Reeves unveils banking shake-up, but critics say investment reforms don’t go far enough

The centrepiece of the announcement was a shift in approach to bank ring-fencing rules. Reeves confirmed the government will consult on a new “Growth Allowance” that would let ring-fenced retail banks take on more flexible, higher-risk lending and complex corporate finance activity, a significant loosening of the post-financial-crisis rules that kept everyday banking separate from riskier investment arms.

The Chancellor also confirmed targeted adjustments to Basel 3.1 capital rules, aimed at freeing up bank lending and investment while insisting financial stability would be maintained.

Elsewhere, Reeves announced a major SME lending package designed to unlock billions of pounds in finance for scale-up businesses, with the Treasury framing it as a way to drive productivity and boost regional economies.

On workforce issues, more than 20 financial services organisations signed a new Financial Services Skills Compact, committing to address skills shortages in banking and prepare the sector for the impact of artificial intelligence.

Speaking at the Mansion House dinner alongside the Chancellor, Bank of England governor Andrew Bailey addressed the opportunities and risks AI poses to the financial system, the growing potential of tokenised assets and digital payment systems, and the need for stronger international cooperation on frontier AI and cybersecurity policy.

Reeves also used the speech to highlight the government’s changes to ISAs as one of its economic achievements. But the response from parts of the investment industry suggests appetite for far bigger reform.

Financial mutual Scottish Friendly said this week that more must be done to turn Britain into “a nation of investors,” calling on the Government to:

• Tackle savers’ core fears directly, including through its own “Savvy Squirrel” campaign encouraging people into the markets
• Act on the Risk Warning Review’s recommendations and ease disclosure rules requiring investment firms to warn of potential losses
• Commission a review of how the tax system could better encourage investment in the stock market, particularly in domestic equities
• Simplify the ISA regime to make it easier for savers to become investors

Stephen McGee, chief executive of Scottish Friendly, welcomed the government’s ambition but argued the approach needs to be more comprehensive.

“The Government is right to aspire for the UK to become a nation of investors, but achieving that will take a multi-pronged approach that gets to the root of savers’ fears,” McGee said. “People avoid the stock market because they don’t understand ISAs, they’re scared of losing money and there’s little support to help them understand and manage that risk.”

He was particularly critical of current disclosure requirements, comparing them to “a car salesman warning you the car might break down before you’ve even bought it.”

“If the government is serious about turning us into a nation of investors, it needs to go a lot further,” McGee added. “That means tackling fear head-on through campaigns like Savvy Squirrel, easing disclosure rules and using the tax system properly to encourage long-term investment in UK companies. Bold rhetoric is easy. Bold policy is harder – and that’s what’s needed here.”