The Chancellor’s Mansion House Speech

Dubbed the “Mansion House Reforms”, the plans outlined by Hunt will introduce changes to the UK pensions sector, capital markets, and wider financial services regulatory environment with the aim of unlocking funds for investment and making the UK a more attractive place to invest.

While the reforms formed the substantive element of the speech it was notable the Chancellor began his speech with a reiteration of the Government’s commitment to cutting inflation. This context was offered as a justification for controversial decisions around public sector pay and investment.

As an aside it is worth seeing how the Government are selling this to their base, describing the impact as potentially increasing a typical earner’s pension pot by 12% over their career.

The main takeaways for businesses from the speech are as follows:

1. The Government is consciously proposing an evolutionary series of reforms rather than a dramatic de-regulatory big-bang
2. The intention is for these reforms to increase investment and the attractiveness of UK markets but it is unlikely that these proposals will have any real effect on growth and the Conservative’s election chances by the time of the next election, given their timescales
3. There remains a lack of detail around reform of retained EU law and the ‘Brexit Dividend’, though changes to MIFID II unbundling are notable
4. The Government is continuing to focus on its ‘Smarter Regulation’ agenda as the crux of change for the city, shifting much of the responsibility for change onto Regulators and their approach
5. These reforms will be subject to significant consultation, dragging the process out but creating clear opportunities for businesses to influence the development of proposals if they can offer practicable improvements

More details on the specific proposals contained within the speech are provided below. The full speech can be seen here along with the Treasury briefing here.

Key Announcements

Regulatory principles

• The Mansion House Reforms’ approach to the pensions sector is guided by three “golden rules”:

1. 1. Securing the best possible outcome for pension savers
   2. Prioritising a strong and diversified gilt market
   3. Strengthening the UK’s position as a leading financial sector able to fund public services

The Mansion House Compact

• Nine of the UK’s largest pensions schemes have voluntarily committed to allocating 5% of assets in their default funds to unlisted equities by 20

• The Government believes that UK pension funds currently neglect high growth unlisted equities with the potential to deliver outsize returns

• The Members of the compact include Aviva, Scottish Widows, Legal & General, Aegon, Phoenix, Nest, Smart Pension, M&G, and Mercer

• These funds are clearly intended to be the spearhead of wider investment push with Hunt pointing out that if all defined contribution schemes signed up then this could potentially mobilise £50bn of investment by 2030

Local Government Pensions Schemes

• A consultation will be launched for Local Government Pension Schemes that will explore doubling existing investments in private equity to 10%, which could unlock £25 billion by 2030

• The Government will also be consulting on a proposed deadline of March 2025 for all Local Government Pension Scheme funds to transfer their assets into LGPS pools, with the aim of ensuring greater transparency and performance

• Targeting pools to exceed a value of £50bn

Defined Benefits Schemes

• There will be a consultation looking at introducing a permanent superfund regulatory regime to provide sponsoring employers and trustees with a new way of managing Defined Benefit liabilities

• There will be a further call for evidence looking at ole of the Pension Protection Fund and the part Defined Benefit schemes could play in productive investment ‘whilst securing members’ interests and protecting the sound functioning and effectiveness of the gilt market’

• A new Value for Money Framework which will make clear that investment decisions made by pension firms should be based on overall long-term returns and not simply costs

Capital Markets

• Hunt’s speech outlined plans to help the UK’s public markets

• He announced several changes to simplify the way UK markets work in a bid to make it more attractive for companies looking to list:

• Simplifying the rules for buying and selling shares by removing retained regulations such as the share trading obligation and the double volume cap

• A plan to make share certificates in public companies fully digital to make it simpler and cheaper for companies to manage their share registers

• A plan to simplify the prospectus documents companies have to publish when raising money from public investors

• The Chancellor also announced that the Government will be accepting the recommendation of Rachel Kent’s Research Review to create a new ‘Research Platform’ that will provide a one-stop-shop for firms looking for research experts

• These Government will also consider potentially removing the MiFID II unbundling rules that force providers to charge a separate fee for research

• Hunt announced his support for a new trading venue that will allow private companies to access capital markets without floating on a stock exchange, known as the ‘Intermittent Trading Venue’ it will be the first of its kind in the world

Deregulation

• Hunt also outlined measures to reduce regulation in an effort to make the UK a more attractive investment destination

• Plans were announced to axe nearly 100 pieces of “unnecessary, outdated and protectionist” EU legislation

Investment Vehicles

• The Chancellor’s speech also contained a promise to work with the British Business Bank to establish new investment vehicles

 

For further information please contact the team: publicaffairs@montfort.london