Rachel Reeves to bang the drum for Britain in visit to New York City and Toronto this week.
Chancellor to share her vision for growth and champion UK sectoral strengths across financial services, clean energy and infrastructure to investors and CEOs.
Trip to build momentum for the International Investment Summit on 14 October.
Chancellor Rachel Reeves has visited New York and Toronto this week with the message that Britain is open for business.
She met with CEOs and senior representatives from major players across the US and Canada’s foremost industries, highlighting that early steps taken by the government to fix the foundations and restore economic stability makes the UK an attractive destination for investment.
Chancellor of the Exchequer Rachel Reeves:“I’ve wasted no time in my first month in office in taking the difficult decisions necessary to fix the foundations of our economy, so we can rebuild Britain and make every part of the country better off.
“That means restoring economic stability so we can attract the investment needed to create good jobs, boost wages, and improve opportunity across Britain.
“There is no credible plan for growth without private sector investment. That’s why I’m breaking down barriers at home and banging the drum for Britain abroad as we gear up to host the International Investment Summit.”
While in New York, the UK’s first female Chancellor of the Exchequer met with Wall Street leaders and host a reception to celebrate women in finance.
The US is the UK’s biggest financial services trading partner, with UK exports to the US valued at £23.4bn annually. The sector is at the heart of the government’s core mission to deliver sustainable economic growth as a jewel in the crown of the UK economy and one of its success stories, contributing almost 10% of UK GVA and employing 1.2 million people.
In Toronto, the Chancellor met with names in the world of clean energy and infrastructure. The government’s mission to make Britain a Clean Energy Superpower will bring opportunities for economic growth whilst helping the UK meet its target of clean power by 2030.
That mission has started in earnest with the creation of Great British Energy to partner with the private sector and secure the investment needed to accelerate the transition, the sweeping away of barriers to onshore wind farms, and a record £1.5 billion budget for this year’s renewable energy auction to get Britain building green.
During her time in the US and Canada, Reeves has pointed out that the government has moved quickly to create a stable environment where businesses have the confidence to invest in the UK.
This has included reform of a planning system that has long frustrated investment, ending the ban on on-shore wind and the establishment of a National Wealth Fund, backed by £7.3 billion to catalyse further private investment in our world-leading green and growth industries of the future.
The UK is already Europe’s leading hub for investment, with UK markets raising more capital than the next two highest European exchanges combined in 2023.
The Chancellor visited North America with a renewed purpose to build upon this, with it being announced yesterday that Britain is to play host to the International Investment Summit on 14 October.
In doing so, Ms Reeves is looking to deepen the strong economic relationship between Britain and the two North American countries.
The United States is the largest source of foreign investment in the UK and the UK is the third largest investment destination for Canadian companies, whom invested more than $73 billion of FDI stock in 2021.
It ain’t pretty. But there’s also politics at play.
Rachel Reeves gave a statement to the House of Commons on what the government calls the “spending inheritance” (writes Fraser of Allander Institute’s JOAO SOUSA).
It’s important to make clear what this is and isn’t about. If you hear people saying that this is all to do with fiscal rules, that’s incorrect. We have highlighted many problems with them, but this statement is all to do with this year’s public finances, meaning 2024-25 – all the fiscal rules will apply to 2029-30, although there will be some knock-on effects into future years from these decisions.
Ultimately, this is only a partial fiscal statement – setting the scene for the Budget, the date of which has been announced for 30 October. It is a welcome return to normality in that there will be more than 10 weeks for the OBR to prepare its forecast.
The spending pressures and the ‘black hole’ – how does the Treasury calculate it?
Rachel Reeves said in her statement that pressures on public spending exceeded allocated funding by £35 billion. Some of this is additional spending from accepting the recommended pay awards from the Pay Review Boards in England, which are higher than the previous government had budgeted for.
Others come from areas like accommodation for asylum claimants, which the previous government had just assumed would come from the Home Office’s spending limit. Given that the Home Office’s total allocation is £21 billion, you can see why accommodating a pressure worth nearly a third the size of its envelope was not credible.
The Treasury had set aside £9 billion in reserve – a usual management practice for unforeseen circumstances during the course of the year, and which allows the government to plan in some budget cover for unspecified departments. This reduces spending pressures to £26 billion.
The Treasury also assumes that some of these pressures will either not materialise (they are pressures after all, not crystallised spending yet) or that some will be “managed away” – usually by playing hardball and forcing departments to find savings somewhere else.
Ever wondered why the Home Office keeps putting fees for anything to do with visas and passports? The Treasury allows them to deduct it against their budget (fees are classified in Estimates as “negative spending”, for the fiscal aficionados) and it’s the quid pro quo of accepting responsibility for the financial risk for spending pressures.
There are a few rounds of this over the course of the year, and by the time of Supplementary Estimates – usually mid-February – the Treasury and other departments essentially have a stare-down contest, which tends to end up with both sides conceding somewhat, and so the Treasury assumes something about its ability to do that – what is called ‘fallaway’ in the document. This amounts to £7.1 billion, and bring estimated pressures down to £19 billion.
The Treasury then adds back £2.9 billion to get to what they call “total pressures”, because this is how much the OBR assumes that the UK Government will underspend its limits by. Essentially, the OBR assumed actual spending would be £2.9 billion lower than the limits; given that pressures on the Treasury side are relative to the limits, this amount needs added to get to the total pressures compared with the OBR forecast.
This ‘Treasury maths’ is all fine – but what does this mean in practice?
This statement only looked at the spending side of the ledger, comparing what had been budgeted for with what the most recent view of spending plans is. It’s actually quite consistent with the latest data from the ONS as well, which when compared with the OBR’s forecast and extrapolated for the rest of the year, would suggest that consumption spending (mostly comprising of departmental spending) is running around £20 billion higher than expected in March.
Faced with this, the Chancellor has several options: she can let borrowing increase – which would happen automatically if she accommodated pressures; she can reallocate spending from other areas to combat pressures; she could raise taxes; or a combination of the three.
The immediate signal appears to be that the Chancellor is not prepared to just borrow the additional £22 billion. She has committed to £5.5 billion in savings this year: £1.4 billion coming from means-testing winter fuel payments to pensioners, with most of the rest coming from as-yet not fully specified ‘efficiencies’: out of the £3.2 billion pencilled in, just £0.9 billion are itemised.
This is a legitimate criticism of the plans – these savings are hard to deliver and can’t just be magicked into existence. Although the same (or even more) could be said about the fantasy £20 billion in productivity improvements that Jeremy Hunt claimed he had delivered in his response.
But this still leaves around £16 billion to cover. Rachel Reeves left the door open to some tax rises – she said she would not increase any of the headline rates of income tax, National Insurance contributions, VAT or corporation tax, but that still leaves room for base-broadening reforms and increases in other taxes.
We’ll have to wait until the Autumn to see how much of this additional £16 billion will be covered by tax rises, and to what extent the Chancellor will accommodate some additional borrowing. A combination of the two seems likely.
