Tag: Economy

Chancellor’s Mansion House Reforms to boost typical pension by over £1,000 a year

  • Chancellor outlines reforms to boost pensions and increase investment in British businesses
  • the ‘Mansion House Reforms’ could unlock an additional £75 billion for high growth businesses, while reforms to defined contribution pension schemes will increase a typical earner’s pension pot by 12% over the course of a career
  • comprehensive reforms will increase pension pots by as much as £16,000

The reforms will also unlock up to £75 billion of additional investment from defined contribution and local government pensions, supporting the Prime Minister’s priority of growing the economy, and delivering tangible benefits to pensions savers.

The United Kingdom has the largest pension market in Europe, worth over £2.5 trillion. Over the past ten years Automatic Enrolment has helped an extra ten million people save for their futures, with £115 billion saved in 2021, but how this money is invested is limiting returns for savers. Comparable Australian schemes invest ten times more in private markets than UK schemes, reaping the rewards that UK savers are missing out on.

To level the playing field, the Chancellor and the Lord Mayor have supported an agreement between nine of the UK’s largest Defined Contribution pension providers, committing them to the objective of allocating 5% of assets in their default funds to unlisted equities by 2030. These providers represent over £400 billion in assets and the majority of the UK’s Defined Contribution workplace pensions market.

This could unlock up to £50 billion of investment in high growth companies by 2030 if all UK Defined Contribution pension schemes follow suit.

More effective investments by defined contribution pension schemes will also increase savers’ pension pots by up to 12%, or as much as £16,000 for an average earner.

Chancellor of the Exchequer Jeremy Hunt said: “British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for typical earner over the course of their career.

“This also means more investment in our most promising companies, driving growth in the UK.”

Secretary of State for Work and Pensions Mel Stride said: “British workers should have the confidence that their pension savings are working as hard as they are.

“Our reforms will benefit savers and society – unlocking investment into pioneering UK businesses, growing the economy, and helping the record number of people in this country saving into a pension to achieve the retirement they want.”

The Chancellor’s Mansion House Reforms will also deliver better returns for savers through 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. Pension schemes which are not achieving the best possible outcome for their members will be wound up into larger, better performing schemes.

Analysis shows that over a five-year period there can be as much as 46% difference between the best and worst performing pension schemes. This means that a saver with a pot of £10,000 could have notionally lost £5,000 over a 5-year period from being in a lowest performing scheme.

The Mansion House Reforms will be guided by the Chancellor’s three golden rules: to secure the best possible outcome for pension savers; to always prioritise a strong and diversified gilt market as we seek to deliver an evolutionary, rather than revolutionary, change in our pensions market; and to strengthen the UK’s position as a leading financial centre to create wealth and fund public services.

To ensure that the money unlocked by these reforms is invested quickly and effectively, the Chancellor has asked the British Business Bank to explore the case for government to play a greater role in establishing investment vehicles, drawing upon the BBB’s skills and expertise.

This will complement the £250 million of support that government has made available through the Long-term Investment for Technology and Science (LIFTS) initiative to incentivise new industry-led investment vehicles.

The government will also encourage the establishment of new Collective Defined Contribution funds which can invest more effectively by pooling assets as well as launch a call for evidence to explore how we can support pension trustees to improve their skills, overcome cultural barriers and realise the best outcomes for their pension schemes and subsequently their members.

Defined Benefit pensions

For the Local Government Pension Schemes a consultation will be launched on setting an ambition to double existing investments in private equity to 10%, which could unlock £25 billion by 2030. The consultation proposes a deadline of March 2025 for all Local Government Pension Scheme funds to transfer their assets into LGPS pools and setting a direction that each pool should exceed £50 billion of assets.

To improve outcomes for savers in a highly fragmented market, with over 5,000 Defined Benefit Schemes, the government will set out its plans on introducing a permanent superfund regulatory regime to provide sponsoring employers and trustees with a new way of managing Defined Benefit liabilities.

A new call for evidence will also launch tomorrow on the possible role 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.

Capital Markets

The UK has the largest stock market in Europe and one of the deepest in the world – the London Stock Exchange had the most Initial Public Offerings (IPOs) outside of the US in 2021.

A comprehensive set of reforms will help attract the fastest growing companies in the world to grow and list in the UK. Prospectuses will be simplified, another milestone of Lord Hill’s UK Listing Review, replacing the EU’s outdated regime.

Firm’s prospectuses for investors will be easier to produce, more accessible and understandable, saving companies time and money and attracting more firms to do business in the UK.

Protectionist rules inherited from our time in the EU will be abolished. The Share Trading Obligation and Double Volume Cap have held back UK businesses and will be removed so firms can access the best and most liquid markets anywhere in the world.

The government has also accepted all of Rachel Kent’s Research Review published today, paving the way for a new ‘Research Platform’ that will provide a one-stop-shop for firms looking for research experts. It also sets the path for potentially removing the unbundling rules – an inherited EU law that requires brokers to charge a separate fee for research.

The Chancellor will set out plans to establish an entirely new kind of stock market that allows private companies to access capital markets without floating on a stock exchange. This ‘Intermittent Trading Venue’ would be a world first and will help firms grow and boost the UK economy. It will be complemented by a move to make shares fully digital rather than written on paper, saving businesses time and money.

This builds on the Chancellor’s Edinburgh Reforms and Solvency II reforms which will unlock over £100 billion of productive investment from insurance firms across the UK over a decade.

Seizing the opportunities of the future

To ensure the continued success of the UK’s world-leading financial services sector, firms must be ready to innovate faster, with regulators willing to support them as they do.

Following the Financial Services and Markets Act 2023 passing into law, the government has announced that it is commencing repeal of almost 100 pieces of unnecessary retained EU law for financial services, further simplifying the UK’s regulatory rulebook.

The government launched an independent review into the future of payments – led by Joe Garner, former Chief Executive Officer of Nationwide Building Society – to help deliver the next generation of world class retail payments, including looking at mobile payments.

The government also welcomes a report suggesting ways to move to fully digital shares, scrapping outdated paper-based shares. This will make markets more efficient and modernize how people own shares.

