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(Bloomberg) — Britain has a problem with risk — the country does not take enough of it. 

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That’s the view of John Flint, the former HSBC Holdings Plc chief executive officer who is in charge of Labour’s National Wealth Fund. Regulators are too overbearing, financial institutions too cautious and society at large too timid, he says. The consequence can been seen in the UK’s dismal economic performance of the past few years.

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“The growth outcomes here are entirely consistent with our risk appetite,” Flint said in an interview with Bloomberg. “So I don’t think we should be surprised we’re not growing. We’re not taking enough risks to grow.”

Britain’s chronically sluggish economy, which has seen slower productivity growth than US and European peers in the last decade and a half, should be treated as an acute crisis, he suggests. Under financial regulations drawn up after the 2008 crisis, banks must hold large capital buffers that can only be released when times get tough. Flint hinted those should be relaxed, providing billions of pounds of lending firepower to stimulate activity and drag the UK out of its low-growth trap.

The regulatory “pendulum” has swung “too far,” he said. “The banking system is in great shape. If a mature and aging democracy is hitting its fiscal buffers and is not growing — that’s a form of crisis. I don’t believe there is any point in having significant loss-absorbing buffers unless they are going to be used.”

Flint’s comments chime with the Labour government’s plans to slash regulation to boost vital business investment. Prime Minister Keir Starmer has promised to streamline planning to build more homes and infrastructure. Chancellor of the Exchequer Rachel Reeves is pushing financial regulators to relax arduous rules and Business Secretary Jonathan Reynolds proposed merging regulators to cut red tape. Heads of both the Competition and Markets Authority and the Financial Ombudsman Service have departed amid the scrutiny.

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The backdrop to Labour’s deregulatory push is moribund growth, which has stalled since the party won the election last July. Its gloomy warnings after coming to power and big tax rises on business at the budget in October have darkened the mood. The UK may be outperforming European peers like Germany, France and Italy – but growth has halved since the last Labour government between 1997 and 2010. GDP per head has only grown in four of the past 12 quarters and the private sector is back in recession, with public spending now doing all the heavy lifting.

Labour is desperate to change that trajectory, ambitiously targeting 2.5% growth, because its plans to fix public services and raise household living standards require a rapid economic expansion. 

Reeves is already facing the consequences of sluggish output. Earlier this month, the Office for Budget Responsibility wiped out the £9.9 billion ($12.5 billion) of headroom against her fiscal rules after downgrading growth in the first of five forecasts before the March 26 fiscal event. 

Public services like justice and police are now facing the prospect of more austerity as budgets are cut to fill the hole. Departments have been told prepare for spending to be frozen in cash terms ahead of a major review planned in June.

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Climate Push

Reeves is hoping Flint will be part of the solution. He was appointed in 2021 by the last Conservative government to lead the newly created UK Infrastructure Bank, which was set up to replace the European Investment Bank after Brexit and provide development finance for green and industrial projects.

Reeves re-branded it the NWF last year and gave it a more specific green agenda. She also beefed up its firepower by £5.8 billion to £27.8 billion, though that was £1.5 billion less than originally planned. 

Flint stressed the name is misleading. It is not a sovereign wealth fund like Norway’s $1.8 trillion Norges Bank Investment Management because they “deploy significant surpluses,” he said. “We’re deploying public money and we’re doing that on behalf of a government that’s got fiscal constraints, so the comparison doesn’t get very far.”

His job is to invest in projects that would not otherwise get off the ground such as Highview Power, a renewables business that compresses air to store energy like a giant battery. NWF provides cornerstone finance or guarantees to absorb risk and make projects viable for investors. But all too often he says the private sector, despite its public commitments to decarbonization, wants the state to do the hard work. 

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“The government is, to a very significant extent, socializing the cost of the climate transition and the private sector is being very selective about the role that it plays,” he said. “We’re deploying money on their behalf and the stewards of private finance are enjoying lower risks and better returns. The risk that they’d rather not have we’re taking on the public-sector balance sheet.”

If the banks and asset managers were less risk averse “we might be able to accelerate the climate transition,” he said. This risk aversion is not just within banks’ management but among shareholders who are reluctant to take a chance for better financial and social rewards, he says. Banks and investors, for their part, consider risk sharing to be vital given what are often untested technologies.

Flint says he now sees this risk-aversion almost everywhere he looks. “The UK is a very risk averse society now,” he said. “We do not like non-compliance. We do not like mistakes. We do not like anything to go wrong, and when it does we’ve got a terrific habit of analyzing and trying to make sure things don’t. But that appetite for risk has its consequences, and low levels of growth and innovation can be part of it.”

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Bank of England Governor Andrew Bailey has struck a more cautious tone, warning not to forget the lessons of the financial crisis. “It is wise to avoid the idea that regulation is the best solution to any problem, but let’s not fall into the opposite notion that it is always the worst available option,” he said on Tuesday.

With his comments, Flint joins a chorus of former bankers and regulators. Andy Haldane, the former Bank of England chief economist and now chief executive of the Royal Society of Arts, last year conceded he had “a hand in creating two regulatory monsters” that “collectively had the consequence of chilling risk appetite and stalling investment.” Jonathan Hill, who was previously a European Union finance commissioner, believes growth has been choked off by the ballooning size of the regulatory state.

The argument has been gathering momentum, not least because US President Donald Trump is taking a scorched earth approach to regulation that threatens to leave other nations globally uncompetitive. The European Union has responded with plans to make it easier to do business and Reeves made it a centerpiece in her speech on growth last month.

Flint said he is confident a new approach can work well in Britain because the UK has “the best prudential regulator in the world” and a clear industrial plan from Labour. 

“On a relative basis, the UK economy looks good right now,” he added. It will take time for policy in the US “to settle for investors to know exactly what the new rules are going to be. And the major economies in Europe have got their own challenges.” 

Get the risk balance right, he says, and the UK “can do more.”

—With assistance from Katherine Griffiths and Harry Wilson.

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