Did Jeremy Hunt or the Treasury hide this?
The more politically heated debate was the extent to which there was some sort of hiding of the ugly truth of what spending pressures looked like in March, at the time which the OBR included the Treasury’s plans in the forecasts for the public finances.
Richard Hughes, Chair of the OBR, wrote a letter to the Treasury Committee announcing a review of the “adequacy of the information and the assurances provided to the OBR by the Treasury regarding departmental spending.”
This is a pretty strongly worded letter, and in my view – as someone who was included in the scrutiny of these spending plans – reflects long-standing frustrations of OBR officials and commissioners about their inability to fully assess the credibility of spending plans.
The Chancellor announced she would be updating the Charter for Budget Responsibility to include the sharing information on ‘immediate spending pressures’ with the OBR. This sounds like a good idea, right? So good that in fact it already is in place, and is provided in legislation by compelling the Government to make available to the OBR essentially any information that is relevant for the preparation of the forecasts.
And the Treasury does share this, in my experience – although with some prompting required at times. Ultimately, the biggest issue here is more political and less tractable than the Chancellor let on, and reflects what former commissioner Andy King wrote earlier in the year.
The OBR is really in a bit of a bind, having to reflect spending policy which is set at a very aggregate level and which it cannot opt out of including in the forecasts. If it did, it would be the nuclear option – it would cause a breakdown in the institutional framework between it and the Treasury.
This is quite a difficult institutional arrangement, and there’s probably no single solution that would solve that. But I do think that a bigger focus on economic categories such as pay, procurement and other elements – much like Andy King’s suggestion – would be helpful in increasing scrutiny and understanding of the underpinnings of the forecast.
I would go further in suggesting doing this for the largest departments as well as the overall central government sector – which would allow further scrutiny in terms of understanding what’s being planned for different areas in the face of an ageing population.
This is an area where the Treasury’s lack of interest and buy-in into providing always struck me as odd and self-defeating. Of course it might unearth some difficult trade-offs, but it is also what a responsible workforce planning authority should be doing anyway. And in any case, to govern is to choose – and all of us members of the public would benefit from having access to better information on this.
That alone would be enough to make it worthwhile keeping the pressure on the Treasury to agree to provide this.
Brace yourselves: a spending review is coming
The Chancellor also provided some much needed clarity in terms of the spending review timetable. We now know that what is essentially an interim 1-year review will be concluded alongside the Budget on 30 October, where 2025-26 budgets will be set.
The spring of 2025 will see a welcome return to multi-year budgeting, with a full spending review covering at least three of the five forecast years. There will also be a requirement for a spending review every two calendar years, bringing a much-needed default assumption about the frequency of these exercises. They had become progressively ad hoc, and it will be up to the Government to show it does indeed comply with its own set of timetables.
Implications for the Scottish Government
A few things stand out in terms of what this means for the Scottish Government. In terms of timings, we now know when the UK Budget will be and that it will come alongside a block grant settlement for 2025-26, a pre-condition for the Scottish Budget.
This means we are likely to see the Cabinet Secretary for Finance appearing in the Debating Chamber to deliver the Budget Statement in late November or early December – hopefully avoiding the difficulties the Finance Committee had in scrutinising the Budget last year due to proximity to recess.
In the case of most of the measures announced, the direct impact on the Scottish Budget might be relatively limited, though we’ll have to wait until 30 October to be sure. A non-negligible proportion of the accommodated pressures will come from reductions in other spending areas – most of those reallocations would not change budget totals, although composition matters for Barnett consequentials.
If there is increased borrowing to allow for some of this additional spending, then there might be some added funding for Scotland.
But where there is an immediate prospect of a decision for the Scottish Government to make is on winter fuel payments (or pension age winter heating payments, as they are now known in Scotland). This is now a devolved benefit, and the Scottish Government gets an additional block of funding on the basis of equivalent in England and Wales, worth around £180 million.
With eligibility being restricted, the transfer from Westminster will be reduced, and it will therefore be for the Scottish Government to decide whether it follows the UK Government in changing eligibility or whether it wants to maintain universality and therefore needs to find additional funds for it.
Age Scotland is urging the UK government to reconsider plans to scrap the winter fuel payment for pensioners who do not receive pension credit.
Scotland’s charity for older people has said the move will push tens of thousands of low income pensioners in Scotland further into poverty, and puts some of the poorest older people at greater risk of ill-health and burgeoning debt.
The Chancellor, Rachel Reeves, announced the decision to means test the winter fuel payment – which is worth up to £300 a year for those of state pension age – on Monday. Anyone who does not receive, or claim, pension credit will no longer get the payment aimed at helping older people with fuel bills over the coldest months.
Katherine Crawford, chief executive of Age Scotland, said: “This move will effectively take money away from some of the lowest income pensioners in Scotland.
“There are currently more than 150,000 pensioners living in poverty in this country, and we know that many more are living on incomes just above the pension credit threshold. They will now miss out on a payment which could help them heat their homes and stay warm over winter.
“I would urge the UK government to look again at this decision, which affects older people who are already struggling with the high cost of living and will now face being worse off at a time they desperately need support.
“Already we are getting calls to our helpline from older people who are distressed by the announcement and worried about what lies ahead. I would call on anyone in that position to get in touch with our free helpline on 0800 12 44 222 where our advisers can carry out a full benefits’ check to ensure that you are getting everything you are entitled to.
“We know that around 123,000 pensioners in Scotland who are eligible for pension credit are not claiming it – and they are some of the people who are going to be worst affected when the payment is withdrawn. Just 140,000 pensioners do claim pension credit, which leaves many thousands losing out who really cannot afford to do so.
“The winter fuel payment is due to be devolved to the Scottish Government and our hope is that it will be restored as a universal benefit, particularly in light of the fact that Scotland does generally experience worse weather than other parts of the UK and more than half of those who receive it use it as an important part of winter budgeting.
“Keeping or reinstating the winter fuel payment will also ensure that money is going to those who need it most, when they need it most.”
The Scottish Government has also expressed ‘disappointment’ at Rachel Reeves decision.
Social Justice Secretary Shirley Ann Somerville said: “The Chancellor’s decision to means-test Winter Fuel Payment is disappointing and was made without consultation or discussion with the Scottish Government.”
The UK Government has set out the next steps for tax measures from the manifesto on which the Government was elected, including policies to close tax loopholes and tackling tax avoidance.
This is to provide taxpayers with certainty ahead of their final confirmation at the Budget on 30 October 2024.
Further details on all policies including costings will be published at the Budget, and will be certified by the Office for Budget Responsibility.
Ending tax breaks for private schools and raising revenue to fund state education priorities
The Government is publishing a technical note setting out its plan to introduce 20% VAT on education and boarding services provided by UK private schools from 1 January 2025.
o 20% VAT will also apply to pre-payments of fees for terms starting on or after 1 January 2025 made on or after 29 July 2024.
