Back to the Future: Labour and the Politics of Financial Deregulation

Abstract One of the professed aims of the current Labour government in the UK is to boost GDP by ‘cutting red tape’. This also applies to the financial sector, where in recent months regulators have been asked to reflect on how rule changes could contribute to competitiveness and growth. A flurry of deregulatory initiatives has resulted from this. In this article, I will argue that far from unproblematically boosting GDP, many of these initiatives actually pose a threat to long‐term economic well‐being. This is particularly true of those regulations that have a ‘macroprudential’ orientation, since these have already been calibrated with the goal of optimising economic welfare across different time horizons. Rolling back these regulations constitutes a bet on potential small short‐term increases in GDP at the cost of reduced long‐term stability that could cause much higher losses down the line.