Banking reforms to boost investment by billions for British businesses

• Reforms to ring‑fencing to create a more agile and proportionate regime that reduces duplication within banks and removes barriers to lending and investment
• Proposed New Growth Allowance and wider product range could enable banks to provide up to £80 billion in additional support to businesses, channelling more financing into UK businesses, jobs and the economy
• Key protections remain unchanged - safeguarding depositors and ensuring the UK banking system stays resilient and secure

British businesses stand to benefit from billions in fresh financing being unlocked through reforms to the bank ring-fencing regime.

The reforms will create a more agile and proportionate framework for ring‑fencing that makes it easier for banks to operate efficiently without weakening protections for customers.

At the heart of the changes is a new Growth Allowance, which will let major banks use a limited portion of their balance sheets more flexibly, potentially unlocking up to £80 billion of additional financing for UK businesses - helping firms 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 legislation, more of the detail will sit in regulatory rules, allowing the PRA to adjust them more quickly as the financial system evolves. This will mean the PRA will be able to remove outdated requirements or adapt rules to reflect wider banking reforms.

Boosting growth across the economy is a top priority of the reforms, with the Treasury seeking to modernise and streamline the regime while removing unnecessary barriers to lending and investment in the UK.

The package, designed in close collaboration with the Bank of England, will continue to provide strong protections for depositors and ensure stability of the UK's banking system.

Set out in a new report - Safeguarding Stability, Enabling Growth - the reforms will be delivered through the forthcoming Enhancing Financial Services Bill and subsequent legislation and form a central plank of the Financial Services Growth and Competitiveness Strategy.

At the heart of the changes is a clear objective for government: to ensure more financing can flow into UK businesses more easily and do so more easily: all while supporting innovation, expansion and higher living standards.

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

“Where financial systems are inefficient, we will change them. These reforms will ensure more financing flows into UK businesses, and we can support growth and create jobs across the country.

“This will unlock finance for growth while keeping the UK banking system resilient, competitive and fit for the future.”

Alex Depledge, Entrepreneurship Advisor to the Chancellor, said: 

“This is exactly the kind of pro‑growth reform the UK needs. Too often, our fastest‑growing firms hit a wall of unnecessary friction just as they start to scale. These changes will unlock more of the capital founders need to keep building in the UK, while maintaining the financial stability that underpins investor confidence. 

“This is about backing ambition, cutting friction, and ensuring our banks can power the next generation of great British businesses to start, scale and stay here.” 

Ring‑fencing is a key part of the UK's post‑financial crisis banking reforms, requiring the largest UK banks to separate their core retail services - such as retail and SME deposits and lending - from riskier investment and trading activities. This helps to protect depositors, maintain access to banking services, and support financial stability if shocks occur.

Through the reforms banks will also be able to offer a broader range of products and services to support firms as they grow, including better hedging tools and greater access to programmes delivered through public financial institutions such as the British Business Bank and National Wealth Fund.

Maintaining protections and stability for consumers is essential to the reforms - ring‑fenced banks will continue to operate independently from investment banking activities, protecting retail deposits from volatility in global financial markets. The government will consult on the detail of the reforms to ensure protections are maintained while maximising the benefits for growth.

The government will also ensure the regime remains proportionate over time, including regular reviews of key thresholds and reporting requirements.

Notes to editors

Stakeholder reaction

Mahesh Aditya, CEO, Santander UK, said:  

“We welcome these improvements which ultimately benefit the customers and businesses that need support most, while also encouraging additional inward investment into the UK. 

“The proposed changes are a positive step in the right direction in helping strike the right balance between maintaining the strength and resilience of the UK financial system while also enabling banks to do even more to support growth, investment and jobs across the country. 

“Santander is the largest inward investor into UK financial services, and one of the top three inward investors into the wider UK economy. Our acquisition of TSB is a strong demonstration of our long-term commitment and future ambition in the UK.” 

Paul Thwaite, Chief Executive Officer of NatWest Group, said:  

“We welcome today's announcement and the opportunity to develop a simpler, more flexible and proportionate ringfencing framework that can better support UK economic growth.  

“These changes have the potential to increase lending and investment, in line with the government's wider ambitions of helping to unlock growth for households and businesses in every region and nation of the UK.   

“As we consider the detail of the proposals, we look forward to working with HM Treasury, the Bank of England, and our regulators to ensure these changes, once implemented, offer tangible benefits for customers and the wider UK.“ 

Reinald de Monchy, Chief Banking Officer, British Business Bank, said: 

 “From the outset, the British Business Bank has been committed to catalysing greater diversity of both lender and product in smaller business finance markets.

“We therefore welcome the proposed reforms to the ring-fencing regime announced today, which will support greater choice for businesses, including the fast-growing scaleups so important to the long-term success of the UK economy. 

“We also expect to be able to work with the banking sector to support wholesale finance for the community lending sector on improved terms, with our Community ENABLE Funding programme enabling better funding for businesses from underserved communities across the UK.”

Irene Graham OBE, CEO, ScaleUp Institute, said: 

“The ScaleUp Institute very much welcomes the reforms on ringfencing signalled by the Government today. The intention to consult on, and introduce, a new Growth Allowance to enable currently ringfenced institutions to better support scaling companies across the UK is an important step forward in reducing regulatory frictions, and giving banks greater flexibility to offer a broader range of finance products to clients as they grow. 

“Scaling firms need investment to achieve global scale, and banks have a key role to play in supporting high-growth businesses to realise their international ambitions.”

Dom Hallas, Executive Director, Startup Coalition, said: 

"Any serious measure that gets more capital into productive, high-growth assets is a step in the right direction, and reforms to the ringfencing regime have real potential to do exactly that. We'll be engaging constructively with the consultation to make sure the opportunity is seized at scale."