Blog: JB Beckett: Competition and the future of financial services – Investment Week

It is therefore important to understand what neoliberalism is, the political motivation behind it and its important within Treasury, the Conservative party and Brexit, if we are to understand the ongoing role of the financial service sector.

What is neoliberalism?

Financialisation, or financial neoliberalism, sees the domination of the macro economy and economic policy through financial sector interests.

Today the economic system is burdened by this structural demand gap which has to be filled by debt and the rise of financial neoliberalism has seen the increase in the indebtedness of households and businesses.

Origins of neoliberalism

We can find the roots of neoliberalism in the writings of Austrian economist Ludwig von Mises and his protégé Friedrich Hayek. They drew the interest of some very affluent people, who identified the opportunity to free themselves from regulation and tax.

Hayek received substantial financial support, forming the transatlantic network of academics, businessmen, and journalists, the Mont Pelerin Society, which was critical in spreading the neoliberal doctrine from Austria to the USA – namely to Milton Friedman and others at the Chicago School of Economics.

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By the 1980s it had fully penetrated the political ranks of the Reagan (US) and Thatcher (UK) administrations. For example, as we saw in the UK in the 1986 Big Bang; the new growth model made credit and (low) asset price inflation the engines of demand growth.

Banks turned to workers as consumers as a new source of profit, to finance high-risk, complex activities that we called investment banking.

Since then, credit cards, mortgages, overdrafts, student loans and motor car loans have become part of everyday life and workers (as consumers) became direct participants in the financial markets.

This represents an unprecedented occurrence in the history of capitalism: a declining share of money flows to workers, and yet a growing part of profits is generated out of their mortgages and credit cards.

Better regulation? Neoliberalism today

By understanding how neoliberalism changed economic policy, it makes it is easy to spot an unapologetic neoliberal political agenda to deregulate the UK post-Brexit.

The City of London Corporation in its annual report notes the £75bn it contributed in taxes to the UK Treasury in 2019 and 2020. This is more than 10% of the Treasury’s income. The City also employs 1.1 million voters and displayed more resilience to the pandemic than other sectors.

In his July 2021 paper A New Chapter for Financial Services, ex-hedge fund manager and now Chancellor of the Exchequer Rishi Sunak set out his desire for a more competitive industry through an “attractive and internationally recognised ecosystem across both regulation and tax”.

The strapline is one of competition and consumer protection being co-dependent but is that true and is that the Treasury strategy?

The final report of the PM-commissioned Taskforce for Innovation, Growth and Regulatory Reform set out steps to relax regulation: “Regulators must be given a clear mandate by politicians to foster competition, facilitate the growth of key emerging technologies, accommodate new business models and remove unnecessary regulatory barriers that obstruct innovation. Instead of their goal being only to avoid risk, they should be encouraged to allow new models to be piloted and to work collaboratively with industry to manage risk and review regulation.”

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We can see this through proposals to reduce laws and more delegation to select committees. For instance proposals to raise the charge cap for auto enrolment, relaxing Solvency II by reducing risk buffer margins, liberalising Open Finance to boost fintech, deregulating commodity clearing markets, reducing anti-money laundering compliance, changing the matching adjustments for defined benefit schemes, increasing aggregate exposure to start up and Illiquid assets and launching a centralised crypto currency.

The motive is to increase private ownership of the UK’s ageing infrastructure and to foot the bill of UK’s net-zero commitments through pension savers’ money.

The propaganda play is one of restoring UK common law principles to financial services while boosting savers’ pensions, green the economy and level up the UK.

The outcome will lead to partial deregulation in certain areas.

The symptoms of neoliberalism and deregulation are a reduction in transparency for customers, the creation of regulatory arbitrage and widening wealth divide.

Competition has a price, and a cost.

JB Beckett is an iNED and author of #newfundorder

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