City minister Andrew Griffith has pledged that the deposit guarantee scheme for people’s savings in banks remains “absolutely secure”.

The economic secretary to the Treasury told BBC Radio 4’s World At One programme that:

“What we’re talking about here is a broad tapestry of regulation.

“There’s nothing that removes the Bank of England in that case, (its) duty to make sure that the Bank and the financial system is sound. They’ve been consulted as part of these reforms.”

Sir John Vickers, the economist who led a major review of the UK’s banking industry after the financial crash, said “unravelling” the ring-fencing regime on Britain’s banks would be a “huge mistake”.

Vickers, the Warden of All Souls College, Oxford, told Radio 4’s World at One programme that he would be concerned if ministers thought the regime (which protects retail bank operations from other shocks) was no longer needed.

He says:

“I’d love to have more clarity from the Government on where they stand on this.

“If they’re saying, ‘well, it’s worked OK for now, but maybe over time we’re not going to need it and we can roll it back’, then I would get very concerned.

“So, adjustments to a given bit of the architecture: fine. Going down the path to unravelling this regime: huge mistake in my view.”

The Independent Commission on Banking, led by Vickers, recommended in 2011 that banks should ringfence their high street banking businesses from their “casino” investment banking arms.

Investment campaign group ShareAction is concerned that Jeremy Hunt’s “Edinburgh Reforms” could put the public at risk.

Lewis Johnson, director of policy at ShareAction, warns there are some concerning trends in today’s announcement, such as the move to give City regulators a new “secondary objective” to encourage growth in the UK economy.

Johnson says:

Firstly we are concerned that the public will be at greater risk from the FCA’s Competitive Objective.

We need strong, impartial oversight to provide confidence for investors. Our fear is if this proposal is adopted we’ll turn the regulator into a cheer leader for business.

ShareAction are also concerned that the government plans to repeal and replace Solvency II – the rules governing insurers balance sheets.

Johnson fears this could be a ‘reckless’ move:

The Solvency II reforms are a blow for sustainable finance and do nothing to align the insurance sector with the Government’s own net-zero ambitions.

Reducing capital requirements for insurers is a reckless decision in the current period of turbulence, and there is no guarantee that it will succeed in its stated aim of unlocking capital for green infrastructure investment.

The Treasury says that “repealing and replacing EU-era Solvency II” is expected to unlock over £100bn of private investment for productive assets such as UK infrastructure.

Hunt: We must not unlearn lessons of 2008 crisis

Q: Is there any scope to expand the shortage of occupation list, the FT’s George Parker asks?

This is the list of roles where the UK lacks skilled workers, so skilled worker visas are available.

Chancellor Jeremy Hunt replies that immigration is a very sensitive issue, but he believes there is a role for controlled migration in a modern economy.

Hunt says it’s important to be able to attract the brightest and best, and have a mechanism to fill shortage professions.

But, the government needs to show the UK public that this doesn’t undermine their ability to earn a decent wage, he adds.

Jeremy Hunt also says he doesn’t wish to see pay rises for public-sector workers that might reduce the pace at which inflation falls back.

He told the FT’s Global Boardroom event that the surge in inflation was eroding incomes (the CPI inflation index hit 11.1% in October).

Hunt says we owe a great deal to public sector workers, for their incredible hard work during the pandemic.

But he claims that if the government makes the ‘wrong choices’ now, inflation won’t fall back as expected, and will become a permanent problem.

Hunt says:

We know that the thing that is making them [public-sector workers] most angry is the erosion of their pay through inflation.

“We just have to be really careful not to agree to pay demands that have the opposite of the intended effect, because they lock in high inflation.

Jeremy Hunt is holding an interview with the Financial Times now (being streamed here).

The chancellor tells the FT’s Global Boardroom conference that his reforms will help make the UK the most competitive financial services base in Europe, and one of the most competitive in the world.

He suggests they will help the UK develop the next Silicon Valley, and show investors that they have to be in London and in the UK.

