Dame Meg Hillier has urged the Government to proceed carefully as Britain’s biggest banks push for further reductions in the amount of capital they are required to hold.
The Labour MP and chair of the Treasury Select Committee said lenders are expected to argue to Chancellor John Healey that easing some regulatory requirements could free up additional lending to households and businesses.
Banks are particularly keen to make the case that changes could help building societies and other lenders expand mortgage lending, including to first-time buyers.
Hillier acknowledged the need for Britain’s financial sector to remain internationally competitive but warned against moving too quickly towards deregulation.
Lessons of the financial crisis
The experience of the global financial crisis, she argued, means policymakers should be cautious about weakening safeguards intended to ensure banks can withstand serious economic shocks.
Her intervention comes as the Government seeks ways to increase investment and improve access to finance while maintaining financial stability.
The Bank of England has already reduced its overall capital target, but sections of the banking industry believe further changes are needed to prevent UK institutions being placed at a disadvantage against competitors in the United States and Europe.
Hillier has also called for stability in the tax system ahead of the Budget on 28 October.
Budget stability
She warned against filling the Budget with numerous small tax changes, arguing that businesses and households need greater certainty and that the Chancellor should concentrate on maintaining sufficient fiscal headroom.
The Treasury Committee is expected to continue scrutinising both the Government’s growth strategy and the regulatory changes being sought by the financial services industry.
Hillier’s position reflects a wider challenge facing Labour: encouraging banks to lend more into the productive economy while ensuring that the safeguards introduced after the financial crash are not dismantled without convincing evidence.
The Government has made economic growth one of its central priorities, but Hillier has made clear that growth and financial resilience need to be pursued together rather than treated as competing objectives.
