Rachel Reeves doesn’t realise the term she just used is satire for her own incompetence

Speaking to City bosses in London on Tuesday, Labour Party chancellor Rachel Reeves said cutting so-called ‘red tape’ for the financial sector will bring “trickle down” benefits for households in the UK.

That’s a satirical term, Rachel Reeves…

But Rachel Reeves apparently doesn’t realise that the term harks back to humourist Will Rogers who in the 1930s satirised President Herbert Hoover transferring money to the already rich in response to the Great Depression.

It was a joke, a criticism.

That’s because in actuality the money stays up, trickles into offshore accounts and crowds out public sector housing and services through investment in sectors like toxic real estate bubbles.

Reeves said:

I have placed financial services at the heart of the government’s growth mission – recognising that Britain cannot succeed and meet its growth ambitions without a financial services sector that is fighting fit and thriving

She claimed there would be

a ripple effect that will drive investment in all sectors of our economy and put pounds in the pockets of working people

So apparently Reeves is listening to City lobbyists rather than economists. In reality, the opposite to what she says is true. 50 economists and experts have already pointed out a number of key flaws in Reeves move for further deregulation and to grow the financial sector. She is essentially supercharging the rigged economy.

‘Inflating asset prices’

In a letter that Positive Money organised, academics and experts warned that:

Lending to the real economy has consistently made up around just 10% of bank lending in recent decades. The vast majority – around 80% – of bank lending goes towards inflating the price of pre-existing property and other assets.

The experts point to studies from the IMF and BIS that show that financial sector growth has a negative impact when private sector credit is above 100% of GDP. From 2000 to 2023, it has averaged 160% of GDP, which also shows how private debt ridden the economy is.

They also said that too much focus on the financial sector poaches highly skilled and educated workers away from the real economy, such as from research and development. This has long been established. They argue that financial sector growth encourages excessive risk taking, leading to perpetual crises.

Rachel Reeves encouraged more financial risk taking in a remit to the Financial Conduct Authority in November. The Labour government has already relaxed ring fencing rules that separate bankers’ retail and investment banking operation to protect money from peoples’ deposits. That includes an increase in the threshold where banks fall under the regime from £25bn in primary deposits to £35bn.

And the Bank of England recently announced it would enable people to take larger mortgages relative to their income. That’s a risky direction, given it was sub-prime mortgages that led to the 2008 financial crash. The real solution is to pop the housing bubble and deliver homes at cost price.

One concerning aspect is that investors and hedge funds can make a fortune by betting on a financial crash occurring.

Sara Hall, a Positive Money director, said:

Put plainly, loosening mortgage rules really translates to saddling households with larger, less sustainable debts, instead of tackling the underlying causes of unaffordability. Even the Bank of England has suggested this move could actually push up house prices by flooding the market with greater demand, pulling the housing ladder even further out of reach for first-time buyers.

And responding to Reeves’ “trickle down” claim, economist Richard Murphy said:

Never in the field of economic history has any reform intended to benefit the owners of capital, as the reforms she is announcing are, ever ‘trickled down’ to benefit the rest of society. Such reform has only ever made the rich wealthier whilst increasing the economic risk to everyone else in society, as these reforms will surely do. This is the next City-generated crisis in the making.

Featured image via the Canary