The Fiscal Dispatch with Atticus Partners

Welcome to the Atticus Partners Financial Services newsletter: The Fiscal Dispatch.  

Once a month, we cover the topic stories relating to Financial Services (FS) in Westminster and Whitehall.  

In this edition, we look at this Government’s first Budget, the Mansion House speech, the US election, interest rates and HMRC repayments. 

For more information about Atticus’ work in FS, or queries about the support you require, please get in touch via fs@atticuscomms.com.   

Chancellor’s Mansion House speech 

In her first Mansion House speech, Chancellor Rachel Reeves outlined a set of ambitious reforms aimed at driving economic growth and enhancing the UK’s financial services sector.  

The Chancellor signalled a decisive shift in the UK's approach to financial regulation, warning that measures introduced since the 2008 financial crisis have “gone too far” in eliminating risk, stifling growth, and hampering the City’s global competitiveness. Addressing financial services leaders, she described the sector as the “crown jewel” of the economy, highlighting its status as the second-largest exporter of financial services in the G7. Reeves unveiled plans to embed growth and competitiveness into the remit of key regulators, including the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), through new “growth-focused remit letters.”  

Proposed reforms include reviewing the Senior Managers Regime, streamlining compliance processes, and improving the Financial Ombudsman Service to create a more predictable investment environment. 

Alongside these regulatory adjustments, she proposed overhauling the pension system to create “megafunds” capable of unlocking £80 billion for investment in businesses and infrastructure. Reeves stressed the importance of maintaining high standards while rebalancing the regulatory framework to drive innovation and long-term economic growth, asserting that the UK must actively work to retain its position as a leading global financial centre. The proposals carry potential risks, particularly around the consolidation of pension schemes and the loosening of regulatory constraints, which will require careful implementation. Governor of the Bank of England Andrew Bailey echoed this sentiment, urging a cautious approach to ensure financial stability is not compromised. 

To further boost the financial services sector, Reeves identified fintech, sustainable finance, asset management, insurance/reinsurance, and capital markets as key areas for growth. She committed to publishing a Financial Services Growth and Competitiveness Strategy in Spring 2025 and announced a pilot scheme for tokenised “digital gilts,” signalling the Government’s intent to embrace emerging technologies. 

 Sustainability featured prominently in the speech, with Reeves positioning London as a leader in financing the global energy transition. Recent private investment in renewable energy projects, totalling £6 billion, was cited as an example of progress, and plans for a sustainable finance framework were outlined to further support green initiatives. 

Reeves also addressed the importance of strengthening international trade relationships, particularly with the US, EU, and emerging markets, while acknowledging the challenges posed by Brexit and global uncertainties. She stressed the need to balance opportunities for economic growth with maintaining financial stability. 

Reeves concluded by framing these reforms as a step towards revitalising the UK’s economy, enhancing its global competitiveness, and ensuring long-term benefits for businesses and savers alike. While the plans are ambitious, their success will depend on careful execution and collaboration with industry stakeholders. 

PISCES – Innovation or Duplication? 

The UK government is set to launch a groundbreaking private stock exchange, known as PISCES (Private Intermittent Securities and Capital Exchange System), as part of efforts to rejuvenate the UK’s declining IPO market. This "world-first" initiative, announced by Chancellor Rachel Reeves, will be a key component in a legislative proposal scheduled for May 2025. PISCES will enable private companies to trade shares at regulated intervals, allowing investors to buy and sell shares outside traditional public exchanges. This model is designed to serve as a “stepping stone” for companies considering public listings, providing a way for firms to access capital without the full burden of a public IPO. 

PISCES represents a new chapter for UK capital markets, aiming to support high-growth companies by offering flexible trading intervals and an exemption from stamp duty on traded shares. This, according to the government, will provide investors with opportunities to engage early with promising private firms, potentially broadening the investor base and fostering capital market resilience. 

The UK’s IPO market has struggled in recent years, with only 12 debuts on the London Stock Exchange so far this year. PISCES could attract companies otherwise hesitant to take on the regulatory pressures of public listings. However, some critics, including Myles Miston from Globacap, argue that PISCES might inadvertently detract from IPO incentives, as the burden of public listing requirements remains high for many companies. Additionally, with companies already concerned about over-regulation in the financial services sector – is this another layer of unnecessary red tape for scale-ups to deal with? 