Over 94% of school children in the UK attend state schools and ending the tax breaks on VAT and business rates for private schools will secure additional funding to help recruit 6,500 new teachers and roll out breakfast clubs to all primary schools.
These changes will not impact pupils with the most acute special educational needs, where their needs can only be met in private schools. Where pupils’ places in private schools are being funded by local authorities (LAs) because their needs can only be met in private school (e.g. in England, where attendance at that private school is required by a child’s Education, Health and Care Plan (EHCP), LAs will be able to reclaim the VAT so it does not apply to those fees.
This change will only apply to tuition fees and boarding fees charged by private schools. The VAT treatment of other services or goods provided by private schools – such as nursery care, wrap-around childcare, school meals and holiday clubs, and part time classes operated by third parties within schools – such as music and drama clubs and Sunday schools – will not change. The VAT treatment of state boarding fees will also continue to be exempt from VAT.
The government will also end business rates relief for private schools. This change means private schools in England will no longer be eligible for charitable rates relief and will pay their full business rates liability. This is intended to take effect from April 2025, subject to Parliamentary passage.
The VAT changes will be legislated for in the Finance Bill introduced following the Budget. The business rates changes will be legislated for through a Local Government Finance Bill led by the Ministry for Housing, Communities, and Local Government (MHCLG).
Non-Doms: Removing domicile status from the tax system and implementing a new internationally competitive residence-based regime
The Government is committed to addressing unfairness in the tax system, so that everyone who makes their home in the UK pays their taxes here.
That is why the Government will remove the outdated concept of domicile status from the tax system and replace it with a new internationally competitive residence-based regime, focused on attracting the best talent and investment to the UK.
A policy note has been published to set out the government’s plan to end the use of offshore trusts to avoid inheritance tax and scrapping the 50% tax reduction on foreign income in the first year of the new regime.
From April 2025, anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains (FIG), as is the case for other UK residents. This is a simpler and clearer test, with less scope for ambiguity than the current regime.
New arrivals to the UK will benefit from 100% UK tax relief on their FIG for their first four years of tax residence, provided they have been non-resident for the last 10 years. This is more attractive than the current approach, as they will be able to bring FIG into the UK without attracting an additional tax charge, encouraging them to spend and invest these funds in the UK.
To support transition and provide time for adjustment, a Temporary Repatriation Facility (TRF) will be available for individuals to bring pre-6 April 2025 FIG held offshore into the UK at a reduced rate of tax, to encourage these funds to be spent and invested in the UK.
Behavioural impacts and costings will be published at the Budget.
Energy Profits Levy
The Government is publishing a policy document that confirms its intention to increase the rate of the Energy Profits Levy (EPL) by three percentage points to 38% from 1 November 2024.
The levy will also be extended from 31 March 2029 to 31 March 2030.
The Government will remove unjustifiably generous investment allowances from the EPL, starting by abolishing the levy’s core investment allowance from 1 November. The decarbonisation allowance will be retained.
The Government will reduce the generosity of capital allowances (including First Year Allowances) when calculating EPL profits – providing further details on these changes at Budget.
The Energy Security Investment Mechanism will remain, helping to provide operators and their investors with confidence the levy will no longer apply if prices fall to, or below, historically normal levels for a sustained period.
Further details on the Government’s approach to all allowances in the EPL, and costings, will be set out at the Budget.
The Government recognises the importance of providing the oil and gas industry with long-term certainty on taxation after a period of change. The government will work with the industry and others to develop and implement a successor regime for responding to price shocks after the EPL ceases.
The UK Government is also:
Publishing a call for evidence confirming its intention to take action against the carried interest loophole, and to form the basis for detailed engagement with expert stakeholders.
o Carried interest is a form of performance-related reward received by fund managers, primarily within the private equity industry.
o Reforms will ensure fairness, whilst also recognising the vital role that our world-leading asset management industry plays in channelling investment across the UK.
Tackling the tax gap. Reforming the tax system by making policy changes to simplify tax, close loopholes and reduce non-compliance, designing out non-compliance before it happens. At the Budget, the government will provide an update on the implementation and development of measures that form its plan to close the tax gap.
The government will invest in HMRC’s compliance work, hiring around 5,000 additional staff to recover more tax revenues. HMRC has already started the process of recruiting additional staff into compliance roles.
The government will also invest in HMRC’s technology infrastructure, helping to make HMRC more efficient and improve taxpayers’ experience of interacting with HMRC.
Chancellor reveals £22 billion of unfunded pressures inherited from the previous Government
Findings of a Treasury spending audit reveal £22 billion of unfunded pledges inherited from the previous Government this year.
Chancellor takes “difficult decisions” to find £5.5 billion of savings this year and £8.1 billion next year.
A set of non-negotiable fiscal rules will be confirmed at Budget on 30th October, alongside further difficult decisions on tax and spending.
Finalised departmental budgets for this financial year and the next will be confirmed in October and a multi-year Spending Review will conclude in Spring 2025 to embed mission-led government and transform public services.
Addressing the House of Commons today (Monday 29th July) the Chancellor pledged to ‘restore economic stability’ after revealing £22 billion of unfunded pressures inherited from the previous Government.
Findings from a Treasury audit commissioned by the Chancellor expose billions of pounds of unfunded commitments from the previous Government, including the Rwanda scheme, the Advanced British Standard and the New Hospital Programme.
The previous Government also failed to increase Departmental budgets to cover public sector pay settlements, which were £11-12 billion higher than accounted for at the last Spending review. All of which were made on top of pressures resulting from higher inflation, increased asylum costs and funding for Ukraine.
Taking immediate action, the Chancellor announced £5.5 billion of savings this year and £8.1 billion next year to tackle the overspend. She also commits to set out full fiscal plans, alongside a Spending Review, at the Budget on 30th October.
Chancellor of the Exchequer, Rachel Reeves said: “This is not the statement I wanted to give today, and these are not the decisions I wanted to make. But they are the right decisions in difficult circumstances.”
The difficult decisions taken by the Chancellor have secured savings including over £1 billion next year, rising to over £4 billion by 29/30 by not proceeding with the previous government’s unfunded adult social care charging reforms.
Around £1.5 billion will be saved per year by targeting Winter Fuel Payments meaning households with someone aged over State Pension age receiving Pension Credit, Universal Credit, Income Support, income-based Jobseeker’s Allowance and income-related Employment and Support Allowance will continue to receive Winter Fuel Payments. This will better target support for heating costs at those who need it.
Immediate savings include £800 million this year and £1.4 billion next year from scrapping the Rwanda migration partnership and scrapping retrospection of the Illegal Migration Act, £70 million this year by cancelling the Investment Opportunity Fund and other small projects, £185 million next year from cancelling the Advanced British Standard and £785 million next year from stopping unaffordable road and railway schemes.
The Chancellor also announced a review of the underdelivering New Hospital Programme.
