Liz Truss is facing an early fight with the Bank of England if she becomes the next UK prime minister after signalling she will give ministers powers to override City regulators seen to be holding back post-Brexit reforms.
The foreign secretary has vowed to press ahead with a law allowing ministers to “call in” regulatory decisions in the public interest if they feel watchdogs are being excessively cautious.
The plan was originally proposed by her rival Rishi Sunak, who said in his Tory leadership bid that Brexit was a chance to shift accountability for regulation to parliament and away from “faceless regulators”.
The former chancellor and his ally John Glen, former City minister, infuriated BoE governor Andrew Bailey by proposing the “call in” power as part of a new financial services bill.
The controversial power was omitted from the initial draft of the legislation last month on the orders of Nadhim Zahawi, the new chancellor, who put the issue on ice pending the election of a new Tory leader in September.
But Truss has told allies that she will “definitely” press ahead with the override power if she becomes prime minister — a rare show of policy unity with Sunak.
Truss has separately questioned the BoE’s use of quantitative easing and its impact on inflation. She has promised to maintain the BoE’s operational independence but plans to review its mandate.
The “call in” power is expected to be added to the financial services bill as it passes through parliament, although Bailey is expected to fight a rearguard action against what he sees as 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 vowed to loosen regulations as a key part of her pitch for the Tory leadership, telling a group of City executives this month: “We haven’t moved fast enough to take full advantage of Brexit.
“As prime minister, the British people can trust me to unleash investment and boost economic growth right across the country.”
Like Sunak she wants to reform Solvency II, an EU directive covering the insurance sector, and relax the EU’s Mifid investment rules with a view to releasing capital for infrastructure projects, including green energy.
Sunak and Truss want a nimbler regulatory regime, but Bailey is determined to ensure that post-Brexit regulation does not endanger the stability of businesses or put consumers at risk.
“The independence of the regulators is important because much of our international standing depends on this,” 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 that companies are safe.
Truss is campaigning to take on “Whitehall orthodoxy” and has vowed to do away with a “business-as-usual” approach.
