Rachel Reeves’ attack on regulators has sparked alarm from consumer groups

It was a bold move for a Labor chancellor: Rachel Reeves went to Davos to tell an audience of global plutocrats that she wanted to make life easier for British consumers by creating a dangerous regulatory environment.

Far from the Swiss mountains, Reeves’ attack on regulators has been cheered by right-wing conservatives, but some Labor MPs despair that their chancellor’s quest for progress is taking the party into dangerous territory.

A senior Labor MP said: “People are holding their heads and they don’t believe it.

“You have to get the balance right,” Reeves said at the World Economic Forum. I think the balance is too far in controlling risk. You have to be able to protect consumers, but people also have to take risks.

Competition and Markets Authority chairman Markus Bockkern on Tuesday became the biggest victim of Reeves’ new approach.

His firing is intended as a warning to other regulators, government officials said. This month, Reeves asked 17 guards to come up with action plans to increase progress and warned she would be looking into them.

John McDonnell, Labour’s former shadow chancellor, said Reeves could score a propaganda victory for Nigel Farage, leader of the populist Reform UK party, if she pursues her agenda at the expense of consumers.

“I am concerned that all of this will give our opponents, especially Reform, an opportunity to portray the Labor Party as a defender of corporate violence and a profit maker,” he said.

Reeves’ efforts to protect the business from what is seen in government circles as a harmful “compensation culture” has taken many turns in recent months, with a common theme: little money for wronged consumers.

This week, Reeves sought to intervene in a High Court case to protect banks and other car loan providers from multibillion-pound payments, arguing it would “damage the reputation of the UK’s so-called commercial space”. .

Last year, the Treasury successfully lobbied regulators to drop the proposed compensation limit for payment fraud victims from £415,000 to £85,000, amid fears the new regime could hit some fintech companies hard.

Reeves has pushed for a review of the Financial Ombudsman Service to prevent further mass consumer compensation incidents, such as the £50bn paid out by banks in the Payment Protection Insurance scandal.

Conservatives Conservatives are keen to further push forward the agenda launched by Rishi Sunak in 2023, with regulators given a “secondary objective” to boost economic growth and competitiveness.

Andrew Griffiths, the shadow business secretary, wants to see a wider range of regulators and has been critical of the Financial Conduct Authority, the City watchdog. He thought that sacking Bokkernk was a “curious place to start.”

Bim Afolami, a former Tory city minister, said: “The chancellor is doing the right thing about regulators. I would recommend that she continue.” Another former Tory Treasury minister said simply: “I think she’s probably right.”

But conservatives also believe that Reeves, who presides over a stagnant economy, is using regulators as leverage. Senior Tory Harriet Baldwin said the chancellor should “admit some of her own mistakes instead of blaming everyone else”.

Given that Sir Keir Starmer’s government is in the process of introducing a wave of employment regulations, many business leaders agree with Tory criticism that it should start moving closer to Regulation 10. Ministers may still water down that package.

In return for focusing on growth, Reeves has given a clear signal that she will stand by regulators when things go wrong — as they will, regulators say. “We feel like she has our back now,” said one.

Nikhil Rathi, FCA chief executive, told the House of Lords on Wednesday that proposed regulatory changes – such as easing regulation on mortgage lending – could lead to more defaults. “One or two things are going to go wrong here,” he argued, adding that Parliament should give the regulator a “tolerable failure measure.”

Consumer groups have issued warnings. “The combination of anti-regulation talks – and now the firing of the CMA chair – shows consumers that the government is ready to dismantle the protections built in for consumers,” said James Daley, head of research at Fair Financial.

Rocio Concha, director of the consumer group, said it was “absolutely right” for the government to focus on growth and the role of regulators. But she added: “Stronger consumer protections are not a barrier to growth. They are critical to economic growth because they help create a level playing field for dynamic competition that ensures consumers are protected from being ripped off.

Professor John Thanassoulis of Warwick Business School, also an independent CMA panel member, said the government “must resist the temptation to strike the CMA”.

He added: “It will not lead to market-wide productivity growth.” Instead, it rewards some well-connected firms with countless, but silent, people who mostly seek out the low-cost market and whose firms put the consumer first.

Dame Meg Hillier, Labor chair of the Commons Treasury Committee, said while she supported Reeves’ aim to push regulators to boost growth, “economic stability and consumer protections are not unduly at risk”.

For now, most Labor MPs are not moving against Reeves. “There is little grumbling about not going back to 2008,” he said, referring to the “light touch” regulatory landscape that preceded the financial crisis. But it is not yet in the main part of the party – it is still seen as a small place.