Rachel Reeves has unveiled a raft of reforms that she hopes will boost investment in the UK economy and therefore kickstart more growth. The “Leeds reforms” – which the Chancellor says “represent the widest set of reforms to financial services for more than a decade” – include tweaks to major banking rules, cutting red tape in the City, and urging more people to move cash out of savings accounts and into stocks and shares. It comes on the back of figures that suggested GDP dropped by 0.1% in May in a blow to Ms Reeves.
“It will now take something quite special for the UK to avoid an outright contraction in GDP in Q2, which doesn’t appear at all likely quite frankly given the perfect storm of downside risks,” Matthew Ryan, Head of Market Strategy at global financial services firm Ebury, said. “The government’s much maligned business tax increase is proving particularly damaging, as this is not only squeezing bottom lines, but clobbering Britain’s labour market, which is haemorrhaging jobs at a breakneck speed.”
Below is a full list of the reforms announced by the Chancellor this evening.
Individuals
A new advertising campaign will highlight the benefits of investing to individual consumers. Major banks and finance firms, including including Barclays, Lloyds, Vanguard and Hargreaves Lansdown, have agreed to take part in the campaign to help spread awareness.
Banks will be able to offer a new type of help called “targeted support” from April next year, meaning they can alert customers about specific investment opportunities, with a view to encourage groups of people with cash sitting in low-return current accounts to move it into stocks and shares.
Risk warnings on investment products will come under a review to ensure people can make accurate judgements about risk levels – potentially opening the door to some warnings being watered down.
Long term asset funds will be allowed to be held in stocks and shares ISAs next year.
The Government will continue to consider reforms to ISAs and savings to strike the right balance between cash savings and investment.
It comes after rumours swirled that the Chancellor was wanting to cut the tax-free limit of a cash ISA from £20,000 to £10,000 in a bid to get more money into stocks and shares.
Henrietta Grimston, Financial Planner at Saltus, said: “Reports that the Chancellor is now expected to consult on changes to the cash ISA allowance, rather than introduce immediate reform, will come as a relief to many savers.
“Clients with large cash ISA holdings aren’t typically chasing high returns, they are prioritising security, flexibility and peace of mind. For many, cash ISAs offer a simple and low-risk way to manage their savings without worrying about market volatility.”
Banks and building societies
Less strict lending rules will allow banks and building societies to offer more mortgages at 4.5 times a buyer’s income, which is expected to mean thousands more loans become available for first-time buyers.
The bank ring-fencing regime, which separates banks’ retail banking from their investment and international banking activities, will be reformed.
The Bank of England has raised the threshold at which smaller and mid-sized banks have to start holding emergency funding.
Easing capital requirements is expected to help smaller banks scale up by freeing up more money for lending and investment.
The City
The UK’s Financial Ombudsman Service – which settles complaints between consumers and businesses – will be modernised and simplified and decisions will be more aligned with the financial regulator.
Plans to ease rules around senior manager appointments will be sped up, reducing the number of roles that are subject to regulatory approval.
The regime was introduced after the 2008 financial crisis to make individuals more accountable for their conduct and any problems that arise under their watch.
Consumer Duty, a set of rules which set higher standards of consumer protection, will be reviewed by the UK’s financial regulator over how it applies to investment banks and asset managers.
