The damp squib Statement

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Expectations were running high in the City in the run-up to yesterday’s Autumn Statement. It ended up being a massive anticlimax.

Many hoped that chancellor Jeremy Hunt would unveil measures to jump-start the UK’s stalled equity culture and burnish London’s credentials as a world-class financial centre. 

Many ideas were floated, including a “Great British ISA” with a higher tax-free allowance to boost investment in UK shares; Australian-style superfunds to manage retirement savings and allocate more assets into equities; elimination of the 0.5 per cent stamp duty on share purchases, and more flesh around the “Mansion House Compact,” the soft promise from large defined contribution managers to allocate five per cent to unlisted equity by 2030. There was even excitable talk of bigger reforms, such as extending inheritance tax relief beyond AIM shares to main board-listed shares.

But no.

The Chancellor left the £20,000 ISA allowance in place and announced modest changes to enable savers to pay into multiple accounts in a given year and to invest in illiquid assets, such as property and private equity. While Local Government Pension Scheme assets will be consolidated, details about creating an Australian-style superannuation pension system were limited to a “call for evidence” to assess whether a lifetime provider model would benefit savers.

And for all the rhetoric, there wasn’t much concrete movement on the Mansion House Compact, raising some doubt that this memorandum-of-understanding is really moving ahead.

The biggest City-related headlines were reserved for the Chancellor’s statement that subject to market conditions, the government intends to include retail investors in an offering to sell out of its 39 per cent stake in NatWest. The Chancellor even invoked the iconic 1980s “Tell Sid” campaign in a throwback to the heyday of Margaret Thatcher’s privatisation programme.

But if the City were looking for a catalyst to resuscitate the UK equity market, it won’t find much in the Chancellor’s announcement. The ISA changes, though offering more choice and flexibility, are unlikely to lure savers into equities, given that a cash ISA today pays nearly 6 per cent tax- and risk-free. 

Also, offering shares in a lumbering behemoth bank like NatWest seems unlikely to rekindle a public romance with the stock market. When the offer happens, it won’t be a path-breaking privatisation like British Gas’s IPO, but rather the disposal of shares that, with hindsight, the UK should’ve sold a long time ago.

And even though big investors can use derivatives to avoid it, the UK still has the highest transaction tax for buying shares among major markets. Sure, stamp duty on share purchases raises £4bn annually, but it seems bizarre to tax buyers of UK equity but not US or French shares (or crypto, for that matter). Not to mention that it’s a drag on market liquidity.

The Autumn Statement talks about consultations for pensions, and yes, nobody wants the government to blunder hastily into ill-conceived rules in an area so full of policy potholes. But a government on borrowed time is taking its time to enact reforms. Overall, the package feels like a damp squib for the City — not a disaster but a missed opportunity.

The reality is that the Chancellor’s eye is focused on the main street, not Lombard Street. Full expensing of investment is a boon for business; the National Insurance cuts will provide relief to overtaxed wage-earners. But there’s not much for the City to chew on. We will have to wait for the Capital Markets Industry Taskforce to offer up its recommendations in February. 

You’d also have thought that the Autumn Statement would promote London as a hub of international finance. After all, a key political argument for Brexit was that it would unshackle the UK from European bondage and unleash “Global Britain” on to the world stage. But in the Autumn Statement there’s scarcely a nod towards London’s role as a global financial centre.

In recent years, the City has leaked jobs, capital and trading to other financial centres, and the Chancellor yesterday had nothing to say about arresting that decline or making up for the loss elsewhere — probably because there’s not much he can do to reverse the damage from Brexit. As my fellow New Jersey native Tony Soprano says, “you can’t put shit back in the donkey”.

The Sunak government seems to support the financial sector and to recognise its contribution to the UK economy. But the Autumn Statement shows that the City ranks low on the list of priorities of a government besieged by other challenges.