Chancellor Rachel Reeves is expected to announce changes
The Treasury is poised to announce new rules for Britain’s big banks this coming week.
A major shake-up of the ring-fencing regime is expected, in an effort to safeguard depositors at Britain’s largest retail banks, as ministers rush to stimulate economic growth. According to Sky News reports, Chancellor Rachel Reeves has approved proposals designed to release billions of pounds of extra lending capacity at five high street banking giants.
Barclays, HSBC, Lloyds Banking Group, NatWest and Santander UK will all be covered by the regulations. Both government and industry figures characterised the reforms as a move to scrap the most substantial regulatory burden introduced in the UK after the 2008 banking crisis.
A Whitehall source told Sky that a Treasury statement regarding the proposals could arrive as soon as Monday, though they warned it might be postponed, as reported by City AM.
The ring-fencing regime compels large banks to separate retail and SME banking activities from riskier investment and international banking to shield retail operations from global financial shocks. However, critics from both industry and government have contended the regulations hamper economic growth and undermine competitiveness by locking up capital that could be lent to drive growth.
The regulations are expected to be presented by Reeves as a means to accelerate growth while not jeopardising the UK’s financial stability or depositor protection. Under the proposals, which have been the focus of an industry-wide lobbying campaign over the past year, banks will be permitted to carry out a greater share of their operations within safer, ring-fenced structures than previously allowed.
This will encompass lending to public financial institutions, including the British Business Bank and the National Wealth Fund, alongside other potential infrastructure-focused projects. The reform is anticipated to allow Britain’s biggest banks to lend at lower funding costs to organisations aligned with the government’s economic policy goals.
Previously, such lending was required to be carried out by non-ring-fenced banks operating within the five largest UK lenders. Among the other key reforms will be permission for banks to share services between their ring-fenced and non-ring-fenced divisions.
The Treasury has also opted to allow certain hedging activities within ring-fenced banks, and to revise some customer criteria that would enable greater lending activity to be recorded inside the ring-fence, according to one official.
Labour is attempting to win over banks and drive growth to rescue its electoral fortunes, while institutions brace themselves for a potential soft-left leader who could hike taxes. The banking sector narrowly avoided a tax rise in last year’s Autumn Budget after Chancellor Rachel Reeves sought assurances that they would increase lending in the UK and publicly back her fiscal plans. A surge in profits amongst some of Britain’s largest banks has prompted demands from Labour’s left wing to increase these levies.
Former deputy prime minister Angela Rayner, who is among the frontrunners to succeed Starmer, has consistently backed these calls. Last year she suggested raising the “bank surcharge to five per cent” in an attempt to generate an estimated £1.5bn annually.
