Liz Truss faces an early fight with the Bank of England if she becomes Britain’s next prime minister after signaling she would give ministers the power to override city regulators who appear to be stalling post-Brexit reforms.
The Foreign Secretary has pledged to push forward legislation allowing ministers to “appeal” regulatory decisions in the public interest, if they believe the watchdogs are being overly cautious.
The plan was originally proposed by rival Rishi Sunak, who said in his bid for the Tory leadership that Brexit was a chance to shift responsibility for regulation to parliament and away from “faceless regulators”.
The ex-Chancellor and his ally John Glen, a former City minister, have infuriated BoE Governor Andrew Bailey by proposing ‘appeal’ power as part of a new financial services bill .
The controversial power was omitted from the initial bill last month at the behest of Nadhim Zahawi, the new chancellor, who put the issue on hold pending the election of a new Tory leader in September.
But Truss has told her allies she would “certainly” pursue the overriding power if she becomes prime minister – a rare show of political unity with Sunak.
Truss separately questioned the BoE’s use of quantitative easing and its impact on inflation. She promised to maintain the operational independence of the BoE but plans to review its mandate.
The power to ‘appeal’ is expected to be added to the Financial Services Bill as it passes through Parliament, although Bailey is expected to take rearguard action against what he sees as a regulatory interference.
Zahawi acknowledged the controversy when he told a city audience at Mansion House last month: “I want time to consider all the arguments before making such an important decision.”
Truss has pledged to ease regulations as part of her pitch for Conservative leadership, telling a group of city leaders this month: ‘We haven’t moved fast enough to take full advantage of Brexit.
“As Prime Minister, the British people can trust me to unlock investment and drive economic growth across the country.”
Like Sunak, she wants to reform Solvency II, a European directive covering the insurance sector, and relax EU Mifid investment rules to free up capital for infrastructure projects, including green energy.
Sunak and Truss want a looser regulatory regime, but Bailey is determined to ensure that post-Brexit regulation does not endanger business stability or endanger consumers.
“The independence of regulators is important because a large part of our international standing depends on it,” Bailey told MPs on the Commons Treasury Select Committee last month.
The Financial Services Bill will also introduce a secondary objective for regulators of “growth and competitiveness”, alongside ensuring financial stability and business security.
Truss is campaigning to embrace “Whitehall orthodoxy” and has pledged to do away with a “business-as-usual” approach.