Fiscal events are always highly political, and you may be forgiven for thinking we are entering a General Election year – with measures to freeze all alcohol duty until 1st August 2024, a cut in employee National Insurance by 2%, and the government reconfirming its commitment to the triple lock resulting in a rise in the state pension by 8.5% in April 2024.
There will be lots in today’s speech that is welcomed by business – only 110 measures to work through – especially measures ranging from investment in skills and advanced manufacturing, making ‘full expensing’ tax investment relief permanent, and speeding up local authority approvals for infrastructure projects and business planning applications.
For financial and professional services, I have five key takeaways:
- Investment: Both the Government and Opposition continue to vie for the ascendency in who can unlock and promote investment into UK infrastructure and fast-growing science technology businesses. On the back of Labour launching its National Infrastructure Council, as trailed, the Chancellor announced measures to take forward the Mansion House Reforms by committing £250 million to two successful bidders in the Long-term Investment for Technology and Science (LIFTS) initiative, and the intention for the British Business Bank to establish a new Growth Fund. The government will also legislate to implement long awaited Solvency II reforms, and published Lord Harrington’s Review of Foreign Direct Investment, accepting all recommendations. Both political parties see investment as central to their political visions for UK growth. It will continue to be a key political background between the two main political parties.
- Pensions: Pensions reform continues at a pace, and has the potential to be transformational. Again linked to investment, the government guidance for the Local Government Pension Scheme (LGPS) in England and Wales will be revised to implement a 10% allocation for investments in private equity, and it will consult on how the Pension Protection Fund (PPF) can act as a consolidator to increase opportunities for defined benefit schemes to invest in productive finance. On the retail side, the government’s consultation on a ‘lifetime provider model’ to solve the long-standing problem of small pots, although potentially causing a massive headache for employers, is likely to lead to better outcomes for pension savings. It will also lead to welcome innovation in the sector!
- The Future of Payments: On the back of the review, also published today, the government will develop a National Payments Vision and Strategy – published next year – to simplify the landscape and bring together strands of concurrent work currently being run out of the Payments Systems Regulator (PSR) and the Financial Conduct Authority (FCA). With regulatory oversight of payments a key topic of discussion at party conferences this year, this is clearly an opportunity to shape the future framework. It is also a recognition that the current dispersion of oversight doesn’t lend itself to a level playing field between established players and market entrants.
- Economic Regulation: The government continues its focus on ensuring regulators take into consideration growth and innovation. Following the secondary objectives for competitiveness and growth placed on the Prudential Regulation Authority (PRA) and the FCA through the Financial Services Markets Act, the government will consult on measures to strengthen regulators’ ‘Growth Duty’. In addition to bringing the three economic regulators (Ofgem, Ofwat and Ofcom) into the scope of the Growth Duty, the government is also carrying out a broader refresh of the statutory guidance, encouraging all regulators to input. And in the fintech sector HM Treasury has the ambition to ‘reduce their [regulatory] requirements on the industry’ by 10% in 2024.
- Statutory Instruments: With the Financial Services and Markets Act in place and no significant primary financial services legislation announced in the King’s Speech, the government continues to use secondary legislation, as the vehicle to enact further reforms across the sector. The Autumn Statement supplementary information confirmed that reforms to Solvency II, EU Packaged Retail, and Insurance-based Investment Products (PRIIPs) Regulation, and short selling regulation will be made through statutory instruments.
So, lots to be getting on with across an already packed agenda for financial and professional services.
And one political observation, pointed out to me by a colleague at WA Communications, while we waded through the avalanche of announcements and consultations following the Chancellor’s speech:
The fact that the cut in Employee National Insurance from 12% to 10% that impacts 27 million people is being introduced through emergency legislation from the 6th January 2024, rather than at the start of the tax year on 6th April points towards a May General Election. Maybe it doesn’t, but I will throw it into the mix for debate!