{"id":417729,"date":"2026-01-18T17:26:07","date_gmt":"2026-01-18T17:26:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/417729\/"},"modified":"2026-01-18T17:26:07","modified_gmt":"2026-01-18T17:26:07","slug":"why-rachel-reeves-should-give-bankers-more-of-a-cold-shoulder-at-davos-2026-heather-stewart","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/417729\/","title":{"rendered":"Why Rachel Reeves should give bankers more of a cold shoulder at Davos 2026 | Heather Stewart"},"content":{"rendered":"

Back-slapping bankers will be thick on the ground in the Swiss ski resort of Davos this week as Rachel Reeves<\/a> flies in to mix with the global elite. But she might be wise to treat the finance bros with a certain froideur.<\/p>\n

That has not been Labour\u2019s approach thus far: Reeves spared the banks from a windfall tax in her 26 November budget, and the UK\u2019s regulators have just loosened capital rules<\/a> for the first time since the financial crisis.<\/p>\n

Back in the summer, bank share prices ticked down after the Labour-leaning Institute for Public Policy Research (IPPR) recommended an \u00a38bn levy<\/a> on the windfall profits made as a result of quantitative easing (QE).<\/p>\n

Insiders at other thinktanks said at the time that it was made clear to them by the Treasury that publishing such forthright policy proposals was not a welcome contribution to the debate. When it came to budget day, the banks were left untouched.<\/p>\n

JP Morgan responded with the announcement of a new \u00a33bn HQ<\/a> in Canary Wharf, east London, and its chief executive, Jamie Dimon, said the \u201cUK government\u2019s priority of economic growth has been a critical factor in helping us make this decision\u201d.<\/p>\n

His praise came as little surprise, as the FT had already reported that Reeves\u2019s team<\/a>, lobbied heavily by the banks against a windfall tax, had been urging financial executives to show their gratitude for the chancellor\u2019s forbearance.<\/p>\n

Little more than a week later, the Bank of England announced it would reduce banks\u2019 capital requirements<\/a> \u2013 the reserves they must hold against their assets to absorb potential losses.<\/p>\n

The logic for both decisions was clear: the financial sector is, as Reeves told City bigwigs in her first Mansion House speech, the \u201ccrown jewel\u201d of the economy, and with growth puttering along just above zero, now is not the time to plunder the banks for tax revenue.<\/p>\n

Moreover, the argument goes, lowering capital requirements will free up more lending capacity so that banks can support productive economic activity.<\/p>\n

As the Bank\u2019s financial policy committee (FPC), which sets the benchmark for reserves, put it: \u201cBanks should have greater certainty and confidence in using their capital resources to lend to UK households and businesses.\u201d The move followed Reeves urging all regulators to act to bolster growth.<\/p>\n

Except \u2026 there is a catch. As contributors to a timely conference at the London School of Economics<\/a> (LSE) made clear last week, once a country\u2019s financial industry reaches a certain size \u2013 which the UK\u2019s sector has long surpassed \u2013 it stops boosting growth and starts to become a brake, a result reinforced in a string of academic papers spread over more than a decade.<\/p>\n

Alex Cobham, the chief executive of the Tax Justice Network, was one of the conveners of the appropriately named Too Much Finance conference. \u201cWe seem to be in a generation in which our politicians are trapped in the view that finance is one of the great things that the UK has to offer, and we really need to protect it and grow it,\u201d he said.<\/p>\n

\u201cActually, the research really consistently shows that the UK is far past the point where we would maximise the benefits of finance. And actually it\u2019s a drag on the economy, and has been for a long time.\u201d<\/p>\n

That\u2019s partly because having a disproportionately large finance sector leaves the UK more prone to finance-driven crises, as Reeves\u2019s Labour predecessors Gordon Brown and Alistair Darling learned the hard way in 2008.<\/p>\n

But it\u2019s also about what it means for how the UK\u2019s economic resources are deployed. As one landmark academic paper<\/a>, by Stephen Cecchetti and Enisse Kharroubi of the Bank for International Settlements, put it back in 2012: \u201cFinance literally bids rocket scientists away from the satellite industry. The result is that people who might have become scientists, who in another age dreamed of curing cancer or flying to Mars, today dream of becoming hedge fund managers.\u201d<\/p>\n

Or as Adair Turner, then chair of the Financial Services Authority, pithily put it in 2009, when the memory of the financial crisis was still fresh, much of the activity that goes on in the City is \u201csocially useless\u201d<\/a>.<\/p>\n

At last week\u2019s conference, Dariusz W\u00f3jcik, an economic geographer at the University of Singapore, cited evidence<\/a> that even at city level, a large financial sector \u2013 measured in terms of its share of employment \u2013 is bad for growth, once it expands beyond a certain size.<\/p>\n

The implication is that rather than courting and cosseting bank bosses, politicians should be using the levers of tax and regulation to keep them in check.<\/p>\n

The former Bank of England chief economist John Vickers and David Aikman, director of the National Institute of Economic and Social Research, attacked the decision<\/a> to cut capital requirements last week. They argued instead that with little room for manoeuvre in the public finances, and risks lurking in the global economy, reserve requirements should be set higher.<\/p>\n

\u201cIf banks wished to expand lending, they could have done so using their existing capital headroom,\u201d they said. \u201cThe most likely practical effect of this weakening of resilience will be higher payouts to bank shareholders rather than increased lending to the real economy.\u201d<\/p>\n

For now, with the AI boom in full swing, the banks and the increasingly powerful private credit lenders are riding high. But, as Cobham argues, after watching the events of 2008 unfold, \u201cwe know that the risks that the financial sector creates will end up being socialised when they crystallise \u2013so we\u2019ll all pay for them\u201d.<\/p>\n","protected":false},"excerpt":{"rendered":"Back-slapping bankers will be thick on the ground in the Swiss ski resort of Davos this week as…\n","protected":false},"author":2,"featured_media":417730,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[45,49,48,46],"class_list":{"0":"post-417729","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-ca","10":"tag-canada","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/417729","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=417729"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/417729\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/417730"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=417729"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=417729"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=417729"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}