The Epstein files lift the curtain on how power is exercised and influence traded by our financial elite. It is not a cheering sight. Business and economic gurus like the former US Treasury Secretary Larry Summers asking for dating advice from a convicted paedophile does not build confidence in the masters of the universe. Distasteful as these details are, the most telling insights into the predatory behaviour of the private-jet classes relate to how they exploit all of us, not just the vulnerable young women who catch their eye.

Peter Mandelson may blush at some of the personal details laid bare in his emails to Jeffrey Epstein. But perhaps the most chilling tell is advice given in 2009 to Jamie Dimon, chief executive of the investment bank JP Morgan, saying his response to the prospect of a tax on bankers’ bonuses should be to ‘mildly threaten’ the UK government.

Dimon took advice from the then business secretary to come over all Tony Soprano with the government of which Mandelson was a part. He privately warned the then chancellor, Alistair Darling, that plans for a new London office for JP Morgan would be reconsidered if that tax went ahead. Nice City of London you got there, Alistair – pity if anything should happen to it.

Institutional logic does not explain Reeves’s love-in with the banks. They seem to have made a Faustian pact

Sixteen years have passed since Dimon gave that warning. Epstein is dead, Lord Mandelson faces a police investigation, and our politicians have pledged to clean out the stables. But one thing has not changed. The bankers still feel they can coerce our elected politicians. And the current Labour Chancellor doesn’t just acquiesce to the coercion – she makes a virtue of it, while the rest of us pay the price. The banks have demonstrated that, so long as they get their way, they will continue to offer ‘investment’ the Chancellor can boast about.

Before Rachel Reeves’s second Budget last November, she had been considering how to plug the hole in the public finances. One option, favoured by the then deputy PM Angela Rayner, was a windfall tax on the banks. The Labour-friendly thinktank the Institute for Public Policy Research (IPPR) had made a compelling progressive case for the levy. But Reeves refused to go after the bankers’ handsome profits. She raised taxes on small businesses instead.

The banks were delighted. JP Morgan announced a new three million sq ft European headquarters in Canary Wharf, housing some 12,000 employees. The plans had been in the deep freeze since 2009, but now Reeves had shown whose side she was on. JP Morgan was not the only international finance house delighted that she had shown herself so sympathetic to their remuneration strategy. The same day, Goldman Sachs unveiled a tech hub for Birmingham.

Reeves boasted that these announcements showed the banks were ‘choosing Britain because they like what they heard in the Budget’. Indeed. But just in case Reeves felt tempted at any time to reconsider and direct tax rises towards some of the wealthiest institutions on the planet, another Dimonesque ‘mild threat’ accompanied the investment announcement. The plans, JP Morgan said in a press release, remain ‘subject to a continuing positive business environment in the UK’. In other words: ‘You get the building, we keep the billions, but if you come after the big bucks then fuhgeddaboutit.’

Treasury insiders confirm that bankers’ ‘lobbying’ against increased taxes hitting their bottom line weighed on Reeves, to the extent that she became their advocate against progressive voices within Labour urging levies on financial institutions. According to Politico, at a Downing Street meeting, she ‘ripped into’ senior staff from the IPPR when they argued for a tax on bankers, warning against introducing market–sensitive ideas without thinking through the consequences. Jamie Dimon would have been proud.

The windfall tax dismissal wasn’t the City’s only win in the last Budget. Another tax-raising change directed at the wealthiest was watered down. ‘Carry’ – a performance-linked share of profit for traders and bankers – faced being hiked to match the 45 per cent rate of income tax. Bankers once more applied pressure and Reeves settled on a rate just above 34 per cent – a substantial saving for the City.

Outside the insulated worlds of the Square Mile and Canary Wharf, Reeves’s Budgets have been devastating. Employers faced one of the largest payroll tax increases in recent memory. Costs climbed, margins tightened, hiring slowed. Youth unemployment is spiralling. The hospitality sector is on the floor. But life carries on sweetly in the City. Their huge cash buffers mean they can absorb the payroll taxes that cripple small businesses. ‘No major bank is going to blink at the National Insurance rise,’ one City figure tells me. The contrast is striking, given Britain’s economic structure. Financial services generate roughly a tenth of GDP, but small businesses employ around three-fifths of the private-sector workforce.

Eighteen months on from Reeves’s first Budget, the relationship between the Chancellor and the bankers remains as intimate as ever. She was the toast of high finance at Davos: lunch with Citibank, breakfast with Dimon and his JP Morgan execs. Handshakes all round. Of course, it is to be expected that the Treasury would want to hug the City, but even by the department’s sycophantic standards the present closeness raises eyebrows.

Both Reeves’s friends and her fiercest critics find the quid pro quo curious for a Labour government which caves to the party’s soft-left on almost everything else. Those who have spent the past year arguing for wealth taxes complain they have limited influence over the Chancellor. ‘We get meetings,’ one campaigner says, ‘but not the wining and dining dinners that are put on for the banks.’