To provide certainty for public sector workers and help put an end to devastating strikes costing billions of pounds, the Chancellor accepted the independent Pay Review Body recommendations and confirm pay uplifts averaging 5.5% for public sector workers.
To ensure that no Government is faced with a spending cliff-edge like this again the Chancellor set out plans to ensure Spending Reviews are set every two years to cover a three-year period, with a one year overlap with the previous Spending Review, helping build in greater certainty and stability over public finances.
Transparency over in year spending pressures will also be enhanced, with more information being provided to the OBR. In the House the Chancellor also re-committed to a single major fiscal event a year.
The Chancellor also outlined long-term plans to tackle unacceptably high levels of welfare fraud and error as well as addressing falling public sector productivity and a new Office of Value for Money.
During her statement the Chancellor outlined next steps in delivering tax commitments from the manifesto, to provide taxpayers with certainty ahead of their final confirmation at the Budget.
This includes ending the VAT tax breaks for private schools from 1 January 2025 to help recruit 6,500 new teachers, as well as replacing the outdated non-domicile regime with a new internationally competitive residence-based regime.
As also set out in the manifesto, the Chancellor confirmed plans for the Energy Profits Levy to be extended one year to 31 March 2030, have its investment allowances tightened and to increase the rate of the levy by three percentage points to 38% from 1 November 2024.
A call for evidence confirming the government’s intention to take action on the carried interest loophole has also been published, as well as a commitment to update on policies at the Budget to help close the tax gap further.
Further details for all tax policies, including costings certified by the Office for Budget Responsibility, will be published at the Budget.
Chancellor of the Exchequer Rachel Reeves statement to the House of Commons on 29/07/2024:
Mr Speaker, on my first day as Chancellor of the Exchequer, I asked Treasury officials to assess the state of public spending.
That work is now complete, and today I am presenting it to this House.
In this statement, I will do three things.
First, I will expose the scale – and the seriousness – of what has been uncovered.
Second, I will lay out the immediate action we are taking to deal with the inheritance.
And third, I will set out our longer-term plans to fix the foundations of our economy.
Let me take each of these in turn.
First, the inheritance.
Before the election, I said that we would face the worst inheritance since the Second World War.
Taxes at a seventy year high.
Debt through the roof.
An economy only just coming out of recession.
Mr Speaker, I knew all those things.
I was honest about them during the campaign.
And the difficult choices it meant.
The British people knew them too.
That is why they voted for change.
But upon my arrival at the Treasury three weeks ago, it became clear that there were things I did not know.
[Redacted political content]
That is why we are today publishing a detailed audit of the real spending situation, a copy of which will be laid in the House of Commons Library.
I want to take the opportunity to thank Treasury officials for all their work in producing this document.
Let me explain what it has uncovered.
Mr Speaker, the government published its plans for day to day departmental spending at the Spring Budget in March.
But when I arrived at the Treasury…
… on the very first day…
… I was alerted by officials that this was not how much the previous government expected to spend this year.
Not even close.
In fact, the total pressure on these budgets across a range of areas was an additional £35bn.
Once you account for the slippage in budgets you usually see over a year…
… and the reserve of £9bn to deal with genuinely unexpected events…
… it means, Mr Speaker, that I have inherited a projected overspend of £22bn.
A £22bn hole in the public finances now – not in the future.
[Redacted political content]
If left unaddressed it would have meant a 25% increase in the government’s financing needs this year, pushing gilt issuance further into record highs outside of the pandemic.
So I will today set out the urgent work I have already done to reduce that pressure on the public finances by £5.5bn this year and over £8bn next year.
And let me be clear: I am not talking about bills for future years they signed up to but did not include, like the compensation for infected blood.
I am not talking about the state of public services in the future, like the crisis in our prisons, which they have left for us to fix.
I am talking about the money they were spending this year and had no ability to pay for…
[Redacted political content]
Resulting in the position that we have now inherited:
The reserve, spent three times over only three months into the financial year.
[Redacted political content]
Mr Speaker, the scale of this overspend is not sustainable.
Not to act is simply not an option.
We have already seen official ONS figures this month showing borrowing is higher this year than the OBR expected. [Redacted political content]
[Redacted political content]
There are very clear instances of specific budgets that were overspent…
… and unfunded promises that were made…
…but that, crucially, the OBR were not aware of for their March forecast.
I will now take each of those instances in turn.
First, the asylum system.
The forecast for the number of asylum seekers has risen dramatically since the last Spending Review, and costs for asylum support have risen sevenfold in the last three years.
But instead of reflecting those costs in the Home Office budget for this year, the previous government covered up the true extent of the crisis and its spending implications.
The document I am publishing today reveals a projected overspend on the asylum system, including their failed Rwanda plan, for this year alone of more than £6.4bn.
That was unfunded and undisclosed.
Next, in the wake of the pandemic, demand for rail services fell.
But instead of developing a proper plan to adjust for this new reality, the government handed out cash to rail companies to make up for passenger shortfalls, but failed to budget for this adequately.
Because of that, and because of industrial action, there is now an overspend of £2.9bn in the transport budget.
That was unfunded and undisclosed.
Mr Speaker, since 2022, the government – with the support of this whole House – has rightly provided military assistance to Ukraine in response to the Russian invasion.
The spending audit has found that there was not enough money set aside in the reserve to fund all these costs.
We will continue to honour these commitments in full.
[Redacted political content]
On top of these new pressures, since 2021, inflation was above the Bank of England’s target for 33 months in a row – hitting 11% at its peak.
But the government has not held a Spending Review since 2021.
That means they never fully reflected the impact of inflation in departmental budgets.
This had a direct impact on budgets for public sector pay.
When the last Spending Review was conducted, it was assumed that pay awards would be 2% this year.
Ordinarily, the government is expected to give evidence to the Pay Review Bodies on affordability.
But extraordinarily, this year, the previous government provided no guidance on what could or could not be afforded to the Pay Review Bodies.
This is almost unheard of.
But that is exactly what they did.
[Redacted political content]
I will not repeat their mistakes.
Where the previous government provided no transparency to the public, and no certainty for public services…
… we will be open about the decisions which are needed…
… and the steps we are taking.
That begins with accepting in full the recommendations of the independent Pay Review Bodies, and the details of these awards are being published today.
That is the right decision for the people who work in and most importantly the people who use our public services…
… giving hardworking staff the pay rise they deserve…
… while ensuring we can recruit and retain the people we need.
It should not have taken this long to come to these decisions.
And I do not want us to be in this position again.
So, I will consider options to reform the timetable for responding to the Pay Review Bodies in the future.
This decision is in the best interests of our economy too.
The last government presided over the worst set of strikes in a generation.
This caused chaos and misery for the British public.
And it wreaked havoc on the public finances.
Industrial action in the NHS alone cost the taxpayer £1.7bn last year.
That is why I am pleased to announce today that the Government and the BMA have agreed an offer to the Junior Doctors, on which my RHF the Health Secretary will set out further details.
