Chancellor Rachel Reeves delivered her annual Mansion House speech yesterday (Tuesday 15 July) to City bosses at a dinner in London.
During the speech, delivered at a dinner at Mansion House, the official residence of the Lord Mayor of the City of London, Reeves discussed the steps she is taking to try to reinvigorate growth in the UK economy through the country’s financial services industry.
“The financial services sector is critical to my ambitions for our country,” Reeves said. “It is one of the largest and most successful sectors in the UK, worth around 10% of total economic output, and supporting 1.2 million jobs in clusters right around the UK.”
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The most eye-catching announcements in the speech centred on government efforts to invigorate retail investment in the country, but it also highlighted initiatives aimed at boosting economic growth by cutting regulation.
As expected, Reeves reiterated her fiscal rules during the speech, saying “the prime minister and I and this government remain committed to our non-negotiable fiscal rules.” These state that the government cannot borrow to fund day-to-day spending and that debt as a proportion of GDP must be falling by 2029/30.
Reeves’s headline announcement from her Mansion House speech was a four-part package to support growth in financial services:
- cutting regulation “that has gone too far in seeking to eliminate risk”;
- carrying out “targeted changes in the areas where the UK already has particular strengths”;
- adjusting capital requirements to “unlock more productive capital”;
- boosting retail investment “so that more savers can reap the benefits of UK economic success”.
The most eagerly-awaited aspects of the speech focused on the final one of these, as the levers Reeves might choose to pull in order to boost London’s struggling stock market had been subject to much speculation ahead of the Mansion House speech.
There were rumours in the weeks ahead of the Mansion House speech that Reeves was planning to cut the annual cash ISA limit in order to encourage Brits to invest more into the stock market.
As the Mansion House speech drew nearer, reports emerged that Reeves was set to delay cash ISA reform following backlash from savers, banks and building societies.
Reeves certainly didn’t rule out ISA reform in the future, saying: “I will continue to consider further changes to ISAs, engaging widely in the coming months and recognising… differing views on the right approach."
However, for the time being, the £20,000 cash ISA limit appears to be safe.
“The chancellor is wise to take a measured approach towards ISA reforms,” said Brian Byrnes, head of personal finance at Moneybox. “We recognise this is a complex area and welcome the opportunity for meaningful consultation.”
Reeves urges less negativity around investing
While ISA reform is off the table for now, boosting retail investment is a priority for Reeves, and the Mansion House speech outlined the steps that the government is looking to take in order to get Brits investing more.
“For too long, we have presented investment in too negative a light,” said Reeves, “quick to warn people of the risks, without giving proper weight to the benefits.”
There is widespread concern at the low levels of investment by UK nationals. The country has the lowest level of retail investment among G7 nations, undermining the country’s stock market and dissuading innovative start-ups from raising capital here.
“A recent study by J.P. Morgan showed that UK households preferred cash savings accounts over stock market investments as the best long-term investment for their money,” said Claire Exley, head of guidance and advice at J.P. Morgan-owned digital wealth manager, Nutmeg. “This decision not only leads to inflation eroding the purchasing power of UK household savings over time but also limits the opportunity for consumers to find higher returns that can lead to a better quality of life.”
Next April will see the launch of an educational campaign to champion the benefits of retail investments, with a review of the current approach to risk warnings set to report back in January.
“This UK campaign could boost financial literacy and unlock a new generation of investors, enabling more people to achieve their financial goals while pushing greater investment into UK capital markets,” Exley added.
Reeves also said that the government is working with the FCA to introduce brand new targeted support for consumers ahead of the new financial year.
“Done well, these initiatives could help people feel more confident about how much to keep in cash, how much they can afford to invest, and crucially, understand not just the risks of investing, but the risks of doing nothing,” said Ruth Handcock, CEO of Octopus Money.
Ahead of the speech, Reeves had announced her Financial Services Growth and Competitiveness sector plan as part of the Leeds Reforms, which were unveiled at a summit of top finance executives in the northern city.
Under the plans, banks will be able to encourage those with cash sitting in low-interest accounts to invest instead.
“The Leeds Reforms bring together an ambitious programme for financial services reform, which aims to modernise capital markets, cut regulatory red tape and broaden the benefits of investing to more people across the UK – in turn delivering investment-led growth and improved financial resilience for UK households,” said Chris Cummings, chief executive at the Investment Association.
If you are considering investing more of your money but don’t know where to start, read our beginner’s guide on how to start investing.
Reeves also announced the launch of a new Listings Taskforce which will aim “to attract the best businesses in the world to IPO here in London”.
Loosening financial regulation
Reeves’s Mansion House speech also revealed plans to reduce financial services regulation, which she called a “boot on the neck of businesses”, in a bid to fuel economic growth.
Reeves stated her support for measures to ease capital requirement rules for smaller banks, as well as committing to “meaningful reform of the UK’s ringfencing regime”.
“The push to reduce regulatory red tape and build financial services infrastructure will be welcome news in what has been a tepid market to date,” said Kurt Ma, corporate partner at law firm Shoomsiths.
There were some notable absences from Reeves’s Mansion House speech, though, including any reference to phase two of the long-awaited pensions review.
“With many businesses still reeling from recent increases in national insurance contributions, its absence will feel like a form of short-term respite,” said Rebecca Williams, financial planning divisional lead at Rathbones.
“But much like the changes mooted for cash ISAs, reforms to pensions remain on the horizon – and will likely resurface when the economic and political conditions feel less fraught."
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