Further information

  • The Mansion House Compact members are: Aviva; Scottish Widows; L&G; Aegon; Phoenix; Nest; Smart Pension; M&G; Mercer.
  • The package of reforms announced yesterday could help increase pension pots for an average earner who starts saving at 18 by 12% over their career – over £1,000 more a year in retirement – all whilst supporting UK economy, businesses, and employment.
  • Analysis shows a difference in returns between schemes over a 5-year period of up to 46% in some cases. This means that a saver with a pot of £10,000 could have notionally lost £5,000 over a 5-year period from being in a lowest performing scheme.

Reaction to the Chancellor’s Mansion House Reforms

Jamie Dimon, Chairman & CEO, JPMorgan Chase said: “Great financial centers stay competitive by responding to the market and evolving through the kinds of important iterations that the Chancellor has announced.

“It’s also good to see the U.K. preparing for the industries of tomorrow considering the great promise of life sciences and A.I. as cornerstones of the economy in the years to come.”

Sir Jon Symonds CBE, Chair, GSK said: “I welcome these important reforms which will further strengthen the UK capital markets and support economic growth. 

“The changes will help increase investment returns for pension savers through improved access to all asset classes including in high growth sectors, and ensure the UK’s most innovative companies are better supported by UK capital to stay in this country as they scale to maturity.”

Brent Hoberman, Executive Chairman & Co-Founder, Founders Forum, Founders Factory said: “The planned pension reforms will enable for capital to be productively invested in funds and scaleup companies in the UK. 

“This should be welcome news to the UK industries of the future, their ability to attract more capital will create more national champions and generate growth, jobs and increased tax revenue.

“The reforms will enable the UK to build on the positive momentum in these key parts of the economy drive further synergies between it’s world class financial institutions and entrepreneurial base.”

C. S. Venkatakrishnan, Group Chief Executive, Barclays said: “The UK has needed a bold, forward-looking policy agenda and industrial strategy to grow the economy. 

“These Mansion House Reforms are an important step in the right direction in mobilising private capital to support growth and innovation.”

Irene Graham OBE, CEO, ScaleUp Institute said: “The package of measures announced by the Chancellor today are very much welcomed by the ScaleUp Institute.

“They contain significant and innovative solutions which will help to enable easier and simpler access to capital markets and patient growth capital. These new initiatives, coupled with the reforms already underway, will support and fuel the global ambitions of our scaleups, and high-potential scaling businesses, across all sectors and all areas of the UK.”

Miles Celic, Chief Executive Officer, TheCityUK, said: ““The competitiveness and attractiveness of any successful international financial centre must, by definition, always be a work in progress. The Chancellor is right to be ambitious in building on the UK’s successes and recognising that we can’t afford to be complacent.

“The Mansion House Reforms are ambitious, pragmatic and necessary. They will underpin the UK industry’s future success. Most importantly, their main beneficiaries will be the British people, who will gain from greater investments in growing businesses, revitalising communities and improving retirements.”

Chris Hulatt, Co-Founder, Octopus Group said: ““We welcome government’s efforts to make the UK a more attractive place to start a business, and support measures that provide additional opportunities for private companies to raise capital.

“Finding new ways for the most skilled and talented entrepreneurs to access capital as they build businesses is fundamental to helping the UK maintain its place as the best place to start, build and scale a business.”

Noel Quinn, Group Chief Executive, HSBC said: “I welcome the strong and comprehensive package of measures announced by the Chancellor in his Mansion House speech. 

“Unlocking equity to support companies in innovative high-growth sectors such as technology and life sciences is vital to the future growth of the UK economy.”

Lord Mayor, Nicholas Lyons said: ““These reforms and the Mansion House Compact mark a historic turning point that will accomplish the dual aim of securing a brighter future for retirees and channelling billions into our economy. 

“I’m proud to have convened key industry players to make this commitment to unlock £50bn in capital by the end of the decade which will improve returns for pension savers and support firms to grow, stay and list in the UK.”

Tim Orton, Chief Investment Officer, Aegon UK said: ““Aegon UK is proud to be a founder signatory of the Mansion House Compact which will help deliver better long-term outcomes for our customers.

“We are committed to ensuring our customers can access and share in the growth and success of innovative companies we invest in. We will use our scale and expertise to develop investment solutions seeking to improve the retirement outcomes of the millions of members of the defined contribution pension schemes we support.  The Compact will also create opportunities that help deliver our climate targets as we progress towards net zero.”

Sir Nigel Wilson, Group CEO, Legal & General said: “As the UK’s largest manager of money for pension clients, L&G is pleased to support the ambition set by the Compact.

“Increasing investment in science, technology and infrastructure will support better returns for the tens of millions saving for their retirement, as well as stimulate much needed long-term growth for the UK economy.”

Mark Fawcett, CEO, Nest Invest said: ““For many years now, illiquid assets have been integral to diversified DC pension schemes around the world.

” It’s been a key driver behind Nest setting up our own private market mandates to ensure our members aren’t missing out. Nest will continue to increase our investment in unlisted equities, helping our 12 million members benefit from the strong returns these types of deals can typically offer.”

Ruston Smith, Chair, Smart said: ““Smart Pension is committed to securing better outcomes for long-term savers. Giving UK savers access to higher net returns by investing in unlisted equities, including innovative, high-growth UK companies as part of a well diversified portfolio, will deliver these outcomes over time.

“We are pleased to be a signatory of the Mansion House Compact and, as a successful British fintech, we are proud to be supporting the country’s technology sector, helping home-grown start-ups and scale-ups to flourish and thrive.”

Scottish Widows, CEO, Chirantan Barua said: ““The industry needs to modernise the investment options available to customers. 

“ With the right consumer protections in place, the proposals announced today could make a huge difference to our customers and the wider UK economy. I’m proud that Scottish Widows is a founding signatory of the Mansion House Compact.”

Phil Parkinson, Investments and Retirement Leader, Mercer said: “Mercer supports proposals that lead to improved pension scheme member outcomes.

“As a global investment solutions provider, we see first-hand the value that illiquid asset allocations can bring to investors’ portfolios from a risk and a return perspective and are in favour of initiatives designed to unlock this asset class for DC members.”

