FTI Consulting Public Affairs Snapshot: The Hunt for Growth – the Chancellor’s Mansion House Reforms

The following morning’s (11 July) higher-than-expected figures on UK pay growth will make that task even harder. The Chancellor was quick to underline that tackling inflation meant public sector pay restraint – an important marker in the sand given ongoing wrangles over pay awards.

After the obligatory championing of the substantial strengths and benefits of the financial services sector to the UK, Hunt moved on to the well-trailed core of his speech, unlocking pension funds to fuel growth in the UK – the ‘Mansion House Reforms’. The noted uptick in sector engagement, driven from Number 10, well executed by Number 11 and spurred on by Labour’s highly successful wooing of business, meant that the City was prepared for most of the announcements made.

Pensions are deserving of the limelight, not least given the changes in the pensions landscape, with the shift over the past few decades to defined-contribution schemes, the decline of the defined-benefit pension and the more recent introduction of auto-enrolment. Looking at value for money for savers and how to boost retirement pots at a time when there are growing concerns about the adequacy of pensions is sorely needed. Addressing barriers to investment in less-less liquid and more expensive forms of investment while unlocking funds for growth and avoiding increasing government borrowing is clearly an opportunity not to be missed by the government, and had the opposition been in their shoes, they would, in all probability, also be looking at this. Therefore, the policies can be expected to survive the high chance of change in government. In fact, much of this package could have been taken from the Shadow Chancellor’s comments earlier in the year setting out her desire for more pension funds to invest in UK start-ups and greater consolidation of schemes.

The Lord Mayor’s notable achievement, the ‘Mansion House Compact’, started off the list of announcements from the Chancellor, confirming the firms that had signed up to the pledge to allocate at least 5% of their default funds to unlisted equities by 2030. What difference this will end up making remains to be seen, but many of the largest DC pension schemes have signed. Hunt argued that if other providers follow suit, the reforms could funnel an additional £50bn into high-growth businesses by 2030. It is important to note, however, that there is no obligation for this money to be invested in UK companies.

Moving on to where the Chancellor is able to set the rules, Hunt announced the ability for greater DC consolidation in order to drive better outcomes for savers, following the recent Value for Money Framework review by the Department for Work and Pensions and HM Treasury. Collective DC schemes were also championed, with the government preparing to set out a road map to encourage more CDC funds – again, something for which there is cross-party support. Indeed, David Pitt-Watson (who was once Labour Party Assistant General Secretary) and Sir Steve Webb (former Lib Dem Pension Minister) are long-time advocates for CDCs, and Webb was even credited in the speech for his support for the package of reforms.

Looking to ensure that schemes can invest in unlisted high-growth firms, the Chancellor committed to exploring how the government could play a greater role in establishing investment vehicles, testing options to open those opportunities to pension funds before the Autumn Statement.

DB schemes were not left out of the package. The Chancellor, whilst reaffirming his commitment to protecting the “sound functioning and effectiveness” of the gilt market, outlined plans to introduce a permanent superfund regulatory regime. He launched a call for evidence on the roles the Pension Protection Fund and DB schemes play in productive investment. Local Government Pension Schemes (LGPS) will need to accelerate the consolidation of their assets, with a deadline of March 2025 for all LGPS funds to transfer their assets into local government pension pools, and each asset pool should surpass £50 billion of assets. The government will also consult on their intention to double existing LGPS investments in private equity to 10%.

These steps to consolidate funds to create ‘super funds’ again are unlikely to face political disunity – Labour politicians past and present have backed the idea, including the Tony Blair Institute which called for super funds earlier this year.

The remainder of the speech outlined further listings reforms, and draft legislation on prospectus reform and on research, the latter taking forward the recommendations from Rachel Kent’s review. These have been called for since the introduction of MiFID 2 and were expected as part of the Edinburgh reforms.

Slightly incongruously, the final element of the Chancellor’s speech was an announcement of an independent payments review, to be taken forward by Joe Garner, former Chief Executive of Nationwide Building Society, with a particular focus on mobile payments. Even though only three years have passed since HMT launched its Payments Landscape Review, for many in the payments sector this is welcome. With the advances in payments technology, the embedding of open banking, and the EU’s draft Payment Services Directive 3 (PSD3), it is reasonable to expect regulation to evolve with these changes. While the scope of this review is yet to be seen, this has the potential to help ensure the UK can fully embrace innovation. The Chancellor also announced the laying of secondary legislation to give the regulators the powers to reform rules for payments and fintechs, setting the groundwork for any future recommendations to be adopted faster.

So, in short, no huge surprises and much that will be supported by industry and politicians on both sides of the House. The timetable however is notably ambitious. While speed is necessary given the looming general election, the Chancellor stated that all decisions on the pensions proposals will be made prior to the Autumn Statement. Despite the speed, the benefits for the UK economy and savers will take time to crystallise, time that this government does not have in great abundance.

A busy summer beckons for both HM Treasury and the regulators. Firms wishing to engage in consultations will have their work cut out too.

If you would like to discuss how our Financial Services Public Affairs team can support your firm, please contact:

• Nirmalee Wanduragala, Senior Director
• Josh Cameron, Managing Director
• Matthew Conway, Managing Director