And let me pay tribute today to my RHF, whose leadership on this issue has paved the way to ending a dispute which has caused waiting lists to spiral, operations to be delayed and agony for patients to be prolonged.
Today marks the start of a new relationship between the government and staff working in our National Health Service – and the whole country will welcome that.
Mr Speaker, where the previous government ducked the difficult decisions, I am taking action.
Because knowing what they did about the state of the public finances, they continued to make unfunded commitment after commitment that they knew they could not afford.
[Reacted political content]
Leaving us with an overspend of £22bn this year.
Where they presided over recklessness, I will bring responsibility.
I will take immediate action.
Let me set this out in detail.
First, pay.
I have today set out our decision to meet the recommendation of the Pay Review Bodies.
Because the previous government failed to prepare for these recommendations in departmental budgets, they come at an additional cost of £9bn this year.
So, the first difficult choice I am making is to ask all departments to find savings to absorb as much of this as possible…
… totalling at least £3bn.
To support departments as they do this, I will work with them to find savings ahead of the Autumn budget…
… including through measures to stop all non-essential spending, such as on consultancy and government communications.
And I am asking departments to find 2% savings in their back-office costs.
I will now deal with a series of commitments made by the previous government which they did not fund.
Because if we cannot afford it, we cannot do it.
First, [Redacted political content] the former Prime Minister announced the introduction of a new qualification: the “Advanced British Standard”.
That is a commitment costing nearly £200m next year, rising to billions in future years.
Mr Speaker, this was supposed to be the Prime Minister’s legacy.
But it turns out, he didn’t put aside a single penny to pay for it.
So we will not go ahead with that policy.
Because if we cannot afford it, we cannot do it.
Next, the Illegal Migration Act, passed by the previous government, made it impossible to process asylum applications or remove people who have no right to be here.
[Redacted political content]
We need a properly controlled and managed asylum system where rules are properly enforced so that those with no right to be here are swiftly removed.
So we have scrapped their failed Rwanda scheme, which placed huge pressure on the Home Office budget.
To bring down these costs as soon as possible, my RHF the Home Secretary has already laid legislation to remove the retrospective element of the Illegal Migration Act…
… which will significantly reduce the use of hotel accommodation.
These measures will save nearly £800m this year and avoid costs spiralling even further next year.
This was a bad use of taxpayers’ money and we will not do it.
Mr Speaker, the previous government claimed it was “levelling up” our country.
[Redacted political content]
At Autumn Statement last year, the former Chancellor announced nearly £150m for an “Investment Opportunity Fund”.
But not a single project has been supported from the Fund.
So, following discussions with my RHF the Deputy Prime Minister, I am cancelling it today.
The previous government also made a series of commitments on transport.
Promises that people expected to be delivered.
[Redacted political content]
We have seen from the National Audit Office the chaos that the previous government presided over.
Projects over budget and delayed again and again.
The spending audit has revealed nearly £800m of unfunded transport projects that have been committed next year.
So my RHF the Transport Secretary will undertake a thorough review of all these commitments.
As part of that work, she has agreed not to move forwards with projects that the previous government refused to publicly cancel, despite knowing full well they were unaffordable.
That includes proposed work on the A303 and the A27…
… and my RHF will also cancel projects in the “Restoring our Railways” programme which have not yet commenced.
If we cannot afford it, we cannot do it.
Mr Speaker, the previous government had plans for a retail sale of Natwest shares.
We intend to fully exit our shareholding in NatWest by 2025-26.
But having considered advice I have concluded that a retail share sale offer would involve significant incentives that could cost taxpayers hundreds of millions of pounds.
It would therefore not represent value for money, and it will not go ahead.
This is a bad use of taxpayers’ money and we will not do it.
Next, let me address the unfunded pressures in our NHS and our social care sector.
In October 2020, the government announced that 40 new hospitals would be built by 2030.
Since then, only 6 have started their main construction activity.
And less than half of the 40 hospitals have even started construction.
The National Audit were clear that delivery was wildly off track.
But since coming into office, it has become clear that the previous government continued to maintain its commitment to 40 hospitals…
… without anywhere close to the funding required to deliver them.
[Redacted political content]
We need to be straight with the British people about what is deliverable and what is affordable.
So we will conduct a complete reset of the New Hospitals Programme, with a thorough, realistic and costed timetable for delivery.
Mr Speaker, adult social care was also neglected by the previous government.
The sector needs reform to improve care and to support staff.
In the previous parliament, the government made costly commitments to introduce adult social care charging reforms.
But then, they pushed them back repeatedly…
… including just two years ago…
… because they knew that local authorities were not ready…
… and that their promises were not funded.
So it will not be possible to take forward these charging reforms. This will save over £1bn by the end of next year.
Mr Speaker, the previous government made commitment after commitment without knowing where the money was going to come from.
They did this repeatedly, knowingly and deliberately.
[Redacted political content]
And I am taking the first steps to clean up what they have left behind.
But the scale of the inheritance we have been left, means the decisions we have so far announced will not be enough. This level of overspend is not sustainable.
It therefore falls to us to take further difficult decisions on spending that generate in year savings.
Mr Speaker, the last Labour government lifted over one million pensioners out of poverty.
And I repeat today the commitment we gave that we will protect the Triple Lock.
But the scale of the situation we are dealing with means incredibly tough choices.
So that is why today, I am making the difficult decision that those not in receipt of Pension Credit will no longer receive the Winter Fuel Payment from this year onwards.
The Government will continue to provide Winter Fuel Payments worth £200 to households receiving Pension Credit…
… or £300 for households in receipt of Pension Credit with someone aged over 80.
Let me be clear: this is not a decision I wanted to make.
Nor is it one that I expected to make.
But it is a necessary and urgent decision I must make – It is the responsible thing to do to fix the foundations of our economy and bring back economic stability.
Alongside this change, I will work with my Right Honourable Friend the Work and Pensions Secretary to maximise the take up of Pension Credit by…
… bringing forward the adminstration of Housing Benefit and Pension Credit, pushed back by the previous government…
… and working with older peoples’ charities and local authorities to raise awareness of Pension Credit, and help identify households not claiming it.
Mr Speaker, this is the beginning of a process, not the end.
I am announcing today that I will hold a Budget on October 30th alongside a full economic and fiscal forecast from the Office for Budget Responsibility.
I have to tell the House that Budget will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax. [Redacted political content]
It will be a Budget to fix the foundations of our economy.
And it will be a Budget built on the principles that this new government was elected on.
First, we will treat taxpayers’ money with respect by ensuring that every pound spent is well spent…
… and we will interrogate every line of public spending to ensure it represents value for money.
Second, I can repeat – from the despatch box – our manifesto commitment that we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.
And today my Right Honourable Friend the Exchequer Secretary is publishing further detail on our manifesto commitments to close tax loopholes and clamp down on tax avoidance…
… to ensure we bring that money in as quickly as possible.