Edward Braham, Chair, M&G said: “Patient capital put to work in companies or projects over multiple decades is essential to support economic growth and importantly, capture value for people’s pensions as they save for their retirement.

“ M&G’s heritage is in investing in private markets, whether it is through infrastructure, real estate or innovative companies with purpose. We are democratising access to private markets through the Prudential With Profits Fund, and are supportive of DC pension reforms that encourage more investment of this kind that has potential to result in positive outcomes for savers.”

Mike Eakins, Chief Investment Officer, Phoenix Group said: ““We are proud to sign the Compact, which is an important step to allow UK long-term savers to invest in a more diversified portfolio, giving them access to the potential returns of a broader range of assets, in line with their international counterparts.

“Currently, only 9% of UK pension funds are invested in alternative assets as compared to 23% in other major pensions markets. With the right regulatory environment, Phoenix Group could invest up to £40 billion in sustainable and/or productive assets to support economic growth, levelling up and the climate change agenda whilst also keeping policyholder protection at its core.”

51,7000 Edinburgh households will be hit by Tory economic failure

Figures revealed by the Labour Party show that 51,7000 homes in Edinburgh will be affected by eye-watering mortgage rises, with those remortgaging next year paying £280 more a month.

Across Scotland,  546,600 households in Scotland will be paying an average of £190 more a month on their mortgages next year.

The news follows interest rates rising for the 13th time in June, increasing the painful squeeze on family finances.

Ahead of visiting Centrica Green Skills Centre in Glasgow, Labour’s Shadow Chancellor Rachel Reeves said the party would not stand by as Scots facing the failures of both the Tories and the SNP.

Commenting, Scottish Labour MSP for Lothian Sarah Boyack MSP said: “People in Edinburgh are feeling the crushing weight of the Tory mortgage bombshell and the SNP’s incompetence.

“On the one hand, the Tories have shown time and time again that they simply don’t care about people facing hard, impossible choices; they don’t care about the relentless toll the cost of living emergency has taken on so many lives.

“And on the other, we have an SNP Government that is just not up to the job – too distracted by the scandal in their own party ranks.

“Labour’s Mortgage Rescue Scheme will offer practical help to ease the financial burden and will provide support to those in need.

“Our plan will pave the way for a brighter, prosperous and fair future for Edinburgh and the whole of Scotland.”

Local authorityNumber affected by 2026Average Increase in monthly mortgage payments next year
Aberdeen City                 22,200£170
Aberdeenshire                 29,500£210
Angus                           7,400£170
Argyll and Bute                 7,400£190
Clackmannanshire                7,400£160
Dumfries and Galloway          14,800£160
Dundee City                   14,800£150
East Ayrshire                 14,800£140
East Dunbartonshire           14,800£260
East Lothian                    7,400£270
East Renfrewshire             14,800£270
Edinburgh             51,700£280
Falkirk                       14,800£160
Fife                          36,900£170
Glasgow City                  51,700£180
Highland                      14,800£200
Inverclyde                      7,400£120
Midlothian                    14,800£250
Moray                           7,400£180
North Ayrshire                14,800£140
North Lanarkshire             36,900£150
Perth and Kinross             14,800£220
Renfrewshire                  22,200£160
Scottish Borders                7,400£200
South Ayrshire                  7,400£180
South Lanarkshire             36,900£170
Stirling                        7,400£220
West Dunbartonshire             7,400£130
West Lothian                  22,200£210
Scotland       546,600£190

Edinburgh’s Festivals ‘strengthen recovery of businesses and jobs’


Independent research has confirmed the huge contribution that Edinburgh’s Festivals make to the economic vitality of Edinburgh and Scotland.

The latest study – conducted across the festivals in 2022 and surveying 22,000 people – shows that the Edinburgh Festivals continue to be Scotland’s world-leading cultural brands.

These unrivalled cultural programmes deliver a major economic uplift to businesses, jobs and livelihoods in the city and further afield – helping to rebuild sectors devastated by the pandemic and an especially important boost during the cost-of-living crisis, with the Festivals themselves having a stronger focus on fair work and local suppliers.

Key findings from the study show that the Edinburgh Festivals in 2022 are:

Edinburgh Festivals are World leading cultural brands

FACT: 3.2 million attendances generated by around 700,000 attendees
FACT: Remain on a par with FIFA World Cup [3.4m], despite reduced scale in 2022
Edinburgh Festivals are Increasing economic powerhouses
FACT: Economic impact increased in Edinburgh from £280m [2015] to £407m [2022]
FACT: Economic impact increased in Scotland from £313m [2015] to £367m [2022]
Edinburgh Festivals are Important drivers in the national economy
FACT: Proportion of non-Scottish staying visitors increased from 25% [2015] to 31% [2022]
FACT: Spend by non-Scottish staying visitors increased from £95m [2015] to £137m [2022]
FACT: Impact supported 5000 FTE jobs across Scotland
Edinburgh Festivals provide Crucial support to city jobs and livelihoods
FACT: Impact created 5850 FTE jobs in Edinburgh [5650 in 2015]
FACT: 51% of spend on accommodation (c£85m), 25% on food & drink (c£42m) and a further 19% on shopping (c£31m)
Edinburgh Festivals offer Incredible value for money
FACT: Generate £33 in economic impact for every £1 invested from the public purse

For the first time this Impact Study also identifies what the figures look like when the economic actions of locals are included in the calculations – previous impact studies have focussed solely on the Festivals’ role in bringing new money into the economy.

This further analysis shows the importance, previously only anecdotal, of local and Scottish audience spending driven by the Festivals rather than by other activities:

Edinburgh Festivals are Loved by locals

FACT: Had 1.5m attendances by residents of Edinburgh/Scotland [c50% of total audience]
FACT: Contribute £492m to Edinburgh and £620m to Scotland in gross impact
FACT: Support 7,150 FTE jobs in Edinburgh and 8,500 FTE jobs in Scotland
FACT: Overnight audience spend from across Scotland has doubled since last report

Introducing the Study, Dr Simon Gage, Chair of Festivals Edinburgh commented: “The positive impact our Festivals have on businesses, jobs and livelihoods is great news for the people of our city and country – and we need to ensure that this economic recovery is built on a solid foundation of good responsible growth, looking after our people, our place and our planet.

