It turns out that being rich is again in fashion. You could forgive the City’s dealmakers for feeling slightly giddy.
The tone of chancellor Kwasi Kwarteng’s mini-budget was unapologetically maximalist, for growth, for business and for financial services. The European cap on bankers’ bonuses is history. Let everyone — but particularly the better off — keep more of what they earn, with the ditching of the increase to national insurance and the scrapping of the top rate of income tax. There was the promise of more announcements to come to “unleash the potential” of UK finance.
The City is back, baby. Long live the wealth creators.
Quite what this will mean on the ground (once the champagne wears off) wasn’t entirely clear. The government’s new affection for the denizens of the Square Mile doesn’t extend to lifting the surcharge on banks’ corporation tax: as part of the cancelled rise in the corporation tax, the tax penalty for being a bank will stay at 8 percentage points, rather than falling to 3. A pledge to change the cap on pensions charges for defined contribution funds to enable more investment in private equity and other illiquid assets was already (questionable) policy. The inevitable mention of Solvency II rules for insurance, the ultimate regulatory talisman for today’s politicians, was confined to a promise of a package of reforms to come this autumn.
There was, ironically, more meat on the boosterish bones when it came to the types of infrastructure-focused, levelling-up policies associated with the previous administration. Business will doubtless complain that business rates have again gone unaddressed and unreformed. But there were 24 “illustrative sites” suggested as part of the government’s programme of investment zones, with 38 local authorities in contention for an area with generous tax and investment incentives. The country’s growth potential will surely be transformed by the Chippenham bypass improvements, one of a list of 138 infrastructure projects to be fast-tracked immediately.
Building is a sensible thing to do, structurally and cyclically. And there were hints of more radical change that should be welcomed by business and others, such as an overhaul of a planning system that is “too slow and too fragmented”. That even extends to a promise to lift the effective prohibition on onshore wind farms.
The City will, frankly, want to see more details. There was no mention of the bank levy, on UK balance sheets. It is easy to shout about an “ambitious deregulatory package” and far harder to deliver something that works.
The fact is that much of the regulation transposed from Europe to the UK after Brexit reflects internationally-agreed standards and not the cold hand of Brussels bureaucracy. Ideological or politically-desperate axing of rules won’t bolster London’s standing as an international centre. Many practitioners would like nothing more than a real focus on bog-standard efficiency: faster regulatory approvals for basic matters or the ability to move senior executives more quickly and easily. Toning down the post-Brexit slash and burn rhetoric would, at this point, be good for everyone.
Business may simply be hoping that this latest iteration (or indeed any iteration) of Conservatism actually sticks. The sense of an economic Hail Mary, a desperate bid for growth at quite literally any costs, rattled markets, with gilts and sterling falling sharply.
Boosting the UK’s ailing business investment will require a sense of stability and certainty as much as anything else — something that has been sorely lacking since 2016. Potential investors, at home or abroad, bemoan unpredictability and lack of delivery on policy. Market turbulence and a falling currency won’t reassure decision makers that the UK’s third (or is it fourth?) variant of industrial and growth policy in five years is here to stay. Nor will the relatively brief window before the next election and the potential for another screeching shift in direction, given the ideological gulf now on offer between the government and the opposition.
Kwarteng fell over himself to show the City — and business — lots of love, which only has a hope of being meaningful if it lasts.