My third principle is that we will meet our fiscal rules.
We will move the current budget into balance…
… and we will get debt falling as a share of the economy by the end of the forecast.
These are the principles that will guide me at the Budget.
But let me be honest: challenging trade-offs will still remain.
So today I am also launching a multi-year Spending Review.
The review will set departmental budgets for at least three years, providing the long-term certainty that has been lacking for too long.
As part of that process, final budgets for this year and budgets for next year – 2025-26 – will be set alongside the Budget on 30th October.
I will look closely at our welfare system…
… because if you can work, you should work.
That is the principle of this government.
Yet under the previous government, welfare spending ballooned while inactivity has risen sharply in recent years.
So we will ensure the welfare system is focused on supporting people into employment…
… and we will assess the unacceptable levels of fraud and error in our welfare system, and take forward action to bring that down.
Mr Speaker, to fix the foundations of our economy, we must ensure that never again can a government keep from the public the true state of our public finances.
The fiscal framework which I have inherited had several flaws.
It allowed the government to run down the clock on departmental budgets…
… avoid difficult decisions
[Redacted political content]
So I am announcing the most significant set of changes to our framework since the inception of the Office for Budget Responsibility, which will come into effect this Autumn.
First, we have introduced legislation to ensure every significant and permanent tax or spending announcement must be accompanied by an OBR forecast through our “fiscal lock”, so we can never again see a repeat of the mini-budget.
Second, we will require the Treasury to share with the Office for Budget Responsibility its assessment of immediate public spending pressures, and enshrine that rule in the Charter for Budget Responsibility…
… so no government can ever again cover up the true state of the public finances.
And finally, we will ensure that never again do public service budgets get set at only a few months’ notice.
Instead, Spending Reviews will take place every two years, with a minimum planning horizon of three years, to avoid uncertainty for departments and to bring stability to the public finances.
I have already spoken to the Chair of the Office for Budget Responsibility to brief him on the findings of our audit and our reforms.
He has welcomed those, and will initiate his own review into the information provided to the OBR by the Treasury ahead of the Spring Budget. The Treasury stands ready to support this work.
Mr Speaker, by launching the Spending Review I am also today firing the starting gun on a new approach to public service reform to drive greater productivity in the public sector.
We will embed an approach to government that is…
… mission-led…
… that is reform driven, with a greater focus on prevention and integration of services, at both a national and a local level..
… and that is enabled by new technology, including through the work of my RHF the Secretary of State for Science, Innovation and Technology on the opportunities of AI to improve our public services.
And we will establish a new Office of Value for Money, with an immediate focus on identifying areas where we can reduce, stop or improve the value of spending….
… and we will appoint a Covid Corruption Commissioner, to bring back money owed to taxpayers after contracts worth billions of pounds were handed out by the previous government during the pandemic.
Ahead of the Spending Review, I will also review the cost of our political system, including restricting eligibility for ministerial severance payments based on time in office.
I expect all levels of government to be run efficiently and effectively and I will work with leaders across our country to deliver that.
That means effective local government …
… a civil service delivering good value for the British taxpayer…
… and reform of our political institutions, including the House of Lords, to keep costs as low as possible.
The Budget and Spending Review will also set out further progress on our number one mission: to grow our economy.
Because economic growth is the only way to sustainably improve our public services and sustainably improve our public finances.
So we will use the Spending Review to prioritise specific areas of capital investment that leverage in billions more in private investment.
It won’t happen overnight.
It will take time and it will take focus.
But we have already made significant progress.
Planning reforms to get Britain building.
A National Wealth Fund to catalyse private investment
A pensions investment review to unlock capital for our businesses.
Skills England to create a shared national ambition to boost skills across our country.
And work across government on a new industrial strategy…
… driven forward by a Growth Mission Board to ensure we deliver on our commitments.
We have fundamental strengths on which we can build.
And I look forward to welcoming business leaders to the International Investment Summit in Britain later this year.
Because I know that if we can create the stable conditions which investors need to thrive, we can build on the UK’s strengths and return confidence to our economy..
… so that entrepreneurs and businesses big and small know that this is a place to do business as that is the bedrock on which economic growth must be built.
Mr Speaker, the inheritance from the previous government is unforgiveable.
Chancellor to pledge to ‘fix the foundations of our economy’ as she unveils the spending inheritance left by the previous government.
Reeves to set out reforms to deliver economic stability and protect the public finances, as she announces date of Budget later this year.
Office of Value for Money formed to challenge government to deliver better value for money for taxpayers.
Chancellor of the Exchequer Rachel Reeves will this afternoon (Monday 29 July, after 3:30pm) vow to ‘fix the foundations of our economy’ as she publishes an audit of the spending inheritance left by the previous administration.
Accusing the previous government of ‘covering up the true state of the public finances,’ the Chancellor will announce immediate action to restore economic stability and deliver departmental savings this financial year.
The announcements will be a response to the findings of the Treasury’s spending audit, which shows that the previous government overspent this year’s budgets by billions of pounds after making a series of unfunded promises.
The Chancellor will confirm that she has commissioned an Office for Budget Responsibility forecast to coincide with a Budget and Spending Review to be held later this year.
The Budget will set out how the government’s robust fiscal rules will be met: balancing the current budget so that day-to-day costs are met by revenues and getting debt falling as a share of the economy by the fifth year of the forecast.
Speaking in the House of Commons later today, the Chancellor of the Exchequer Rachel Reeves is expected to say: “Before the election, I said we would face the worst inheritance since the Second World War.
“Taxes at a seventy year high. Debt through the roof. An economy only just coming out of recession. I knew all those things. I was honest about them during the election campaign. And the difficult choices it meant.
“But upon my arrival at the Treasury three weeks ago, it became clear that there were things I did not know. Things that the party opposite covered up from the country.”
She will add: “It is time to level with the public and tell them the truth.
“The previous government refused to take the difficult decisions. They covered up the true state of the public finances. And then they ran away. I will never do that.
“The British people voted for change and we will deliver that change. I will restore economic stability. I will never stand by and let this happen again.
“We will fix the foundations of our economy, so we can rebuild Britain and make every part of our country better off.”
The Chancellor will announce she is committing the government to one major fiscal event per year to put an end to ‘surprise budgets’ which have previously caused uncertainty for both the markets and family finances across the country.
A new Office of Value for Money will be established, using pre-existing civil service resource, to put an end to wasteful spending in government, providing targeted scrutiny of public spending so that value for money governs every decision government makes.
The Office will immediately begin work on identifying and recommending savings for the current financial year, while also establishing where targeted reforms of the system can ensure that poor value for money spending is cut off before it begins.
Reforms bearing down on waste in the public sector will also be announced today, driving efficiency through government departments and arms length bodies (ALBs). Immediate action will be taken to stop non-essential spending on consultants, alongside disposing of surplus estates and hastening delivering admin efficiencies in departments.