“In this instance our impact is primarily felt by the tourism and hospitality sectors, not by the festivals themselves and the people who make them happen – in fact, their unique cultural programmes are hanging each year by a precarious financial thread, damaged by Covid lockdowns and over 15 years of declining investment.

“We call on all funders and supporters to come together to consider their long-term role in helping the Edinburgh Festivals remain Scotland’s world leading cultural brands and a crucial economic powerhouse for people’s jobs and livelihoods.”

Commenting on the Study, Richard Naylor, Director of Research at BOP consulting said: “This Study confirms and further strengthens the key message from the earlier Impact Studies that the Festivals are a major contributor to both the local Edinburgh economy and the national Scottish economy.

“This economic impact spreads far beyond the immediate cultural economy, with the biggest beneficiary businesses being those in the tourism and hospitality sectors.

“That the Festivals have bounced back so strongly shows the importance of communal events in our post-pandemic world, with audiences and visitors increasingly seeking out unique cultural experiences such as the Edinburgh Festivals.”

Edinburgh_Festivals_Impact_Study__digital__originalDownload

Chancellor: A strong economy will grow business and boost pensions savings

  • Tomorrow (10 July) Jeremy Hunt will outline how he will unlock capital for high-growth businesses and boost outcomes for pension savers, guided by ‘three golden rules’.
  • Chancellor to use first Mansion House speech to set out how Britain’s financial services sector will support the Prime Minister’s priority to grow the economy.
  • Measures will mean that more investment is available for high-growth businesses, which are key to creating good jobs, opening up opportunity and contributing millions in tax receipts.

Chancellor Jeremy Hunt will deliver his first Mansion House address tomorrow (10 July) setting out how Britain’s financial services will support the drive for long-term sustainable growth across the country.

In front of an audience of CEOs and leaders from the sector in the City of London, the Chancellor will set out his “Mansion House Reforms” to drive the Prime Minister’s priority to grow the economy by making the UK the most innovative and competitive financial centre in the world.

The financial and related professional services industry employs over 2.5 million people – something Hunt will describe as starting from a “position of strength” – and generates more than £100 billion in tax revenue, paying for half the cost of running the NHS.

He will also hail the importance of the traditionally “nimble” and “agile” sector for Government’s vision of Britain as a science superpower and the world’s next Silicon Valley.

The Chancellor is expected to say: ““I want to lay out plans to enable our financial services sector to increase returns for pensioners, improve outcomes for investors and unlock capital for our growth businesses.”

The reforms will not only help create jobs and increase tax revenues – which ultimately helps to fund vital public services – but will also lead to better returns for pension savers in the long term.

The Mansion House Reforms will be guided by the Chancellor’s three golden rules. He is expected to say: ““Firstly everything we do we will seek to secure the best possible outcomes for pension savers, with any changes to investment structures putting their needs first and foremost.

“Secondly we will always prioritise a strong and diversified gilt market. It will be an evolutionary not revolutionary change to our pensions market. Those who invest in our gilts are helping to fund vital public services and any changes must recognise the vital role they play.

“The third golden rule is that the decisions we take must always strengthen and never compromise the UK’s competitive position as a leading financial centre able to fund, through the wealth it creates, our precious public services.”

Hunt is expected to announce a wide-ranging package of measures that build upon the Edinburgh Reforms announced in December last year and deliver upon the vision that the Prime Minister himself set out at Mansion House in 2021 – with a smarter rulebook tailored for Britain’s needs.

On the economic headwinds facing the UK economy, the Chancellor will say that there can be “no sustainable growth without first eliminating the inflation that deters investment and erodes consumer confidence” and promise that the government will continue to honour its “responsibilities to those struggling the most” in the face of inflation.

David Livingstone, Citi’s Chief Executive Officer (Europe, Middle East and Africa) said: “Citi strongly supports a UK strategy focussing on growth and improving competitiveness.

“A government plan to reform the pension system to emphasise net returns would be key to the collective prosperity of all the country’s pensioners, while also creating a higher growth, more productive, and innovative economy.

“Based on Citi’s experience working with investors and pension funds around the world, consolidating funds often increases efficiency and improves access to global, diversified investment opportunities, which would be immensely beneficial to the UK, home to the second-largest pool of long-term capital in the world.”

Hannah Gurga, Director General, ABI said: “We share the Government’s ambition to make pension money work as hard as possible to deliver better returns for savers and the UK economy.

“A long-term strategy with savers at its heart and working with the sector are key to delivering on this ambition. We and our members look forward to working closely with Government as it fleshes out its plans over the summer.”

Dr Dan Mahony, Government Life Sciences Investment Envoy and Chair of the UK BioIndustry Association (BIA), said: “The unlocking of pension fund assets for investment into the UK life sciences sector will enable everyone saving for their retirement to benefit financially from Britain’s world-leading strength in drug discovery and development, whilst supercharging business growth and accelerating medical progress.

“We have great science and great people, now they will be supported by greater capital from the UK, adding to what the sector is already attracting from overseas investors.

“More domestic investors championing our growing companies will help them to put down deeper roots here, producing more jobs and benefits for the UK economy.”

Chris Cummings, Chief Executive, the Investment Association said: “The Chancellor’s comments recognise that investment must be at the heart our economy – providing for the financial futures of UK households through pensions that deliver good returns, even in the most challenging economic times, and powering growth by investing in British businesses.

“The recognition of the central role of long term investment is the foundation of successful policy.

“With the right regulatory framework, pension schemes will be able to invest productively and sustainably, unlocking further investment for innovative growth companies, and improving returns for savers by broadening investment options. In tandem with reforms to the listings regime, this will help the UK to become a more globally attractive place for companies to list, invest and do business.

“Achieving this new economic dynamism will require the government to bring together regulators, policymakers, and businesses, to create a forward-looking and internationally competitive investment framework, based on a stable, long term policy approach.

“This will also improve the gilt market, ensuring UK government debt remains attractive to domestic and international investors. 

“Delivering these outcomes will require us to strike the right balance between risk and reward and between protection and innovation. Investment managers stand ready to play our part.”

