Kwasi Kwarteng’s mini-budget gives City of London ‘a big smile’

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Kwasi Kwarteng said on Friday it would “reaffirm Britain’s status as the world’s financial services centre” as he set out sweeping rule changes in a mini-budget aimed at boosting investment in the UK.

In one of the most pro-City of London policy packages in decades, the chancellor pledged to rip up overly burdensome EU rules which he said had held back investment as the new government sought immediate “Brexit dividends” from his reforms.

Confirmation of the end of the banks’ bonus ceiling, Quarterly said: “We need global banks to create jobs here, invest here and pay taxes here in London, not Paris, not Frankfurt, not New York.

“All the bonus cap did was push up bankers’ basic salaries or drive activity outside of Europe,” he added.

Relationship between Conservative Party and business has been strained in recent years. They hit a low when Boris Johnson was reported to have said “fuck business” in 2018 in response to business concerns over Brexit.

But current and former city directors welcomed Kwarteng’s plans as a turning point in the government’s stance on financial services in particular.

Rupert Lee-Browne, chief executive of foreign exchange group Caxton, said “with enticing tax cuts, the removal of bonus caps, regulatory reforms and huge spending plans, these measures will put a big smile on the City’s face”.

Miles Celic, chief executive of lobby group TheCityUK, said the plans made it clear that Prime Minister Liz Truss was “absolutely committed to the UK being tax competitive” and would be “very welcomed by businesses and investors”.

He added that they wanted to send “a message to the rest of the world that Britain is an attractive place to do business”.

Former HSBC chairman Sir Douglas Flint said that while scrapping the bonus cap “wouldn’t affect the pay” bankers receive, the sector “would have lower fixed costs because basic salaries won’t be as inflated”.

Flint added that the change would “level the playing field with New York” by helping US banks move staff more easily to London from the US, where performance-related payouts are unlimited.

The EU introduced a cap on bonuses in 2014, limiting them to 100 percent of salary or 200 percent with shareholder approval.

Kwarteng said Solvency II, a set of rules governing the insurance sector, would be overhauled to free up more of the £4tn of investments held by insurers and pension funds to support domestic infrastructure projects and promising businesses.

Kwarteng added that he would introduce draft rules to reform the pensions regulator’s fee cap, allowing defined contribution pension schemes to invest in Britain’s most innovative companies and productive assets.

Up to £500m has been pledged to support funds designed to catalyze investment from pension schemes and other investors in Britain’s science and technology companies.

Kwarteng also said a planned change to the rate of the banking corporation tax surcharge would be scrapped. From April 2023, banks and building societies will continue to pay an extra tax of 8 per cent on their profits instead of a reduced rate of 3 per cent, bringing the overall rate to 27 per cent.

However, some executives acknowledged the measures risked jeopardizing economic stability, with concerns about how sterling would respond to the deep tax cuts and rising government debt.

Caxton’s Lee-Browne said the plan was “not without its risks”, adding that “the cost to the country if it all goes wrong will push the economy back”.

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