Jeremy Hunt is to tear up hundreds of pages of “overbearing” EU legislation in a bid to boost Britain’s financial services industry after Brexit.
The Chancellor will on Friday in Edinburgh announce a package of reforms aimed at increasing the City of London’s competitiveness by relaxing ring-fencing rules on smaller banks and mandating financial regulators to focus on economic growth as well as consumer protection.
However, Mr Hunt’s plans are expected to be less radical than previously anticipated, with the Chancellor abandoning the use of the term “Big Bang 2.0” in favour of the “Edinburgh Reforms”, further distancing the Government from more radical proposals planned by his predecessor Kwasi Kwarteng.
The original phrase was a direct echo of Margaret Thatcher’s deregulation of the Square Mile in the mid-1980s.
Mr Hunt said: “This country’s financial services sector is the powerhouse of the British economy, driving innovation, growth and prosperity across the country.
“Leaving the EU gives us a golden opportunity to reshape our regulatory regime and unleash the full potential of our formidable financial services sector.
“Today we are delivering an agile, proportionate and home-grown regulatory regime which will unlock investment across our economy to deliver jobs and opportunity for the British people.”
It comes as one of Britain's biggest business groups warned that Mr Hunt's tax raid has had a "chilling effect" on the economy and risks damaging the UK's competitiveness.
The British Chambers of Commerce (BCC) said the Chancellor's decision to hike business taxes had hit already dwindling corporate confidence as it downgraded its economic forecasts for growth, jobs and investment.
Mr Hunt and Andrew Griffith, the City minister, will meet with City chief executives on Friday to discuss the reforms and how the financial services sector can further drive investment and economic growth in the UK.
The reform package will include a relaxation of ring-fencing rules on some banks. Ring-fencing requires banks to separate their retail banking services from their investment and international banking activities and was introduced as a response to the financial crisis.
The UK’s biggest lenders will still be required to adhere to the ring-fencing requirements but several smaller banks, such as Santander UK, Virgin Money and TSB Bank, will likely be exempt.
The changes could also include a review of the Mifid 2 rulebook - regulation around financial research - as well as deregulation of trading rules to boost flexibility for investors and plans to reduce the influence of proxy voting agencies, which have been criticised for pushing a left-wing agenda in the City.
The Treasury also said rules that “hold back growth will be reviewed, with overbearing EU rules which put companies off listing in the UK being overhauled”.
It comes after Mr Hunt and Rishi Sunak, the Prime Minister, last month abandoned plans to give ministers the power to overrule City regulators in a major climbdown for the Government.
It is understood that it will take until the end of 2023 for the Treasury to repeal the EU-era legislation.
Simon Morris, a financial services partner at City law firm CMS, welcomed the reforms but said: “Headline reforms are only half the story, and the City needs continued stability to thrive.
"Government and regulators have promised to maintain world-class regulation with no bonfire-lit race to the bottom – this is greatly assuring. [But] the second element is more challenging, and the Government cannot optimise its regulatory reforms without the UK first re-establishing its reputation as a fiscally stable jurisdiction.”
Meanwhile Alex Veitch, the BCC's director of policy, said: “Business confidence has been falling for months. It is now clear that the September mini-Budget and Autumn Statement have had a further chilling effect.
"Very few firms will be willing to invest as they face a wall of higher prices, interest rates and taxes.
“The very real worry is that the UK will get left behind by our competitors, once the economy emerges from recession, as growth remains so weak."
Mr Hunt froze income tax thresholds until 2028 in the Autumn Statement and cut tax breaks for the highest earners, forcing workers to hand more of their pay to the state as wages rise.
The Chancellor also hit businesses with a six year freeze in the level at which they start paying employer national insurance contributions.