Chancellor agrees new support measures for mortgage holders

Chancellor Jeremy Hunt met the UK’s principal mortgage lenders and the Financial Conduct Authority (FCA) yesterday to agree support for people struggling with mortgage repayments.

The latest market indicators (FCA; UK Finance) show that mortgage arrears and defaults remain below pre-pandemic levels, which were themselves extremely low. The FCA reported 0.86% of total residential mortgage balances in arrears in the first quarter of 2023 which is significantly lower than the 3.32% rate in 2009.

The proportion of disposable income spent on mortgage payments is currently at 5.4%, compared to around 10% in the 1990s and prior to the financial crisis.

The average homeowner re-mortgaging over the last twelve months had around a 50% loan-to-value ratio. This indicates homeowners have considerable equity in their homes, which makes it easier to manage repayments.

Lenders have less than 10% ‘owner-occupier mortgages’ on their books with loan-to-value rates greater than 75%, compared to around 25% before the 2008 financial crisis. Taken together, this puts the market in a significantly stronger position than before.

The lenders – which cover over 75% of the market – agreed to a new mortgage charter providing support residential mortgage customers. These are:

  • Anyone worried about their mortgage repayments can call their lender for information and support, without any impact on their credit score and we would encourage you to contact your bank who are there to help.
  • Customers won’t be forced to have their homes repossessed within 12 months from their first missed payment.
  • Customers approaching the end of a fixed rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal right up until their new term starts, if one is available.
  • A new agreement between lenders, the FCA and the Government permitting customers to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to.
  • Both options can be taken without a new affordability check or affecting their credit score.
  • Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
  • Providing well-timed information to help customers plan ahead should their current rate be due to end.
  • Offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.

The Chancellor of the Exchequer, Jeremy Hunt, said: ““There are two groups of people that we are particularly worried about. The first are people who are at real risk of losing their homes because they fall behind in their mortgage payments. And the second are people who are having to change their mortgage because their fixed rate comes to an end, and they’re worried about the impact on their family finances of higher mortgage rates.

“So today I agreed with the banks and the principal mortgage lenders and the Financial Conduct Authority three very important things.

“The first is that absolutely anyone can talk to their bank or their mortgage lender and it will have no impact whatsoever on their credit score.

“The second is that if you are anxious about the impact on your family finances and you change your mortgage to interest only or you extend the term of your mortgage and you want to go back to your original mortgage deal, within six months, you can do so, no questions asked and no impact on your credit score. That gives people a powerful new tool for managing their monthly budgets – and it will begin taking effect within the next two weeks.

“And finally for people who are at risk of losing their home in that extreme situation, the banks and mortgage lenders have a number of things in place. The last thing that they want to do to repossess a home, but in that extreme situation they have agreed there will be a minimum 12 month period before there’s a repossession without consent.

“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.

“Tackling high inflation is the Prime Minister and my number one priority. We are absolutely committed to supporting the Bank of England to do what it takes. We know the pressure that families are feeling. That’s why we’ve introduced big support packages around £3,000 for the average household this year and last.

“But we will do what it takes, and we won’t flinch in our resolve because we know that getting rid of high inflation from our economy is the only way that we can ultimately relieve pressure on family finances and on businesses.”

Martin Lewis, founder of MoneySavingExpert.com said: “The unprecedented steep rise in mortgage rates is causing a nightmare for many with variable mortgages and those coming off fixes.

“Therefore, the most important thing we can focus on right now is appropriate, flexible forbearance measures. While the Bank of England’s aim is intended to squeeze people’s disposable incomes, no one wants people’s lives to be ruined by arrears and repossessions – and that is the urgent protection we need to focus on.

“I met the Chancellor on Wednesday and reiterated that the minimum we needed was to ensure that when people asked for help from lenders, they knew that if things changed, it wouldn’t be detrimental to their financial situation and their credit scores would be protected as much as possible.

“I’m pleased to see it looks like the Chancellor has listened and those measures are going to be put in practice by the banks. We need to make sure everybody knows their rights if they are in trouble with their mortgage, so they can feel comfortable speaking with their lender and understand the measures that they can request for help.”

Nikhil Rathi, chief executive of the Financial Conduct Authority, said: “Today’s productive meeting builds on the work we’ve done over the last year to ensure those who get into difficulty receive the tailored support they need.

“We’ll move quickly to make any changes needed to support today’s commitments.”

Ian Stuart. Chief Executive Officer, said HSBC UK said: “We’re firmly focused on supporting our customers in this challenging economic environment, so we welcome the meeting with the Chancellor today, and with the support of the regulators, the concerted efforts across our industry to help customers through these measures.

“It’s important that customers feel comfortable contacting us if they feel they are getting into financial difficulty because whilst every customer’s situation is different we have a range of options that we can use to help them find their way through. We stand ready and remain committed to our customers.”

David Duffy, Chief Executive Officer, Virgin Money said: “Today’s commitments are an important next step in ensuring that customers feel supported as they navigate rising rates and high inflation.

“At Virgin Money, we are committed to supporting customers in the current economic environment and will continue to work with Government, regulators and industry to help those facing financial difficulty.”

Dame Alison Rose, Group Chief Executive, NatWest said: “Our priority is to help the people, families and businesses we serve to navigate this ongoing economic uncertainty.

“Today’s announcements, following very productive discussions between mortgage lenders, government and regulators, will provide further flexibility and reassurance to customers who may be anxious about their household finances.

“We stand ready to support those worried about the future, and encourage anyone experiencing financial difficulty to get in touch.”

City council’s commercial property strategy generates £15m for local services

Council sets sights on new business park

Commercial property investment by the City of Edinburgh Council has provided space for local businesses to thrive while raising over £15 million a year for vital public services, reveals a new report.

A revised version of the Council’s Commercial Property Strategy – which supports existing, new, and expanding enterprises across the Capital – has been approved by the Finance and Resources Committee.

It reveals that the Council is the biggest landlord of commercial property in all of Edinburgh, with a portfolio of 949 assets worth in the region of £245m. This has helped the Council generate income to reinvest towards frontline services and make profits from sales, which have helped with budget savings.

The strategy also supports a number of grassroots and community-based clubs and organisations with low-cost lease arrangements.

