Kemi Badenoch will today vow to sweep away the culture of risk aversion that she says is holding back the City of London.

The Tory leader will warn that red tape and excessive regulation on banks have killed growth, jobs and pensions income in a major speech.

She will say limits imposed on the Square Mile in the wake of the 2008 financial crisis and still in place today are more restrictive than among competitors – even the European Union – and are damaging the economy.

Speaking at CityUK's annual conference, Mrs Badenoch will set out liberalising reforms to the crucial financial services sector that she says would boost investment and drive growth.

If her party wins the next election, she would reduce the capital requirements imposed on banks, a move she claims would unleash up to £450 billion of investment.

A future Conservative government would also abolish Britain's ring-fencing regime, which forces big banks to separate their retail and investment arms, which she says stops banks investing in the real economy. 

And it would replace the Financial Ombudsman Service, streamlining the regulatory process.

The plans, part of a wider report to be published today, come after the latest GDP figures show that the economy shrank by 0.1 per cent in April while inflation remains above the Bank of England's target at 2.8 per cent and unemployment is at a five-year high.

Mrs Badenoch, who served as business secretary in the last government, is expected to say: 'After the financial crisis, the City was increasingly treated as a problem to be managed, rather than an asset to be championed. As a result it has suffered.

'Decisions were made to make an example of the City. And, more than any other nation in the world, Britain tried to remove all risk from our financial markets.'

She will go on: 'If you eliminate risk, you also eliminate reward, you eliminate opportunity, you eliminate innovation, you eliminate growth. This is one of the reasons why the UK has become a low-growth economy.

'The desire for a zero-risk environment means Britain's financial services sector is now more regulated than any other major market. It is cheaper and easier to do business elsewhere, and so London is having its lunch eaten.

'Politicians wanted someone else to look after the problem, so responsibility for managing risk was delegated to risk-averse regulators. But because these regulators are incentivised to avoid risk at all costs, they only ever end up going in one direction.'

Her proposals were last night welcomed by leading industry voices. Sir Andrew Large, former deputy governor of the Bank of England, said: 'This very welcome statement calling for a top-down strategy is the first time from a serious politician and long overdue.'

A Treasury spokesman said: 'This Government has the right economic plan, with lower than expected inflation, the fastest growth in the G7 so far this year and the IMF upgrading our growth forecast from 0.8 per cent to 1 per cent.

'We want to keep the City of London thriving, that is why we continue to ease their pressures, cutting red tape while strengthening banks' ability to support lending and investment across the UK.'