Rachel Reeves told to halt diversity drive that will cost City £1bn

Rachel Reeves is being urged to halt a diversity drive officials estimate will cost the City up to £1 billion.

Regulations that will force financial firms to collect and report diversity and inclusion data “threaten British competitiveness” and “erode meritocracy”, the Chancellor has been warned.

In a letter to Ms Reeves, three members of the Conservative front bench point out the proposals are based on “scientifically unsound … contested ideological principles”.

The new regulations, drawn up by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), require firms to the report sex or gender of employees – as well as ethnicity, age, disability, religion and sexual orientation.

The FCA also wants firms to recognise a lack of diversity as a “non-financial risk”.

But Ms Reeves has been told that the regulations are at odds with the Government’s growth targets and promises to businesses to reduce red tape.

Andrew Griffith MP, the shadow business and trade secretary, Mark Garnier MP, the shadow economic secretary to the treasury, and Claire Coutinho MP, the shadow women and equalities minister, have written to the Chancellor, urging her to intervene and stop these regulations from coming into force.

“We believe that these proposals, if enacted, would damage the City of London and the wider British economy, and could contravene the FCA’s statutory objectives, as well as being beyond its legal authority,” they wrote.

“The regulatory and administrative burden these rules would impose on firms would take resources away from serving consumers and divert them to regulatory compliance, which would be detrimental to consumer welfare.”

Regulators acknowledge costs

The MPs pointed out that the City regulators acknowledge in their own impact assessments the measures “will impose significant costs”, adding: “Combined, the regulators estimate these proposals would cost businesses a net £1 billion.”

The FCA estimates that the one-off cost to firms to introduce the new regime will be £561 million, plus an additional £317 million each year. Meanwhile, the PRA forecasts that it will cost the firms it regulates £75 million in one-off costs plus £58 million in ongoing annual costs.

The Tory MPs also pointed out that Labour ministers had promised to cut red tape for the City and the regulations would “appear to contradict” such pledges.

“The proposed regulations would threaten British competitiveness, erode meritocracy in British financial services, and embed scientifically unsound and contested ideological principles in regulations,” they wrote.

“They not only appear to exceed the statutory powers of the regulators, but they also directly contradict the statements made by Government ministers about the importance of regulators promoting innovation, inward investment and economic growth.”

Earlier this year, Kemi Badenoch argued the proposals were counterproductive and would stifle Britain’s growth. In April, as business secretary, she wrote to the FCA and PRA, urging them to rethink the proposals.

An FCA spokesman said: “To be competitive, financial services must attract and promote the most talented.

“When we consulted, we noted fewer than one in five senior positions in banking, capital markets and payments were held by women. We recognise there are a range of views on our proposals.

“We’ve prioritised our work on non-financial misconduct, for example, sexual harassment. We’ll set out the next steps in 2025.”

A Treasury spokesperson said: “Economic reform is needed if we want to unlock the full growth potential of the British economy, and regulation is a critical part of that. While operationally independent from the government, we are determined they can help serve our number one mission of growth.

“The Government is working with the financial services sector to set out the first ever UK financial services growth and competitiveness strategy. That plan will deliver sustainable, inclusive growth for the financial services sector and secure the UK’s competitiveness as an international financial centre.”

The PRA declined to comment.

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