Under the refreshed plan, the Council will continue to maximise income growth from buildings in the year ahead while also prioritising support for start-ups and the Capital’s ambitious net zero by 2030 climate commitment.

A change to the strategy will also allow the opportunity for funds from property sales to be reinvested back into the portfolio, helping to streamline and make the most of the council’s assets.

This involves a vision for designing inhouse and building a new, sustainable, business park on Council-owned land at Peffermill – mirroring the successful business park launched in East Hermiston in early 2018. Five years on, the East Hermiston Park is providing 16 fully let units in a 1,600sqm modern industrial space yielding an annual income of £185k.

Councillor Mandy Watt, Finance and Resources Convener, said: “I’m pleased that the refreshed strategy has received Committee’s approval and that we’ll be able to improve on the £15m of income already raised from the council’s property portfolio.

“The opportunities available to support even more jobs at the new low carbon business park in Peffermill are exciting, and I’m looking forward to plans being brought forward later in the year.

“Over the last year, the council has used its properties to support the economic success of the city post-Covid and helped budding businesses to thrive, in ways that maximise income for delivering Council services. The results speak for themselves and we’ve seen first-hand the benefits business parks like the existing one at East Hermiston can bring.

“Against a backdrop of reduced government funding, we’ve had to think creatively to make the most of any income that we can raise for council services. This property strategy is a good example of that.”

Scottish business confidence fell in May

Bank of Scotland’s Business Barometer for May 2023 shows: 

  • Business confidence in Scotland fell nine points during May to 22% 
  • Companies in Scotland reported lower confidence in their own business prospects month-on-month, down two points at 30% 
  • Overall UK business confidence remains strong at 28%, down five points on last month

Business confidence in Scotland fell nine points during May to 22%, according to the latest Business Barometer from Bank of Scotland Commercial Banking.

Companies in Scotland reported lower confidence in their own business prospects month-on-month, down two points at 30%.  When taken alongside their optimism in the economy, down 20 points to 14%, this gives a headline confidence reading of 22%. 

Scottish businesses identified their top target areas for growth in the next six months as evolving their offer (45%), investing in their team (35%) and entering new markets (29%). 
 
The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide. 
 
A net balance of 29% of businesses in the region expect to increase staff levels over the next year, down three points on last month. 

Overall UK business confidence dropped five points to 28% in May. Despite the dip, every UK nation and region report a positive confidence reading. 

As the country celebrated the Coronation, London reported the highest levels of business confidence at 43% (down four points on last month), followed by the North East at 35% (down six points month-on-month). The West Midlands, South East and South West, also reported high readings in May, all at 30%.  

Firms remain optimistic about their own trading prospects, with a net balance of 34% expecting business activity to increase over the next 12 months, down just five points on last month.  

Chris Lawrie, area director for Scotland at Bank of Scotland Commercial Banking, said: “Despite a slight drop, business confidence figures remain positive and it’s great to see so many firms planning to invest in their teams.  

“On the ground we’re hearing that more and more companies are setting their sights on new goals in the coming twelve months.  Whether going after new markets, or making new hires to help during busier periods, it’s important that businesses ensure their working capital is in rude health.

“Having a keen eye on forecasting and finances can help firms to move swiftly when new opportunities arise. We’ll remain by the side of Scottish businesses to support them and help them to capitalise on growth opportunities this summer.”  

Confidence among manufacturers increased to a one-year high of 40% (up from 29%), while retail registered a more modest two point rise to 26%, and construction remained robust at 34% despite its monthly nine point decline.

Services confidence, however, fell back to 26% from 36%, almost erasing last month’s rise. Overall, confidence across the broad sectors remains above levels at the start of the year. 

Paul Gordon, Managing Director for Relationship Management, Lloyds Bank Business & Commercial Banking, said: “Although we’ve seen a slight slowdown in hiring activity this month, there is still an overall upward trend in hiring intentions this year, with improvements in labour availability as well.

“While businesses may be feeling less optimistic, it’s still encouraging to see confidence is still in line with the Barometer’s long-term average, consistent with positive growth. 

“Wage pressures continue to be at higher levels than before the pandemic, which management teams will be closely monitoring. And with inflationary pressures persisting, businesses need to remain agile to the changing economic environment, while keeping a tight watch on costs and the structure of their finances.” 

Hann-Ju Ho, Senior Economist Lloyds Bank Commercial Banking, said:  “As the economic environment remains challenging, compounded by stubborn inflation and higher wage pressures, business confidence has dipped slightly this month as firms feel cautious about the wider economy and their own trading prospects. 

“However, while firms’ trading prospects and economic optimism both eased back, they still remain in positive territory as the UK has avoided an outright contraction in GDP – indicating a certain amount of underlying resilience in the economy.” 

What did we learn from the Scottish Government’s Medium Term Financial Strategy?

THIS week the Deputy First Minister and Cabinet Secretary for Finance Shona Robison presented her first major fiscal statement to parliament (writes Fraser of Allander Institute’s MAIRI SPOWAGE).

For the uninitiated, the Scottish Government’s Medium Term Financial Strategy (MTFS) is a document that outlines its financial plans and priorities over the next five years. The strategy aims to provide a framework for fiscal decisions, resource allocation, and economic management in Scotland. It takes into account various factors such as economic forecasts, revenue projections, spending priorities, and the government’s policy objectives.

The MTFS was introduced following the Budget Process Review Group’s final report, which recommended a number of changes to the budgetary process at Holyrood so the parliament could move to year-round budgeting. The idea is that this sets out the context at this time of year, to allow Committees to plan their pre-budget scrutiny in the Autumn, feeding into the Budget which comes towards the end of the year.

It’s fair to say that this hasn’t always looked like a particularly strategic document: perhaps in the past setting out possible challenges, without engaging with what might need to be in response. It is clear from what the DFM said yesterday that she is trying to highlight and engage with the challenges to outlook presents, which is to be welcomed.

A chunky document at 117 pages – we’ve read it so you don’t have to!