It’s not just on tax that the City’s hold over Reeves leads to others losing out. Leasehold reform is another such area. Major City players benefit from investment in ‘ground rents’ – money for nothing extracted from those who own leasehold flats and who have to pay the holder of the building’s freehold title an annual levy. Whenever the abolition of the medieval system of ground rents is discussed, those who rely on the risk-free cash flow, insurers and lobbyists for pension funds, line up to warn of an existential risk to investment.

Evidence points in the opposite direction. The previous government concluded that ground rents represented only a small fraction of pension assets and that there wasn’t a systemic risk. Yet two years later, the plans for reform have been kicked into the long grass. The Treasury has been the blocker. The Chancellor has been the City’s cheerleader throughout.

There have been peculiar goings-on in other policy areas as well. When the car-finance industry was facing a £44 billion compensation judgment at the Supreme Court for ripping off consumers, the Chancellor let it be known that she would shield the banks from the hit.

Lloyds stands to be by far the largest beneficiary of any cap on motor finance liability. By happy coincidence, they produce a survey Reeves regularly cites to claim that her policies command business confidence.

Lloyds’s voice may be some comfort to her, but it is a lonely one. In November 2024, the Institute of Directors (IoD) business confidence index crashed to near record lows and the British Chambers of Commerce recorded its worst reading of business confidence since the Truss mini-Budget. But the Lloyds Business Barometer reported that confidence is ‘considerably above the long-term average’. The survey is partial in every sense. It represents big business and so it flatters the Treasury. Only businesses with turnover of more than £250,000 a year are invited to respond. The IoD’s survey, in contrast, also covers sole traders and ‘micro’ businesses with fewer than ten employees – those who have been the biggest victims of the Chancellor’s policies.

Bankers are using all their lobbying power to entrench the decision to side with the City at the expense of the smaller enterprises. And when they lobby, as one Labour MP explains, ‘It’s not for growth, but to protect their investments.’

The number of meetings which banks have with Treasury ministers has increased under Labour: 358 in Labour’s first year in government, up from 282 in the Tories’ last year, according to the trade magazine the Banker. That means about 42 per cent of Treasury meetings are with banks or their lobbyists, up from 37 per cent. One City source says this shows the Treasury’s ‘lack of interest in the wider business ecosystem’.

The Chancellor’s own diary is even more revealing. One of Reeves’s meetings described as a ‘round table with small businesses’ included BAE Systems (market cap £62 billion), Rolls-Royce (£110 billion), HSBC (£220 billion) and Google (£2.8 trillion). As another City source observes: ‘Only the largest companies are factored into [Reeves’s] thinking.’

One of the Chancellor’s ‘round tables with small businesses’ included Rolls-Royce, HSBC and Google

Time and again, Reeves chooses the banks over small businesses and consumers, and Westminster is beginning to notice. In the coming months, Labour’s internal critics plan to voice those criticisms more loudly. Meg Hillier, chair of the Treasury Select Committee, used a recent Financial Times column to set out her concerns, warning that consumer interests were being ignored in favour of the City. One left-wing group is waging war on the lobbyists; it is said they have spies within the Treasury.

Various shadow ministers also dislike the government’s asymmetric treatment of banks and other businesses. ‘It’s a striking omission when screwing a £25 billion NI raise,’ says Andrew Griffith, the shadow business secretary. ‘It’s the Jamie Dimon effect.’ The wider business community is noticing too. Even representatives of large and medium-sized firms complain that they cannot get a meeting with anyone in the Treasury after 18 months of asking.

The Treasury has, of course, always been the government department with ‘policy ownership’ over the financial services sector. But institutional logic alone does not explain Reeves’s love-in with the banks. As one former Treasury official observes, the two seem to have made a Faustian pact. If financial institutions are reassured that their interests are respected, they signal to international markets that the Treasury is sympatico. As the official explains: ‘Once you’ve hitched your wagon to stability and inward investment… where’s your most mobile capital? Financial services.’

To understand the roots of that bargain, you have to go back to the general election and its aftermath. In opposition Reeves made it her mission to woo City businesses and their public affairs firms. For a party desperately seeking financial credibility, policies that were City-friendly were attractive. The banks started saying nice things, and the Chancellor reaped the rewards.

And so too have the banks. Lloyds’s profits jumped 12 per cent last year and NatWest’s dividend has increased by over 50 per cent. Some might call that a windfall.

Yet while profits roll in for the bankers, tax rises and labour market regulations in the rest of the economy have constricted growth, depressed investment and increased unemployment. The divide between the wealth of the Square Mile and the economic stagnation elsewhere widens. Sky-high energy prices continue to devastate manufacturing and deter tech innovation. All the while the Chancellor basks in the approval of the bankers. Peter Mandelson may now be an outcast for this Labour government, but his spirit still haunts the Treasury.