Rachel Reeves' Mansion House Speech – What It Means for UK Business and Investors

Mark Cunningham, Partner, said:

Rachel Reeves’ speech showed a clear push to get more people investing in UK companies. However, it is uncertain how much support will actually reach small and medium sized businesses.

While the Chancellor announced initiatives like the upcoming PISCES private share trading platform, Long-Term Asset Funds, and a new concierge service for overseas investors, the impact of these new initiatives on small and medium sized business is uncertain. Most of the retail investment drive is focused towards larger, listed companies. That’s understandable given the risk appetite of everyday investors, but it means that the investment is unlikely to flow into smaller businesses that are driving growth across the UK.

In particular, the lack of updates to critical SME funding schemes was noted as a missed opportunity. Rachel Reeves made no mention of reforms to the Enterprise Investment Scheme (EIS), Seed EIS or Venture Capital Trusts, all of which are important tools for encouraging higher risk, early-stage investment. This appears to be a missed opportunity. Updating these schemes, by raising company and investor caps, relaxing sector restrictions (such as including property development in some form), and improving liquidity could go a long way toward bringing in more funding for growth focused SMEs.

If the government wants to achieve sustainable growth they must make sure smaller businesses are not forgotten.

Pensions and Savings Reform – Uncertainty Remains

Tomm Adams, Partner, commented:

From a pensions and savings perspective the Chancellor has only hinted at future reforms to ISAs she is considering, suggesting that she may yet pursue the unpopular measure of reducing investment allowances in Cash ISAs as she encourages the nation’s savers to gamble on the stock market.

Rachel Reeves reconfirmed commitment to the Mansion House Accord of last year. A focus on value creation for pension savers is welcome, but there is hope she doesn’t crash the real value of pension savings through further punitive tax measures in October.

Inflation Risks and Interest Rates

Robert Salter, Director, concluded with:

While Rachel Reeves claimed credit for the 4 cuts in Bank of England interest rates in the last year, one of the impacts of her decision to increase employer National Insurance Contributions (NICs) is that it has helped push inflation back-up (ca. 3.5% currently).

There is a significant risk that the increase in inflation will diminish the Bank’s ability to reduce interest rates anymore over the coming months, as the Bank’s core focus is always on controlling the rate of inflation.

Call for Tax Reform to Boost UK Financial Services Competitiveness and Innovation

Gabby Donald, Partner, said:

The tax burden for Financial Service businesses is high and this makes the UK uncompetitive (see, for example, the international comparison in UK Finance’s banking sector tax report). Further, complex tax rules coupled with increasing uncertainty over HMRC’s policy and administration of taxes, such as VAT, create additional barriers to investment and growth.

The Government needs to seize the opportunity created by the uncoupling of UK VAT rules from EU VAT to modernise financial services VAT policy and create a legislative framework that can support the UK as a centre for innovation, e.g. Open banking and decentralisation, FinTech and cryptocurrency – this will be of increasing importance for the future growth and development of the sector.