The Chancellor put financial services at the centre of her drive for growth with a package of reforms and argued that regulatory changes to eliminate risk after the financial crisis have “gone too far”.

The current system around the Square Mile seeks to eliminate risk taking and holds back economic growth, said Rachel Reeves at her set-piece Mansion House speech.

She plans to rebalance the financial services sector in the hope that it will seize opportunities for investment across UK businesses, infrastructure and clean energy.

Reeves said: “While it was right that successive governments made regulatory changes after the global financial crisis, to ensure that regulation kept pace with the global economy of the time, it is important that we learn the lessons of the past.

“These changes have resulted in a system which sought to eliminate risk taking. That has gone too far and, in places, it has had unintended consequences which we must now address.”

The Chancellor said she has written to the Financial Conduct Authority, Prudential Regulation Committee, Financial Policy Committee and Payment Systems Regulator “to ensure a greater focus on supporting economic growth”.

She added that the Financial Ombudsman Service framework will also be modernised “so that it continues to play a vital role for consumers to get redress while giving clearer expectations around its decisions for consumers and financial services firms”.

Reeves went on to say that fraud costs UK consumers almost £8.3bn last year and “steals money away from investment and lending by the financial services sector”.

The Chancellor said that she, the Home Secretary Yvette Cooper and Secretary of State for Science, Innovation and Technology Peter Kyle have written to the tech and telecommunication sectors calling for them “to go further and faster in reducing the scale of fraud taking place on their platforms and networks”.

The government expects those firms to update it on their progress next March ahead of an expanded fraud strategy.

Reeves said she will publish the first ever Financial Services Growth and Competitiveness Strategy in the spring “to deliver long-term certainty and cement the sector’s place at the heart of the government’s 10-year modern industrial strategy”.

This will focus on five priority growth areas – fintech, sustainable finance, asset management and wholesale services, insurance and reinsurance, and capital markets.

In a well-trailed part of her speech, the Chancellor added that two consultations will be published ahead of a Pension Schemes Bill in the spring to merge defined contribution pension schemes and the Local Government Pension Scheme in England and Wales into megafunds – mirroring the pension funds in Australia and Canada.

The government plans to merge the 86 council pension funds – which include £354bn in investments and are run by local government officials — into megafunds run by fund managers.

In the private sector, she said the move could mobilise trillions of pounds of capital to support UK business and infrastructure.

The Chancellor added that the financial services industry was well-placed to go for the growth she wants because it is “the crown jewel” in the UK economy, which employs 1.2 million people and accounts for 9% of the country’s gross domestic product.

AJ Bell director of public policy Tom Selby said: “Rachel Reeves has placed the UK’s financial services sector front-and-centre of the government’s drive to power long-term growth.

“From creating pension megafunds to a shake-up of the approach taken by regulators and reforms aimed at improving the help available to investors, the chancellor clearly wants to show she means business about turbo-charging the economy.

“It is certainly fair to say there has historically been a focus on the risks of investing for retail customers in UK regulation, often resulting in the potential long-term benefits being drowned out by risk warnings.

“Moving to a more balanced disclosure approach and making sensible reforms to the advice guidance boundary are both crucial to creating an investing culture in the UK.”

UK Finance chief executive David Postings added: “I strongly welcome her [the Chancellor’s] support for the sector, coupled with the fact that she is addressing how we can best balance risk and consumer protection to help support economic growth.

“Key to this is the regulatory environment, with the new remit letters rightly stressing the importance of growth and competitiveness in regulators’ work.”

Building Societies Association chief executive Robin Fieth pointed out that the Chancellor’s speech built on Labour’s manifesto pledge to double the size of the mutual economy.

Fieth said: “A strong mutual sector provides choice for consumers and creates resilience for the financial sector.

“When you’re with a mutual, you can be confident that the profits are reinvested in the business and the interests of members and communities, not hived off to external shareholders.”

Other measures  

• Legislate for the establishment of Pisces by next May 2025 — “a world-first” regulated market for trading private company shares where transfers will be exempted from stamp duty taxes on shares
• Consult on replacing the current certification regime, which applies to staff below senior management level, with a more “proportionate approach” that reduces business costs
• Launch a pilot to deliver a Digital Gilt Instrument, using distributed ledger technology