Banking reforms to boost billions of dollars of investment in UK businesses

Ring-fencing reforms to create a more agile and proportional regime that reduces duplication within banks and removes barriers to lending and investment The proposed New Growth Allowance and wider product range will enable banks to provide up to £80 billion of additional support to businesses and provide more funding for UK businesses, jobs and the economy. Key protections remain the same. This means protecting depositors and maintaining the resilience and security of the UK banking system.

UK businesses could benefit from reforms to the banking hedge system, opening up billions of dollars in new financing.

The reforms will create a more agile and balanced framework for ring fencing that will make it easier for banks to operate efficiently without undermining customer protection.

At the heart of the change is the new Growth Allowance. It will allow major banks to use limited parts of their balance sheets more flexibly, potentially providing up to £80 billion of additional financing to UK businesses, helping them invest, expand and create jobs across the country.

The reforms will also give the Prudential Regulation Authority (PRA) more flexibility to update and tailor the rules over time. Instead of relying on rigid laws, regulatory rules could include more detail, allowing PRAs to adjust more quickly as the financial system evolves. This means the PRA could remove outdated requirements or adjust the rules to reflect broader banking reforms.

Promoting growth across the economy is a top reform priority. The Treasury is seeking to modernize and streamline the system while removing unnecessary barriers to lending and investment in the UK.

This package, designed in close collaboration with the Bank of England, will continue to provide strong protection to depositors and ensure the stability of the UK banking system.

The reforms set out in the new report, Protecting Stability, Supporting Growth, will be delivered through the upcoming Strengthening Financial Services Bill and subsequent legislation and will form a central pillar of the Financial Services Growth and Competitiveness Strategy.

At the heart of change is the government’s clear goals. The idea is to ensure that more money can flow more easily into UK businesses, while supporting innovation, expansion and higher standards of living.

Rachel Blake, Economic Secretary to the Treasury and Minister for Cities, said:

Where financial systems are inefficient, we will change them. These reforms will ensure more money flows into UK businesses, supporting growth and creating jobs across the UK.

This will ensure that the UK banking system remains resilient, competitive and fit for the future, while securing finance for growth.

Alex Depledge, Chancellor’s Entrepreneurship Adviser, said:

This is the pro-growth reform the UK needs. Too often, the fastest-growing companies hit a wall of unnecessary friction as they begin to scale. These changes will free up more founders of the capital they need to continue building in the UK while maintaining the financial stability that underpins investor confidence.

This is about supporting ambition, reducing friction and enabling our bank to enable the next generation of British businesses to start, expand and stay here.”

Ring fencing is a key part of Britain’s post-financial crisis banking reforms, requiring Britain’s largest banks to separate core retail services such as retail and small business deposits and loans from riskier investment and trading activities. This helps protect depositors, maintain access to banking services and support financial stability in the event of shocks.

The reforms will also enable banks to offer a wider range of products and services to support business growth, including better hedging tools and better access to programs offered through public financial institutions such as the British Business Bank and the National Wealth Fund.

Maintaining protection and stability for consumers is essential to reform. The ring-fenced bank will continue to operate independently of its investment banking activities, protecting retail deposits from the volatility of global financial markets. The government will consult on the details of the reforms to ensure protections are maintained while maximizing the benefits for growth.

The Government will also ensure that the scheme remains balanced over time, including through regular reviews of key standards and reporting requirements.

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