The government has made a U-turn on plans to introduce sweeping powers that would allow ministers to override regulators, including the Bank of England, after multiple warnings that such a move would harm the UK’s global reputation.
The Treasury confirmed on Wednesday evening that it would “not proceed with the intervention power at this time”, noting that the government was “committed” to the independence of City watchdogs, which include the Financial Conduct Authority.
The powers would have given the government the ability to make, amend or revoke rules on matters that ministers deemed to be of “significant public interest”.
Opposition MPs and senior officials, including from the Bank of England, warned that the move would threaten the independence, and international reputation, of the UK and its regulators.
The concern became more poignant after the government’s mini-budget, which shook the confidence of international investors and sent the pound and UK government bonds to record lows.
“Having consulted further we are of the view that the existing provisions in the bill are currently sufficient and will already allow us to seize the opportunities of Brexit by tailoring financial services regulation to UK markets to bolster our competitiveness,” the City minister, Andrew Griffith, said in a statement on Wednesday.
He added: “We have always been keen to find the right balance between increased responsibility for the regulators, with clear accountability, appropriate democratic input, and transparent oversight. We remain committed to the operational independence of the financial services regulators.”
The intervention powers were meant to be introduced through an amendment to the wide-ranging financial services and markets bill, which is broadly aimed at overhauling City regulations originally inherited from the EU.
Following Liz Truss’ resignation as prime minister the Treasury announced last month that it was delaying the amendment to ensure the new government under Rishi Sunak could “consider the detail carefully”.
The Treasury’s latest announcement suggests the government had bowed to domestic and international pressure over the amendment.
Sunak was the first to propose the powers during his time as chancellor. The plans were later taken up by Truss and her chancellor, Kwasi Kwarteng, sparking further tensions between the government and officials at the Bank of England, who were already being blamed for failing to keep UK inflation in check.
Commenting on the U-turn, the shadow City minister, Tulip Siddiq, said: “The government should never have been threatening the independence of the financial services regulators in the first place. The Conservatives have caused untold damage to the UK’s international reputation not just over the last 12 weeks, but also the last 12 years. What we need now is to restore financial credibility, and a serious plan for growth that puts working people first.”