Funding Commitments are outstripping the funds available

The big headline from the MTFS is that public spending in Scotland is currently projected to outstrip the funds available by significant amounts of money from the next fiscal year (2024-25). The document says:

Our modelling indicates that our resource spending requirements could exceed our central funding projections by 2% (£1 billion) in 2024- 25 rising to 4% (£1.9 billion) in 2027-28.

The funding gap has been presented in the media this morning using that dreaded phrase “black hole”. Of course, this gap cannot be allowed to manifest itself in reality. For context, this £1 billion gap is bigger than the whole of the Rural Affairs and Islands budget; or about the same as we spend on prisons and courts combined.

Given the Scottish Government has to present a balanced budget, and if the funding coming from both Westminster and devolved taxes is as expected, what this means in practice is that difficult decisions are going to have to be made about spending. Of course, there are also options to raise taxes  – but let’s come back to that.

Opposition politicians were quick to criticise the Government for saying that they were prepared to take tough decisions to deal with this challenge – but not setting out what these tough decisions were, i.e. where the axe might fall if it needs to.

To be fair, this is not the first one of these documents to highlight a potential funding gap if things continue as they have been. The difference was that DFM was very upfront about the fact that this was going to mean tough decisions were necessary. The financial statement yesterday was not a budget, and we should not have expected detailed allocation announcements.

So while we can see the uncertainty that this causes for service providers in terms of what is coming in December, to a certain extent the MTFS has done what it is supposed to do: to set the context for the start of the year-round budgeting process in Holyrood.

However, having said that, there are a number of commitments the Government has already made that are not included in this – such as the expansion of childcare provision, or further investment in the National Care Service. Therefore Ministers will have to be clear over the Summer and in the Programme for Government that they are acknowledging the tough decision environment when policy announcements are being made.

The DFM was fond of saying to opposition parties that they need to set out where cuts should happen if they are asking for more to be spent on particular areas – therefore the Government needs to hold themselves to the same standard.

A large income tax reconciliation still looks likely – but won’t be confirmed until the Summer

One of the issues that is contributing to the difficult outlook for the next financial year is a large income tax reconciliation.

To explain what this means, I’ll hand over to the Scottish Fiscal Commission (our boldening)…

When the Scottish Budget is set, funding from Scottish income tax for the financial year is based on forecasts and does not change during the year. Only when outturn information on income tax revenues becomes available is funding brought in line with outturn and a reconciliation applied to the following Scottish Budget. We can derive indicative estimates of future income tax reconciliations by comparing our latest forecasts and the latest forecast Block Grant Adjustments (BGAs) to those used in the Budget setting forecasts.

As we have highlighted in recent publications, we continue to expect a large and negative income tax reconciliation for the Budget year 2021-22. Comparing our and the OBR’s latest forecasts indicates a large negative reconciliation for 2021-22 of -£712 million. Final outturn data should be available in July 2023, with the resulting reconciliation being applied to the Scottish Budget for 2024-25.

So, we will know in July to what extent this reconciliation emerges in practice. This feature of the operation of the fiscal framework highlights the complexity of the arrangements that now determine the Scottish Budget.

Some of the coverage of this reconciliation have been characterised (by the IFS on socials for example) as a result of “over-optimism on tax receipts”. Let’s break down what is causing the reconciliation.

The forecasts for which the 21-22 budgets were set were still in the middle of the pandemic (Jan 2021), and the reconciliations are a function of both the view of the OBR of the rest of UK tax receipts and the SFC’s view on Scottish Income tax. Both of these figures were quite far out (the OBR’s more than the SFC’s) but it is absolutely to be expected given the uncertainty.

So, the current view of Scottish Income Tax is that it will be 9% higher than was forecast at the time of the 21-22 budget; but the current view of the Block Grant Adjustment is that it will be 15% higher than was forecast at the time of the 21-22 budget, hence the negative reconciliation.

To characterise this situation as “over-optimism” doesn’t seem very fair.

The outlook for the public sector workforce is assumed to be quite different in the document compared to the Resource Spending Review last year

When the Resource Spending Review was presented in May 2022, one of the main things that stood out was the analysis of the public sector workforce. The suggestion was in aggregate that the public sector workforce had increased significantly over the period of the pandemic, and that one of the ways that the tight fiscal environment could be dealt with was to manage down the public sector to its pre-pandemic size.

What wasn’t set out last year, or indeed anytime since, was how this would be achieved and in which areas the workforce would be managed down.

The MTFS does present different scenarios for the evolution of public sector pay settlements and the size of workforce. However, none of these assume that the public sector is to reduce overall. The scenarios the government examines in the document are:

  • Low Scenario – 2% pay award in 2023-24, and 1% pay award from 2024-25 onwards, 0.3% workforce growth
  • Central scenario – 3.5% pay award in 2023-24, and 2% pay award from 2024-25 onwards, 1.1% workforce growth
  • High Scenario – 5% pay award in 2023-24, and 3% pay award from 2024-25 onwards, 2.2% workforce growth

The document still indicates that reductions may be required in some areas of the public service, but it seems clear that this will be driven by the budget allocations that will be dished out:

Where a reduction in workforce is required for a public body to remain sustainable, we would expect this to be through natural turnover wherever possible and we restated our commitment to no compulsory redundancies in this year’s Public Sector Pay Strategy.

Let’s talk about talking about tax

The Deputy First Minister has announced that an external tax stakeholder group will be established this Summer. The document says:

This group will build on the Government’s inclusive approach to tax policymaking and will consider how best to engage with the public and other stakeholders on the future direction of tax policy, including whether a “national conversation” on tax is required.

It is hard not to be cynical about this announcement: those of us in the tax policy field have been invited to many conversations and round tables about tax over the years, but engagement is only meaningful if feedback and suggestions are taken on board. This sounds a little like a group to talk about how to talk to the public about tax. Not bad in itself, but it’s not clear how this is going to feed not many of the announcements that have already been made about taxation by this refreshed administration.

