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Chancellor plans legislation to protect financial services post Brexit

13 March 2019

In Spring Statement Chancellor Phillip Hammond focussed on protecting financial services post Brexit, while commentators saw no reason for changes to pensions tax relief and a glimmer of hope for social care policies.

Chancellor Phillip Hammond used his Spring Statement to outline plans to introduce new financial services legislation in the immediate aftermath of the UK’s exit from Europe, exploring how the UK can maintain “world leading financial services regulatory standards, remain open to international markets and realise new trading opportunities.”

In the Ministerial Statement the Chancellor said that ahead of the summer, “the government will set out its approach to consulting on how to ensure our Financial Services regulatory framework adapts to our new constitutional position outside the European Union.

“This includes the need to ensure financial stability is delivered through an effective regulatory framework, with the responsiveness necessary for a dynamic and open financial services sector and an appropriate level of democratic accountability.”

In his Statement the Chancellor also reported on the latest figures from the Office of Budget Responsibility (OBR) which showed further improvement in the UK’s financial position since the Autumn Budget, provided a no-deal Brexit can be avoided.

However, he warned of the dangers a no-deal Brexit could have on the UK economy, but said if a deal were agreed, the UK could see a ‘deal dividend’, giving the country a boost.

While the OBR lowered its growth forecast for this year from 1.6% announced in the October Budget to 1.2%, there was good news for the UK’s finances with government borrowing set to fall.

Public borrowing, set at £29.3 billion in 2019-20 is expected to drop to £21.2 billion in 2020-21, £17.6 billion in 2021-22, eventually falling to as low as £13.5 billion by 2023/24.

However, there was little in the way of clues as to how this £26.6 billion extra headroom will be allocated, which will depend in part on the outcome of a full spending review set to take place later this year.

According to Royal London, the improvement in public finances should help to avoid a raid on pension tax relief in the Autumn Budget, following earlier hints that more cuts were likely.

Steve Webb, director of policy at Royal London, said: “Too often, governments have raided pension tax relief for extra revenue to meet a short-term spending crisis. Now that the public finances are improving faster than expected, there is no justification for further ‘salami slicing’ of limits on tax relief. Pensions should be a long-term business, not subject to annual tweaking by cash-strapped Chancellors. An improving fiscal picture means the Chancellor should refrain from any further short-term cuts.”

Social care issues

Social care funding was on the agenda of a number of commentators. Steven Cameron, pensions director at Aegon, said the company would like to see greater emphasis on this issue.

He commented: “Social care funding [received] a solitary mention but only to say it will be considered as part of a comprehensive summer spending review, suggesting the long overdue Green Paper is further delayed.

“The government urgently needs to put the future funding of social care on a sustainable footing. Our ageing population deserves clarity on what the state will pay for and what individuals will have to fund themselves based on their wealth. An increased commitment to government funding would be very welcome.”

Cameron argued there should be a cap on the overall amount anyone will have to pay themselves allowing people to plan ahead and protect inheritance aspirations, describing it as a “major issue” which will make a huge difference to the future of millions of individuals long after Brexit.

Rachael Griffin, tax and financial planning expert at Quilter, echoed the sentiment.

She said: “Having a clear vision on how much the government is willing and able to spend on social care will enable policymaking. At the moment all we have is an illusory green paper that seems to be a figment of our imagination and even when it’s produced, it will be a series of ideas rather than a concrete plan of how we are going to deal with the colossal challenge of funding long term care.”

According to Griffin, the government needs to produce clear guidelines on how much the state will contribute towards a person’s long-term care and how, so the wealth management and insurance industry can create products that will help remove the rest of the uncertainty.

“The weight of the concern of being able to pay for care should not be underestimated,” she added.

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