Labour entered government with the promise of boosting growth in the economy, unleashing financial services and raising the wealth of Britain. So far, they have overseen declining economic confidence, ramped up taxes on businesses and failed to boost the OBR’s projected growth rate at the budget. Could this, and the wider measures laid out at the Mansion House, be the gun to kickstart Labour and Britain’s surge for growth? 

Labour’s First Budget 

Chancellor Rachel Reeves' recent Budget has signalled a shift toward a more interventionist approach in financial services, emphasising accountability, regulation, and responsible investment. A major component of this Budget is its focus on sustainable growth, aiming to foster a more stable financial market environment by prioritising long-term returns. Reeves has also placed an emphasis on aligning financial services with broader social objectives, such as climate targets and sustainable infrastructure investment, which is expected to reshape capital allocation across sectors. 

This Budget also introduced consumer protection measures to reduce household debt and promote affordable credit access, reflecting a focus on financial inclusion, aiming to protect lower-income households. For the banking sector, however, this might mean tighter lending standards, increasing scrutiny on credit assessments, and possibly a modest slowdown in credit expansion.  

Market response has been mixed. While some view these measures as crucial for sustainable growth, many financial firms have expressed concerns over increased regulatory pressures, fearing these may limit flexibility and dampen returns in certain sectors. However, this Budget looked to lay a foundation for resilient financial markets aligned with social and environmental goals, though its long-term success will depend on balancing regulatory demands with market needs for innovation and agility. 

For financial markets, Labour’s Budget introduces a tax reform that incentivises investments in green technology and low-carbon industries, creating a potential shift in investor focus toward renewable energy, electric vehicles, and sustainable agriculture. This push is designed to support the Government’s broader environmental agenda and aligns with increasing pressure on financial institutions to address climate risks. The reform also suggests a potential rise in green bond issuance as demand for sustainable finance options grows, potentially reducing reliance on fossil fuel investments. 

Phase 2 of the Spending Review will build on the initial Budget by focusing on strategic investments in infrastructure, green technology, and social equity. Looking ahead, Reeves aims to modernise key sectors, enhance workforce development, and stimulate economic resilience. This phase is expected to encourage private investment in affordable housing and renewable energy, creating new opportunities for financial markets in sustainable infrastructure. 

Reeves has also signalled further regulatory updates to promote transparency and accountability, aiming to establish the UK as a leader in sustainable finance. While this could lead to additional compliance costs, the initiative intends to create a predictable environment that supports socially impactful growth. The success of Phase 2 will depend on balancing regulatory stability with the financial sector’s need for growth and innovation. 

Interest rates fall, but economic recovery may be slow 

The Bank of England (BoE) recently lowered its interest rate to 4.75% and indicated that future cuts will be gradual. Analysts suggest this cautious approach stems from inflationary pressures, partly driven by government policies like increased taxes and a higher national minimum wage, which are expected to push inflation slightly higher before it begins to fall. This careful strategy aligns with the Bank’s commitment to managing inflation near its 2% target without over-stimulating the economy.  

The recent budget from Chancellor Rachel Reeves, with increased government spending and borrowing, is expected to lift the U.K. economy by 0.75% next year. Its effect on long-term growth may be limited, and inflationary pressure could delay the return to the 2% inflation target by up to a year. This highlights how fiscal policies can shape the Bank’s approach to economic stability.  

The Bank of England is also being cautious in the face of broader economic challenges likely to impact the UK on the near future. The Employment Rights Bill, national minimum wage increase and public sector pay rises are spooking businesses. Similarly, the National Insurance hike is causing dismay in Britain’s business community. External factors including Trump’s election and a possible looming trade war with China are adding to the pressure on Britain’s financial wellbeing, with careful consideration required from the financial services sector to ensure Britain can benefit, rather than suffer the consequences of a looming economic catastrophe. 

Lower interest rates bring relief to those struggling with inflation and high living costs, particularly prospective homebuyers facing steep mortgage rates since the infamous minibudget of 2022. The rate cuts align with government goals to stimulate growth and expand housing, making homeownership more accessible for young people and reducing business borrowing costs. This may encourage business investment, countering recent national insurance hikes and preparing for potential tax increases. The government’s target to build 1.5 million homes could benefit from these changes, though the Office for Budget Responsibility warns that inflation may slow rate cuts, delaying broader economic relief. 