Earlier this month, the Government introduced the Budget Responsibility Bill at the King’s Speech to deliver economic stability by guaranteeing that never again can a government play fast and loose with the public finances.
The Bill ensures all significant fiscal announcements on tax or spending which are worth more than 1% of the UK’s GDP will be subject to scrutiny by the independent Office for Budget Responsibility. This will guard against large-scale unfunded commitments in the future.
FORMER Tory Chancellor Jeremy Hunt said the new Labour government is ‘peddling nonsense’. He added: “The books were wide open and what they show is a healthy, growing economy.”
The Conservatives claimed throughout the recent election campaign that Rachel Reeves secretly plans to raise taxes.
Plans to reveal which new hospitals, surgeries and treatment centres will be built in Scotland have been delayed.
In a letter to Holyrood’s finance committee, Cabinet secretary for Finance and Local Government Shona Robison explained: ‘To provide as much certainty as possible to parliament and wider stakeholders of our capital investment plans, I must wait until I have confirmed capital allocations from the new UK government”.
That confirmation is not expected until late Autumn – and, given the new Labour government’s warnings about a £20 bn. ‘black hole in the UK’s finances, it’s not expected to be good news.
Lothian Conservative MSP, Miles Briggssaid: “This further delay to finding out if SNP Ministers will reinstate the funding for a new Princess Alexandra Eye Pavilion is extremely disappointing.
“We urgently need a new eye hospital to improve the delivery of ophthalmology across the South East of Scotland.
“The decision by SNP Ministers not to reverse funding for a new hospital has been a disastrous decision and will ultimately lead to additional costs for the delivery of a new hospital.
“I will continue to lead calls for the funding for a new eye hospital. What we desperately need is to see some leadership from SNP Ministers.”
Chancellor of the Exchequer Rachel Reeves to attend first G20 meeting in Rio de Janeiro
Reeves to bang the drum for British business on first international visit since taking office
First female Chancellor to champion the importance of female leadership in economics and finance
Chancellor of the Exchequer Rachel Reeves is in Rio de Janeiro, Brazil, to attend the G20 Finance Ministers and Central Bank Governors Meeting on her first international visit since taking office.
The Chancellor is meeting with G20 counterparts for the first time, where she will champion British business and declare the country is ‘open for business’ once again after years of uncertainty and instability.
The Chancellor will tell an international audience that the number one priority of the new British government is to deliver economic growth to make every part of the country better off. She will urge business leaders to “take another look at Britain” as she talks to the Government’s plans to boost international investment.
She will outline to leaders of world economies how she will always act in the national interest on major international issues, including climate change and support for Ukraine as Russia’s illegal invasion continues into its third year. The Prime Minister has already recommitted £3 billion per year of military support to the end of the decade or for as long as needed.
Rachel Reeves, Chancellor of the Exchequer, said: “Over the coming days my message to international leaders is simple: after years of uncertainty and instability, Britain is open for business once again.
“This new government’s number one mission is to boost economic growth so we can make every part of the country better off. That can only happen by working alongside business from around the world to encourage them to invest in the jobs and industries of the future.
“That is why over the coming two days I will be banging the drum for British business and urging leaders to take another look at us. I’m ready to take my seat at the table alongside fellow finance ministers, steering the world economy and representing our national interests on the major issues of our time, including grasping the growth opportunities of the net zero transition and putting pressure on Russia to end the war in Ukraine.”
Chancellor Reeves will also use her platform as the UK’s first woman Chancellor to champion the importance of female leadership in economics and finance, as she meets with other female leaders while at the G20.
Chancellor Reeves’ visit to Brazil is the latest step in the government’s national mission to grow the economy. Since taking office, she has pursued reform of the economy to fix its foundations and make every part of Britain better off, including announcing changes to the planning system, ending the ban on new onshore wind and launching a National Wealth Fund to catalyse private sector investment.
Brazil holds the presidency for the G20 this year, with a focus on social inclusion and the fight against hunger; energy transition and sustainable development; and reform of global governance. Ministers and governors will discuss the global economy, financial stability, international taxation, climate, and debt and development. The Chancellor will promote collaboration on issues including addressing inequality, driving growth and progressive taxation.
The UK and Brazil’s relationship is particularly strong in green finance, with Brazil raising $2 billion by listing its new sustainable sovereign bond on the London Stock Exchange. The UK government recently renewed its Memorandum of Understanding with the Brazilian Development Bank on cooperation on the green transition, in particular on green finance. Britain has also made £5 billion available in UK Export Finance funding to meet Brazil’s needs.
The Chancellor continued her drive for a new approach to growth underpinned by stability, investment and reform yesterday (23 July), as she chaired the first Growth Mission Board with ministers across government.
Rachel Reeves views the forum as vital in driving forward the Growth Mission, enabling her to work with her colleagues across government to boost productivity, deliver good jobs, and make everyone better off.
The Chancellor is focused on driving forward the Growth Mission, including the development a modern Industrial Strategy, in partnership with business, to remove barriers and provide key sectors with the clarity and certainty they need to seize growth opportunities
She will also work with ministerial colleagues to develop the English Devolution bill to strengthen local leadership and give new powers to metro mayors and combined authorities to deliver growth across the country, alongside improving the infrastructure planning regime to unlock investment and boost grid connections.
Tuesday’s meeting follows the immediate steps the government has taken to boost growth including announcing a series of planning reforms to get Britain building; removing the de facto ban on onshore wind; establishing the National Wealth Fund; announcing a Pensions Review to unlock growth, boost investment and deliver savings for pensioners; launching Skills England; and announcing the white paper on getting Britain working again.
The Growth Mission is the first of five missions proposed by the Government, each of which focus on ambitious, long-term objectives for the country.
Chancellor of the Exchequer Rachel Reeves said: ““Growth is our number one mission and in our first few weeks this Government is taking the tough decisions to deliver on that agenda.
“From planning reform and supporting our future industries to strengthening local leadership and forging ahead with new infrastructure, our work has just begun to fix the foundations so we can rebuild Britain and make every part of the country better off.”
Chancellor launches landmark review to boost investment, increase pension pots and tackle waste in the pensions system.
New Pensions Bill confirmed in King’s Speech could boost pension pots by over £11,000, with further consolidation and broader investment strategies to potentially deliver higher returns for pensions.
An investment shift in defined contribution schemes could deliver £8 billion of new productive investment into the UK economy.
Action will be taken to unleash the full investment might of the £360 billion Local Government Pension Scheme to make it an engine for UK growth.
The Chancellor Rachel Reeves has announced a landmark pensions review as part of the new Government’s mission to ‘boost growth and make every part of Britain better off’.
Under plans unveiled by the new Chancellor, billions of pounds of investment could be unlocked in the UK economy from defined contribution schemes alone and pension pots for savers in defined contribution schemes could be boosted by over £11,000.
The Review will also, working closely with the Minister of State at MHCLG, look at how to unlock the investment potential of the £360 billion Local Government Pensions Scheme, which manages the savings of those working to deliver our vital local services, as well as how to tackle the £2 billion that is being spent on fees.
