So, big news in a mini Budget. Solvency II is being partly dismantled, which is interesting for large insurers, MGAs and brokers based in the UK. There are also new Investment Zones, where companies can ejoy tax and planning regulation breaks. Plus those build companies up and pay themselves a health salary can look forward to avoiding a 45% Income Tax.
The new legislation which replaces Solvency II will take some time to appear, but the mood music suggests capital requirements will be relaxed and it may be an opportunity for companies to place assets in things like Government backed Stablecoins, special ESG compliant bonds or triple A rated overseas investment funds as part of an overall range of liquidity back-up measures.
Here’s some comment & reaction;
Andy Briggs, Group CEO of Phoenix Group, comments;
“Today the Government has confirmed plans to bring forward reform that will look to enable more private sector capital to be directed by insurers into the real economy. With the right reforms, Phoenix is fully committed to investing significantly in illiquid assets and sustainable investments throughout the UK. We look forward to working closely with all stakeholders to ensure the proposed regulatory framework is in place as soon as is practicable, which would provide increased investment flexibility while not compromising our priority of policyholder protection in any way.”
“At the same time, we note with interest the creation of the new investment zones and the LIFTS fund, and hope to work with the local authorities and government on the details of the proposal. The plan to create new funds to support the development of pioneering science and technology in the UK will enable those investing for the long term, such as pension savers, to benefit from the potential of these important asset classes. Companies in these sectors are often high growth and many will be vital to delivering the innovative solutions needed to help tackle climate change and respond to the challenges and opportunities of living longer lives in the UK.”
Nicholas Hyett, Investment Analyst, Wealth Club said: “When it launched in 2012, the SEIS scheme allowed companies to raise a maximum of £150,000 and investors were able to invest up to £100,000 each year. It has done a fantastic job of matching up entrepreneurs with early-stage investors, but over the decade since its launch inflation slowly eroded the power of the scheme.
This left companies missing out on crucial additional early-stage funding. In real terms the SEIS funding available to businesses was as much as £42,000 less than when the scheme was founded – essentially depriving small companies of the equivalent of one full-time employee. Today the Chancellor has reversed that trend, not only restoring the scheme to where it was in 2012, but even adding a modest extension in real terms. This will be a significant boost for the very youngest companies in the UK.
The relatively low maximum investment, at £150,000 per company, has prevented many managers from operating in the SEIS space – because the fees earned on a successful investment didn’t justify the admin and due diligence involved. We would hope that the increase of the limit not only increases the resources existing managers have to offer small businesses, but encourages more to enter the market. Pair that with the increase in how much an individual investor can put into the scheme and the future for the UK’s very smallest businesses looks bright.”
Hannah Gurga, ABI Director General says:
“As our country faces the toughest economic climate in a generation, we welcome the move to focus on growth and making our economy one of the most competitive in the world. As the Chancellor recognised, more can be done to unlock investment and the insurance and long-term savings industry has a vital role to play as institutional investors.
We have long called for regulatory change to enable our sector to invest more in infrastructure that supports growth and the transition to Net Zero, and we look forward to hearing from the Government on Solvency II reform later in the autumn. We will continue to work with HM Government, regulators and our members to ensure this final plan meets everyone’s objectives.”
Gayatri Raman, President Europe and Asia of NYSE listed Clearwater Analytics:
“This mini-budget will be music to the ears of numerous insurers, who have been keeping a close eye on the progress of the Solvency II reforms. There is no doubt that the current requirements imposed by the EU have proven to be overkill in the eyes of many.
There is a view that insurers have been forced to hold a huge pile of cash which, until now, they have been unable to put to work elsewhere – such as on alternative investment projects like green infrastructure. Insurers looking to invest in such projects will need to have the capabilities in place to support more alternative investment strategies, in the search for higher yields.”
CBI RESPONSE TO CHANCELLOR’S FISCAL STATEMENT
Tony Danker, CBI Director-General, said:
“This is a turning point for our economy. Like Covid, the energy crisis has meant Government has had to spend massively to protect people and businesses. That means we have no choice but to go for growth to afford it.
“Today is day one of a new UK growth approach. We must now use this opportunity to make it count and bring growth to every corner of the UK. Fifteen years of anaemic growth cannot be repeated.
“Taking action to get Britain’s economy moving again by beginning construction on transport and green infrastructure projects shows immediate delivery. Planning reform is long overdue.
“A simpler, smarter approach to tax can pay dividends, and firms will be keen to make the most of the investment incentives on offer.
“It’s not perfect – it’s just the beginning – but there’s plenty business can work with. The Chancellor signalled more proposals to come this Autumn and these will be vital to sustain momentum on growth.”
Chieu Cao, CEO Mintago, said: “April’s National Insurance hike was poorly timed and ill-judged, so its reversal is both expected and welcomed. Businesses need support for their own financial health and the financial wellbeing of their employees, so the measures announced today, along with the energy price cap, feel like a step in the right direction.
“The danger, however, is that employers look only to Westminster for support, without first reviewing their own actions. Yes, state intervention will be required to ensure the survival of many SMEs, but the businesses themselves can be doing more in many instances.
“For one, they must consider how they are managing their finances – are they, for example, taking advantage of tax-efficient initiatives from HMRC like the salary sacrifice pension scheme (SSPS)? What’s more, employers must ensure they have robust plans in place to support staff through the cost-of-living crisis; sadly, at present, just 39% of UK companies do.
“Many employees are under huge financial strain, and many of the tax cuts announced today will do little to actually boost the take-home pay of lower earners. Employers, therefore, must step up their support, providing everything from financial advice to financial planning tools to help their staff navigate this testing climate. It is not for the Government alone to help people out of this crisis; businesses should embrace their responsibility and question what more they can do.”
Dr Henry Balani, Global Head of Industry and Regulatory Affairs for Encompass Corporation, said, “The Chancellor rightly underlined his commitment to enabling the UK financial services sector to remain competitive, offering a few hints that the government is set to announce more widespread regulatory changes in the coming months. All too often the debate around the impact of regulation is framed around either strengthening or scrapping existing rules. Not enough attention is given to the implementation process itself. For example, when it comes to tackling issues such as fraud and money laundering, technology platforms can play a crucial role in helping banks reduce risk and stay compliant.”
Khalid Talukder, co-founder, DKK Partners, a London-based emerging FX markets specialist said: “The constraints of the 2008 global financial crisis have kept the city of London on a leash for far too long. Overwhelming amounts of regulation and red tape has effectively chloroformed entrepreneurs and ambitious financial services firms, whilst rival cities have been set free to expand and grow without interference. These proposals will turbocharge the city and empower the wider UK economy and should have happened years ago.”
Daniel Layne, founder, and CEO of fintech QV Systems said, “It’s important to recognise that regulation plays a crucial role in protecting consumers and businesses from poor practices such as mis-selling, data loss, and fraud. Whilst proposals to roll-back some of these policies to liberate the city and drive economic growth are admirable, great care needs to be taken to mitigate any negative issues that may arise from these measures.
Layne continued, “Changes to regulation should be proportionate and considered, to avoid unintended harm to the long-term future of the financial services industry.”