Government must pay £700 million as HMRC investigations hit six year low 

The past month has hardly been a vintage one for HM Revenues and Customs (HMRC) with the Department being forced to give back £700 million to UK companies after a European Court of Justice decision. This came in the aftermath of British companies, including London Stock Exchange Group, ITV and Pearson, winning an appeal against a 2019 European Commission ruling that deemed a UK tax exemption for overseas financing companies as illegal state aid. This decision is hardly music to the ears of the Prime Minister and Chancellor, with the UK Government having to cough up £700 million to major companies, whilst also attempting to plug a £40 billion black hole in the Autumn Budget. 

If the Government is unhappy with HMRC after receiving this news, its mood was likely not improved once reports emerged that its investigations into serious tax fraud and avoidance dropped to a six-year low. As part of this, cases fell from 1,091 in 2022-23 to just 480 in 2023-24, largely due to staff shortages and turnover. Reeves appeared to understand the importance of addressing this at the Autumn Budget by announcing that HMRC would hire 5,000 additional compliance staff to strengthen its efforts against fraud, with the first 200 set to start training in November.  

The Government is struggling to find areas where it can make savings to help plug its £40 billion black hole, yet addressing fraud could prove a useful avenue to help find additional money without raising taxes or cutting spending. Indeed, the Treasury is predicting the measures they announced at the Budget could deliver £6.5 billion for the Government. Given the upside of boosting HMRC’s fraud investigations department for the Treasury’s coffers, it is likely that some more funding may be coming HMRC’s way at the new fiscal event.  

Trump 2.0 and the global economy – what does Donald Trump’s US election victory mean for markets?  

On November 6th, the long-awaited US Presidential Election came to a close, with Republican Donald Trump emerging victorious against his Democrat rival Kamala Harris. Following the President’s inauguration in January, global markets will have to respond to a barrage of new legislation and regulation (or in Trump’s case, de-regulation) as well as tariffs. 

In the days after the election, US stocks experienced their best week in over a year, with the S&P 500 jumping by 2.5%. Ekon Musk’s America PAC spent over $200 million to elect Donald Trump, and with Tesla stocks skyrocketing by 14% it seems he’s received more than just a return on his investment. UK and European stocks also fared well, with the FTSE 100 jumping by 1.5% on Wednesday morning. These positive initial reactions reflected positive sentiment about anticipated U.S. tax cuts, deregulation, and policies favoring a stronger U.S. dollar, which could benefit American exports. 

Long term, however, Trump’s proposed combative trade policies may prove problematic for Europe; concerns around the reality of a 10% tariff increase on all imports saw the euro and the pound fall sharply against the dollar in the aftermath of the election. Murmurs that the UK could be exempt from this policy may calm some of the Labour Government's nerves, but global uncertainty still looms as the weaker pound against the dollar could lead to inflationary pressures for the UK, placing upward pressure on UK interest rates and impact mortgage rates. 

The previously explored cryptocurrency sector appears to have a clearer future following Trump’s win as the value of Bitcoin stands at an all-time high of over $90,000, up from about $37,000 12 months ago. The President-elect's bold promises of deregulation have restored confidence amongst the cryptocurrency community and the previously murky regulatory environment surrounding it, but volatility in this transitional period could affect UK markets differently as the country navigates its own regulatory landscape for digital assets. With U.S. stocks comprising over two-thirds of global markets, a second Trump term would inevitably impact equity portfolios. While UK investors’ direct equity holdings may lean toward domestic stocks, most pension investments are allocated globally—and a significant portion of these are in U.S. stocks. Experts suggest that higher U.S. import tariffs and inflation could drive up U.S. Treasury yields and the dollar, creating upward pressure on UK mortgage rates and inflation. A strong dollar might also weaken the pound, affecting the cost of imports for UK consumers. For investors, Trump’s support for crypto and domestic growth policies could boost U.S. equities, benefiting UK pensions heavily exposed to U.S. stocks. However, the inflationary policies may also lead to greater market volatility and affect the value of bonds over time. 

Overall, Trump’s presidency may create a favorable but volatile environment for UK financial services, with opportunities for growth balanced by potential risks tied to his protectionist policies and often erratic foreign policy moves. Whether the US’s international allies mirror the soon-to-be President’s moves towards deregulation remains to be seen, but global markets await Donald Trump’s second term in office with equal measures of anticipation and concern. 

For more information about Atticus’ work in FS, or queries about the support you require, please get in touch via FS@atticuscomms.com.