The announcement comes ahead of the first Growth Mission Board on Tuesday. This will be chaired by the Chancellor and drive the Government’s work to achieve the highest sustained growth in the G7. New measures have already been announced to fix the planning system, the creation of a new National Wealth Fund and the overhaul of the listings regime to boost UK stock exchanges.
The work announced today – focusing on investment – is the first phase in reviewing the pensions landscape and will be led by the first ever joint Treasury and Department for Work and Pensions Minister, Emma Reynolds (Minister for Pensions). The next phase of the review starting later this year will consider further steps to improve pension outcomes and increase investment in UK markets, including assessing retirement adequacy.
The Chancellor and the Pensions Minister will chair a roundtable with the pensions industry on Monday to start intensive industry engagement for the Review.
Chancellor of the Exchequer Rachel Reeves said: “Despite a very challenging inheritance, this new Government is getting on with the job of delivering our mandate to get the economy growing so we can make every part of our country better off.
“The review we are announcing is the latest in a big bang of reforms to unlock growth, boost investment and deliver savings for pensioners. There is no time to waste. That is why I am determined to fix the foundations of our economy so we can rebuild Britain and improve people’s lives.”
Deputy Prime Minister Angela Rayner said: “After putting in years of hard graft serving their communities, the very least our frontline workers deserve – millions of whom are low paid, millions of whom are women – is dignity and security in retirement.
“That’s why we want to make sure their hard-earned money works harder for them so we ensure they receive the pensions they have earned, whilst unlocking growth across our economy.”
Pensions Minister Emma Reynolds said: “As the first ever joint Treasury and DWP Minister I am uniquely placed to tackle the twin challenges of productive investment and retirement outcomes.
“Over the next few months the review will focus on identifying any further actions to drive investment that could be taken forward in the Pension Schemes Bill before then exploring long-term challenges to ensure our pensions system is fit for the future.
“There is so much untapped potential in our pensions markets, with an industry worth around £2 trillion. The measures we have already set out in our Pension Schemes Bill will help drive higher investment and a better deal for our future pensioners.”
M&G plc CEO Andrea Rossi said: “A Pensions Review is long overdue and to be welcomed. M&G has a rich heritage of investing in the UK and there are significant opportunities ahead to give the real economy a boost over the next decade and beyond.
“We know from experience, through our PruFund offer, that a large pooled fund gives savers access to a wider range of productive assets that aims to maximise benefits over the long-term. Consolidation, combined with the role of advice, has huge potential to align the interests of savers with the UK’s growth ambition. We look forward to supporting the Government on this landmark review.”
BVCA Chief Executive Michael Moore said: “We are very encouraged that the Government has brought forward their Pensions Review so quickly.
“The Chancellor has a real opportunity to deliver economic growth by facilitating increased investment in UK businesses to the benefit of returns to pension savers as well as the wider economy.
“Legislative and policy changes, including further consolidation of pension schemes to increase pension schemes’ ability to deploy capital into UK private capital funds are vital, as is greater industry partnership.
“The BVCA’s Investment Compact has already brought together over 100 growth equity and venture capital firms committed to working with pensions schemes to consider effective structures that attract investment.”
Defined contribution schemes will be managing around £800 billion in assets by the end of the decade and the Review will explore ways to increase their investment into productive assets. Even a 1 percentage point shift of assets into productive investments could mean £8 billion of new productive investment to grow the economy and build vital infrastructure by the end of the decade.
This would also help savers using these schemes build up better retirement pots as productive assets are more likely to provide higher returns. Immediate action has already been taken to boost retirement savings through the Pensions Bill, which introduces a Value for Money Framework to promote better governance and achieve higher returns – boosting the pension pot of an average earner who saves over their lifetime in a defined contribution scheme by over £11,000.
The first stage of the review will examine actions to support greater productive investment and better retirement outcomes, including through further consolidation and encouraging at-scale schemes to increase returns through broader investment strategies.
The Local Government Pension Scheme (LGPS) in England and Wales is the seventh largest pension fund in the world, managing £360 billion worth of assets. Its value comes from the hard work and dedication of 6.6 million people in our public sector, mostly low-paid women, working to deliver our vital local services. Pooling this money would enable the funds to invest in a wider range of UK assets and the government will consider legislating to mandate pooling if insufficient progress is made by March 2025.
To cut down on fragmentation and waste in the LGPS, which spends around £2 billion each year on fees and costs and is split across 87 funds – an increase in fees of 70% since 2017, the Review will also consider the benefits of further consolidation.
The first stage of the review will report in the next few months and consider further measures to support the Pensions Bill. It will take account of the need to prioritise gilt market stability, liquidity and diversity. It will then broaden out to consider the wider pensions landscape to strengthen security in retirement. In the meantime, immediate action has been taken through new laws announced to Parliament in The King’s Speech.
Barclays CEO C. S. Venkatakrishnan said: “We welcome the Government’s timely review of the pensions sector.
“Pensions reforms are critical to unlocking institutional investment in growth equity, and alongside a streamlining of listing requirements, will give a significant boost to UK capital markets and growth. Building institutional demand is also an important signal in encouraging private share ownership.
Border to Coast CEO Rachel Elwell said: ““Our focus is on delivering a strong and sustainable LGPS to enable it to pay the pensions of the 6.6million local government workers in an affordable manner.
“Border to Coast has developed innovative and cost-effective investments, while cutting Private Market fees by almost 30%. There is an opportunity to build and expand on this, delivering greater value to local taxpayers, and delivering productive investment in the UK. We therefore welcome the opportunity to work with the Government on a co-ordinated review to deliver this.
“If the Government is ambitious and considers a wide range of options in this review we are optimistic that this will deliver the clear roadmap we have called for, building on the work of the BVCA’s Pensions and Private Capital Expert Panel.”
Chair of the Pensions & Private Capital Expert Panel and co-founder of IQ Capital Kerry Baldwin said: “An early and ambitious review of the pensions landscape is an extremely important step in prioritising returns for UK savers and driving economic growth.
“The Chancellor’s Pensions Review will add further impetus to the work of the Investment Compact for Venture Capital and Growth Equity, which has brought together the private capital and pensions industries to support pension savers and to encourage investment from pension funds into unlisted equities.
“There has been significant progress through this collaboration. We are already developing a greater understanding of the ways we can work together to deliver new options for UK pension savers at the same time as supporting high growth, innovative UK companies with new sources of capital.
“The Review offers us the opportunity to develop this shared agenda further and deliver better outcomes for all the stakeholders.”
TheCityUK CEO Miles Celic said: “Creating the right investment environment is critical both for improving people’s retirement incomes and for boosting growth across the UK.
“The government’s new Pensions Review will be an important mechanism to help deliver this. We look forward to working closely with government and regulators to ensure that an effective long-term strategy that supports financial resilience is developed.”