He agrees, though, that the reforms are not on the same scale to the original Big Bang triggered by conservative chancellor Nigel Lawson in 1986.

Hunt argues that the government has been prepared to ask big questions, such as changing the ring-fencing rules.

He insists today’s proposals are very structured and thoughtful, and based on independent reviews.

Stability is as important as growth, Hunt points out.

Q: But some of the reforms you are scrapping came after the financial crisis, and were considered for years before being implemented. Are there risks to removing them?

Hunt insists there are not. He talks about the need to be careful not to unlearn the lessons of the 2008 crisis.

The banks have much stronger balance sheets today than before the financial crisis, he insists, adding that the UK has a much better resolution system for failing banks.

[In June, the Bank of England said the UK’s largest banks are no longer “too big to fail”]

Hunt argues it is sensible to make pragmatic changes, and that the government is acting very very carefully to make sure the UK is competivie, and an exciting place to be and to invest.

He also talks about the need for a 20 year plan to develop the next Silicon Valley, denying that this is a ‘boosterish plan’.

The chancellor says the UK already has 7 of the top 20 universities, but a strong financial services sector is an important pillar in supporting innovation.

Q: Are you worried that London has lost financial services business to other European cities such as Amsterdam and Paris because of Brexit?

Hunt says the City has shown remarkable resilience – people would have assumed in 2016 that more business would have been lost to European cities than has actually happened.

He adds that the UK can have a tremendous future outside the EU.

And touching on the UK economy, Hunt says he is more confident about next year’s economic outlook than a number of others.

Full story: Jeremy Hunt sets out sweeping reforms to financial sector

Kalyeena Makortoff

The proposed relaxation of the ring-fencing rules [which keep investment banking separate from retail banking] is “significant news for small lenders”, says Kam Dhillon, principal associate at the law firm Gowling WLG.

Dhillon adds:

Whilst deregulation has the potential to boost the competitiveness of UK banks (and the UK financial services sector more broadly) – both domestically and in global markets – we do need to be mindful of concerns around financial stability risks (and ensure they are appropriately addressed).”

The government has suggested that ring-fencing has led to bank capital becoming trapped with the institutions, as they try to protect their retail banking arms from shocks.

Oil and gas producers will urge Jeremy Hunt today to scrap the windfall tax on their profits if energy prices fall.

Hunt and Treasury officials are due to meet with oil and gas producers, and their trade body Offshore Energies UK, in Edinburgh.

The industry will warn Hunt that the windfall tax – which he increased from 25% to 35% in the autumn statement – will lead to a rapid reduction in UK investment and jobs, cutting the amount of oil and gas produced here.

Deirdre Michie, OEUK’s chief executive, will put “three key asks” to ministers:

1. Scrap the windfall tax on homegrown energy when oil and gas prices fall back to normal levels – as originally pledged by the Treasury when the windfall tax was first introduced.

2. Rebuild investor confidence – starting with a lasting, predictable tax regime that supports consumers and industry

3. Engage with the industry long-term – including building a lasting consensus with other political parties and stakeholders

Brent crude has dropped to its lowest since last December this week, at $76.30 per barrel. It spiked to almost $140 per barrel in March this year, after the Ukraine invasion.

Gas prices are still uncommonly high. The day-ahead wholesale UK gas price is 355p per therm today, compared with 41p two years ago.

Emma Mogford, fund manager at Premier Miton Monthly Income Fund, suggest the loosening of City regulations should spur economic growth and help ‘revive’ the economy.

“I see this as the beginning of a more positive regulatory environment for banks in the UK. Years of increasing capital requirements drove banks to reduce the riskier parts of their lending and the knock on effect of lower lending had been negative for economic growth.

Today’s announcement, combined with the reduction in the extra tax that banks pay, marks a swing in the pendulum towards more supportive regulation and recognises that the banks can now play an important part in reviving the UK economy.”