Treasury officials have been hitting the phones to City firms over the past two weeks as Rachel Reeves prepares to deliver the government’s annual Mansion House speech to the financial services sector.
The backdrop is a fractious one for the Chancellor. While the Labour party built cordial ties with the Square Mile in the run up to the election, the mood has since soured on the back of the £40bn tax bill primarily targeted at business and the wealthy.
The Chancellor will now have a chance to lay out a more positive vision for the City’s role in the economy – but there are several areas where Reeves will need to demonstrate progress if she is to head off growing hostility.
Pension fund reform
Top of that list is reforming the UK’s pension sector and unlocking a wave of investment into private companies.
The plans have been at the heart of Reeves’s economic pitch since taking power. In her first address as Chancellor, she pledged to “turn to” the pension system to fund her growth plans, while she and the pensions minister, Emma Reynolds, kicked off a deepdive of the sector in September designed to free up investment.
A Treasury spokesperson said yesterday she will set out the “next steps on pension reform” at Mansion House to “unlock more private investment to fuel the government’s growth mission.”
At the heart of that reform is likely to be a move toward consolidating the UK’s fragmented £354bn local government pension schemes into larger pots of capital.
The move will be a continuation of the steps taken by her predecessor Jeremy Hunt, who last July laid out the Mansion House reforms, designed to funnel pension cash into more productive assets and start-ups.
Nick Lyons, the chairman of Britain’s biggest long term saving firm Phoenix, who masterminded the Mansion House Reforms while Lord Mayor of London, told City AM a move toward consolidation would be key.
“We are keen to see the outcome of the pension investment review and how the government will take reform forward, and more broadly, we want to see further measures that help UK pension funds invest in a wider range of assets for the benefit of our customers,” he said.
PISCES progress
The question of revitalising the UK’s capital markets has swung into frontline political debate since 2022, fuelled by a drop-off in IPOs and fears over the competitiveness of the London Stock Exchange.
One of the key corrective efforts launched by the previous government was the design of a hybrid public/private market framework called PISCES.
The aim of the market will be to allow investors to trade shares at structured intervals while boosting the potential pipeline of IPOs in the UK. While it was launched by Jeremy Hunt’s Treasury, the original timelines were unsettled by the election and City firms are awaiting the outcome of a consultation.
At a conference at the London Stock Exchange in September, City minister Tulip Siddiq said her government would press ahead with the plans. But City groups are calling for an update on progress.
“Policymakers and regulators have already made good progress in this regard, […] but more
could be done to focus on the interface between public and private sectors and engage with
industry on next steps for the PISCES,” lobby group, the CityUK, wrote in a letter to the Chancellor ahead of the Mansion House speech, seen by City AM.
The London Stock Exchange has drawn up plans for an “intermittent trading venue”, which will sit within the PISCES regulatory framework.
Growth in regulation
In one of the biggest shake-ups to City rules since the financial crisis, the previous government gave City watchdogs a secondary objective that required them to consider the growth of the economy and the competitiveness of the companies they regulate.
The plans signalled a step change in the philosophy governing financial rulemaking. But many in the City have since dismayed at the speed with which the objective has been taken on.
Rumours are growing in the City that the Chancellor will use her speech on Thursday to reveal plans for firmer oversight of watchdogs and ask for greater proof they are embracing their secondary mandate.
Reeves is reportedly expected to publish formal letters redefining the remit of the two main financial regulatory, the Financial Conduct Authority and Prudential Regulation Authority, around the time of the speech.
City group, UK Finance, wrote in City AM this week that ministers should also appoint a competitiveness champion to hold regulators to account on their secondary objectiveness.
“Such an appointment could augment the secondary competitiveness objective as well as the new regulatory remit letters,” David Postings, boss of UK Finance, said.
The Financial Conduct Authority (FCA)has faced fury over its plans to ‘name and shame’ firms
Digitise the City
Some 31 years after the London Stock Exchange tried – and failed – to digitise its shareholding system with the infamous £400m Taurus plan, the City is still propped up by paper.
A digitisation review, led by Sir Douglas Flint, provided its recommendations to parliament in 2023, but they are yet to be delivered. Central to the plans were the elimination of the use of paper share certificates for traded companies and considering whether digitisation can be extended to newly formed private companies.
Pressure is growing on the Chancellor to now take forward the plans at her speech on Thursday.
“Accelerate and implement the final recommendations of the Digitisation Taskforce, including any necessary primary legislation,” the CityUK wrote in its letter to the Chancellor.
Sir Douglas Flint led a digitisation review of the City
Investment research
While it is not seen as top of the agenda for the Treasury, similar disquiet is growing over the speed of delivery on a shake-up of the investment research landscape.
The investment research industry was inadvertently gutted by EU era regulation that forced asset managers to unbundle fees for investment bank research from their trading costs. The FCA this year tabled plans to row back on the bundling the rule.
While Hogan Lovells lawyer Rachel Kent turned around recommendations on how to revive the sector in double quick time at the behest of the former government, the speed in delivering on her recommendations has not matched.
At the heart of her plans was a research platform that would allow investors of all stripes to access professional analysis on listed companies. She told City AM while pension reform was rightly top of the agenda, “we need to set up the platform”.
“There is no need for government funding, except for some seed money, so that’s a no-brainer for me,” she said.