Rachel Reeves’ proposed fiscal reforms risk dragging the UK back into a financial disaster similar to the 2008 crisis, a financial expert has warned. Bob Lyddon cautions that the Chancellor’s so-called Leeds Reforms dismantle vital protections put in place after the last meltdown — and dangerously rewrite the narrative around Labour’s role in causing it.

According to Mr Lyddon, founder of Lyddon Consulting Services, Ms Reeves’s strategy is not just about cutting “red tape” to boost growth, as she claims, but represents a deliberate erasure of the lessons from the past. He told Express.co.uk: “The Leeds Reforms are a reinforcement of the denial that Labour Party policies, designed by Gordon Brown, seeded the UK version of the 2007–8 financial crisis.” Ms Reeves has repeatedly boasted of stability under Labour, notably in her 2024 Mais Lecture hosted by City St George's, UCL, when she declared: “For a decade, the last Labour Government offered stable politics alongside a stable economic environment.”

Mr Lyddon, who outlined his points in a new comment piece on the Institute for Research in Economic and Fiscal Issues (IREF) website, argues that such a characterisation overlooks what he describes as Labour’s key role in the financial collapse that followed. He points out that Labour remained in power for a further three years after that “stable” decade and presided over the most serious financial crisis in modern UK history.

He said: “During the decade between New Labour’s election on May 1, 1997 and the date of September 14, 2007 when Northern Rock received liquidity support from the Bank of England, we had a heedless expansion, fuelled by Brown’s policies, of the two Scottish banks and a series of Midlands/Northern building societies, such as Northern Rock, Halifax, Bradford & Bingley plc, Alliance & Leicester, and Britannia.”

Mr Lyddon claimed these financial institutions — once hailed as regional banking success stories — expanded beyond their capital bases, took on excessive risk, and employed what he describes as aggressive accounting tactics such as repackaging mortgage debt into residential mortgage-backed securities.

He said: “They lent at high multiples of a borrower’s salary and a high fraction of the property’s value. Then it all came crashing down around Labour’s ears.”

He further suggested that Labour, once the crash hit, shifted blame toward international and investment banking, in particular American institutions, while distancing itself from the rapid domestic mortgage expansion it had allegedly encouraged.

He said: “They were allowed to write the script, claiming they didn’t know what was going on and had never lionised the individuals responsible.”

Mr Lyddon argues that the Leeds Reforms threaten to roll back many of the post-2008 safeguards which were designed to stop the financial sector from becoming a systemic liability to the taxpayer again.

He said: “This dismantling is the perfection of the airbrushing of the reputations of Gordon Brown and the Labour Party.”

Among the measures he highlights as concerning is the proposal to relax limits on loan-to-income ratios — a move which would allow banks to issue larger mortgages relative to a borrower’s salary. Mr Lyddon believes this echoes the pre-crisis lending surge that led to widespread defaults once the economy turned.

He also raised the alarm over plans to weaken ring-fencing rules introduced after the crisis to separate retail banking from higher-risk investment operations.

He said: “Ring-fencing was put in place to prevent exactly what happened in 2008. Ms Reeves’ reforms could increase the likelihood of the same thing happening again.”

Another element under scrutiny is the potential softening of the so-called MREL threshold — a requirement that banks hold sufficient capital to absorb losses without recourse to public money.

Mr Lyddon said: “When the MREL threshold is relaxed, banks can lend more on the same capital base. That means more risk and a higher chance of failure.”

While the Chancellor has framed the reforms as necessary to “rewire” the financial system and boost economic growth, Mr Lyddon contends that this framing is misleading. In his view, the reforms are more about papering over past political missteps than genuinely improving financial resilience.

He concluded: “She’s encouraging the financial industry to spin the big wheel again. But this time the UK economy is already on fragile footing — and the taxpayer could be left holding the bill again.”

Ms Reeves has defended the reforms as a bold recalibration of outdated post-crisis regulation.

Speaking recently, she said: “We are fundamentally reforming the regulatory system, freeing up firms to take risks and to drive growth.

“We have placed financial services at the heart of the Government’s growth mission… with a ripple effect that will drive investment in all sectors of our economy.

“Regulators must resist excessive caution and boldly regulate for growth. The Leeds Reforms will create a more dynamic, competitive financial system that works for the whole country.”