevitably means growing financial crime, and our regulatory approach is failing to address that. As I said in Committee, we should aim for a more secure financial sector that provides useful, effective and safe services to individuals and the real economy.

As organisations such as the International Monetary Fund have reported, there is an optimal size for a country’s financial sector, at which it provides the services that an economy and population need. Expansion beyond this size causes damage, increases inequality, boosts criminal behaviour and creates many other ills. Among those ills is what is broadly known as the London laundromat—the dirty and corrupt money of oligarchs and dictators that is being deposited, held and, all too often, washed here in London.

That is not in any of our interests. Nor is the level of risk in this age of shocks—geopolitical, climate, health and more. I note that the headline in today’s Financial Times:

“America has become an agent of chaos in world energy markets”.


And it is not just energy markets, of course. It is telling that, as the Evening Standard reports this week, the new Iranian leader of a theocratic, dictatorial, deadly-to-its-own-people regime, Mojtaba Khamenei, the successor to his father, Ali Khamenei, is said to own high-end Kensington properties through associates. They are apartments situated on the sixth and seventh floors of a building close to Kensington Palace and believed to be worth more than £50 million—although there are also servants’ quarters on the ground floor.

Regarding the current lack of regulation and the level of risk taking, a report in today’s Financial Times is headlined:

“Collapse of UK bridging loan specialist has sent reverberations across Wall St amid fears of weak underwriting standards”.


It refers to the refinancing merry-go-round of Market Financial Solutions, into which Barclays, Jefferies, Santander and many others put hundreds of millions of pounds before it suddenly collapsed last month amid allegations of fraud and double pledging of collateral, with creditors claiming a shortfall of £1.3 billion, and about £283 million unaccounted for.

My focus would be not, as in recommendation 1 from the committee, the cost of compliance but rather the costs and risks of non-compliance. These are practical costs and reputational costs, as the UK seeks to establish its place in a fast-changing, unstable geopolitical environment. I note in that context that the latest Corruption Perceptions Index from Transparency International shows that Britain has been slipping down the rankings since 2015. We were in seventh place then, and we are now in 20th place, with a score of 70 out of 100. That is a scoring of our financial regulation and how the outside world sees this.

Lest it be thought that I am picking just one example, I note that some other work by Transparency International identified a £40 million central London commercial property held by a company controlled by a trustee who is a member of a Singaporean money laundering gang serving time in jail, as well as £55 million-worth of commercial property owned by a former Malaysian Finance Minister via trusts—he died before a criminal trial into his wealth could take place.

I have identified areas in which I very much disagree with the committee, and I will now pick up some points with which I agree to some degree, particularly that made by the noble Lord, Lord Eatwell, and touched on by the noble Baroness, Lady Noakes: the failure of the financial sector to actually serve the real economy. I am drawing here particularly on excellent work by Positive Money and the figure that the noble Baroness, Lady Noakes, mentioned: only 6.6% of bank lending last year went towards productive investment in the real economy.

--- Later in debate ---

[Baroness Bennett of Manor Castle (GP)]

As I was saying, only 6.6% of bank lending last year went towards productive industries in the real economy— I am basing this on Positive Money. The group used the Bank of England’s annual money and credit statistics to find that net lending to productive industries increased by just £9 billion last year, compared with £52 billion for mortgages and £68 billion for the finance, insurance and real estate sectors.

To break that down, lending to electricity, gas and water industries made up more than half of the increase among all the productive industries. I have to slightly question the “productive” label, given that we know that the privatised water sector in particular has seen a huge amount of payments out in terms of dividends and fat-cat pay and has continued to be loaded down with debt. There is a question over how productive that actually is. Manufacturers and transportation firms did indeed see a small uptick in credit, which is encouraging, but lending to the wholesale and retail trade fell by £1.8 billion—a decline for the fourth year running. In these figures—this picks up points made by the noble Lord, Lord Eatwell—mortgages accounted for 57% of bank lending and the FIRE sectors for 28% of lending. We are seeing a real misallocation of resources if we come back to the questions with which I started: is the financial sector making sure that we can feed ourselves, house ourselves and be secure in a very uncertain world?

One of the other things that this is very much associated with, as Positive Money often draws attention to, is rising inequality. For people who own assets, this lending funds further increases in the price of those assets, while people without assets are left even further behind. In fact, it is interesting that mortgages are the only type of lending that has seen significant increases in outstanding credit since the last financial crisis. This is one of the main reasons why property prices have skyrocketed. It is of course very clearly interlinked with the housing crisis that is affecting so many millions of people.

I will conclude with a point that I do not believe anyone else has raised but that I think is important. It is about the importance of financial education, and I entirely agree with the committee in its recommendation on this. I note this with regard to the Department for Education, as there is now an independent curriculum review. This surely has to be part of that review in focusing on ensuring that our schools provide education for life, to help people to live rather than just for exams or just for jobs. I also agree with the recommendations— I think the Government broadly agreed too—that the Treasury must work with the FCA and the industry to support adult education about finance. There is a huge inequality of arms in the information that consumers have when they are faced with the financial sector.

The noble Lord, Lord Eatwell, raised the issue of cryptocurrencies. That is perhaps a particularly extreme area where we are seeing the targeting of younger people and people from minoritised communities, but, for everybody, many feel a real fear when confronted with having to deal with the financial sector, particularly online. Increasingly, of course, most dealings are online. This is something that stresses people out. They worry about being ripped off or about being the subject of fraud—of course, we are the global fraud capital. Giving the public—consumers—the tools to try to somewhat level the playing field with the financial sector is a crucial point on which I can entirely agree with the committee.