The idea is that this engagement will shape a refreshed tax strategy from the Scottish Government. A couple of things that we would say (if we are asked of course!) –

  • Discussions about wealth taxes look very difficult in a devolved context. However, completely within the gift of the Scottish Government is the reform Council Tax, something the SNP have said they wanted to do since coming to power in 2007. Given the number of commissions and groups that have discussed this over the years, another one is not required to set out the issues with CT, or indeed to set out options for replacement. Meaningful discussions about replacements and the political bravery to recognise there will be losers, as well as winners, will be required.
  • Further additions to the higher and top rates of income tax are unlikely to be able to yield large amounts of revenue. For example, there is the suggestion from the new FM (which had been put forward by the STUC) to introduce a new band at 75,000 and up the rate by 2p. The new ready reckoners published by the Scottish Government yesterday show that even if the whole of the Higher Rate Tax band is upped by 2p, this will raise £176m – not an insignificant amount of money, but not enough to deal with the funding gap outlined in the MTFS.
  • Tax rises are not cost-free. If engagement is to be meaningful, it is important that the SG engage with those who can see some of the costs as well as the benefits to either (i) more complexity in the tax system (ii) more divergence from the rest of the UK and (iii) higher tax burden overall.

Multi-year Funding envelopes will be set out with the 2024-25 budget (so probably in December)

The Government have committed to publish refreshed multi-year spending envelopes alongside the Budget for 2024-25. Given everything that has changed since the Resource Spending Review was published in May 2022, this is to be welcomed – although given the difficulties overall it is unlikely to be good news for many areas.

Hello? Is it MSPs you’re looking for?

Given the importance of the statement yesterday, we were quite surprised at both the time the was given in the chamber but mostly by the lack of MSPs who were in the chamber to hear the statement.

This is basically the equivalent of the Autumn Statement at Westminster – not the budget, no, but it gives clear signals of the context for the budget to come. This sets off the Budget process, and highlights that really difficult decisions are going to have to be made in the 2024-25 budget.

Engagement from across the chamber will no doubt increase as we get to the sharp end of the budget process – let’s hope it’s more meaningful than it was yesterday.

Coronation weekend boosts spending for Scottish businesses

Bank of Scotland data from customer spending habits in the food and drink sector during the week of the King’s Coronation 2nd – 8th May shows: 

·         A 10% increase in spending in Scottish firms including pubs, bars, cafés and restaurants compared with the previous week 

·         The Coronation generated bigger consumer spending levels in Scotland than the Queen’s Platinum Jubilee in 2022 (10% vs 3% respectively) despite the Coronation only being a three-day compared to the four-day Jubilee  

·         Across the UK biggest increase in business activity was seen by restaurants (12% increase) followed by supermarkets and grocery retailers (nine percent increase)  

The Coronation Bank Holiday weekend led to a flurry of consumer spending in Scotland, helping to boost business activity.  

Consumers in Scotland increased their spending more than any other UK nation or region as business reported a 10% rise in trading activity over the bank holiday compared to the previous week. 

Data scientists at Bank of Scotland found the additional Bank Holiday for the King’s Coronation increased Scottish spending by a greater amount than the Queen’s Platinum Jubilee four-day-weekend last year which drove a 3% increase in purchases across firms.  

Restaurants in the UK received the biggest boost in business activity, with customers spending 12% more than in previous weeks, followed by supermarkets and grocery retailers who saw a nine per cent increase. 

Day by day analysis of the UK shows that the biggest increase in spending was restaurants on Sunday and Monday by 37% and 51% percent respectively.  

Chris Lawrie, area director for Scotland at Bank of Scotland Commercial Banking: “It’s fantastic to see the boost the extra day’s bank holiday has given to businesses, many of which will be hoping for a similar surge in demand for the next bank holiday and into the summer.  

“Managing cash flow and juggling busy periods can be challenging for firms, and for larger businesses leveraging tools such as invoice or asset-based lending can be useful to unlock capital when needed, enabling them to seize the opportunities that come their way.

“As well as wisely investing their hard-earned additional revenue into training and overall efficiency gains which will benefit the business in the long term.” 

Another rate rise and what is going on with the fiscal framework review?

FRASER OF ALLANDER WEEKLY UPDATE

The big economic news this week was undoubtedly the 12th consecutive rate rise from the Bank of England (writes Fraser of Allander Institute’s MAIRI SPOWAGE). The Bank have done this to continue to bear down on stubbornly high inflation, which is still in double figures at 10.1% (latest data for March).

The Bank’s outlook for the UK economy has improved considerably since their last set of forecasts were published in February. Broadly in line with the Office for Budget Responsibility, they now think that the UK economy will overall be flat in the first half of 2023 before returning to growth in the second half of the year.

The Bank are forecasting 0.7% growth in 2023, followed by 0.8% growth in 2024. It is worth highlighting though that this figure for 2024 is pretty anaemic, and below the current forecast from the OBR for the same period.

The Bank’s expectations are still for inflation to fall sharply from April, in part as the high price levels from a year ago come into the comparison. The next data are out on 24th May: let’s see if the economists are correct this time, as to be fair we’ve all been expecting the rate to fall below 10% for some months now.UK

Economy grows in Q1

Today, we got data from the ONS that confirms that the UK economy grew during the first quarter of the year, albeit by only 0.1%. That is balanced out with the news from the monthly data that there was a contraction during March, with wholesale and retail contributing the most to this contraction. This could suggest that the wider economic conditions are starting to bite on consumers, so it will be interesting to see how this is reflected in next month’s data.

Reports about talks about talks

Officials from the Scottish Government and HMRC were at the Public Audit Committee this week to give evidence about the administration of Scottish Income Tax. This session, as one may expect from the Public Audit Committee, was on the technical details of the collection of the tax (which, while partially devolved, is collected by HMRC rather than Revenue Scotland) and also the audit arrangements for the tax collection.

There were some interesting nuggets in there from a tax policy perspective. There was the view of the Scottish Government on the reasons for Scottish Income tax lagging behind the rest of the UK: mainly laid at the feet of the decline in oil and gas jobs: but there didn’t seem to be much clarity on whether we would ever be able to analyse whether this was actually the case.

We also heard that the fiscal framework review has moved “back into an active space”. For those who are after a recap of what on earth this is all about, see our blog in late 2021.

Slightly depressingly, as the PAC Convener Richard Leonard characterised it, this review is currently in the status of “talks about talks”. It is still very unclear when this may be concluded (or even start). Hopefully, we’ll see some news about this from both Governments soon.