Winds of change continue to blow in the financial services sector
A mixed budget for the financial services sector with changes rewarding some, burdening others, and policy reviews for many.
With pre-budget briefing repeatedly making the point that this was the first Conservative Government budget since 1996, the financial services sector had hoped it might avoid further intervention and taxation burdens from George Osborne. Much of Osborne’s rhetoric was similar to the Conservative’s General Election messaging, but he also went further on policy announcements knowing that Labour’s ability to counteract and oppose new proposals is currently limited.
While banks will be happy that the Bank Levy is due to be a phased down from the existing rate of 0.21% to 0.10% by 2021, there will be less joy about the introduction of a new tax on banking sector profit from 1 January 2016, set at a permanent rate of 8%. Overall, the changes will cost banks more: an additional £415m in 2016-17, £555m more in 2017-18 and £365m more in 2018-19, so it remains to be seen if this is preferred by likes of HSBC.
The Chancellor also made interventions on the general insurance market, initiating a review of claims management companies, as well as an increase in insurance premium tax to 9.5% from November this year. There will also be a FCA review on what more can be done to ensure that people are encouraged to shop around when they renew their insurance.
The pensions market is also set for more changes. The Government will launch a consultation on a new ISA-style pension where savers pay tax on the income they put in, but not when they take it out. This proposal is likely to be welcomed by the influential Treasury Select Committee, which is due to meet shortly to review all the announcements.
The politically astute Osborne also poached Labour’s proposals with the abolition of permanent non-dom status. The Government will increase the permanent level of the Annual Investment Allowance from £25,000 to £200,000, a change intended to help SMEs.
There will be the introduction of a levy on large UK employers to fund new apprenticeships in England, but those firms which train apprentices will receive more money than they put in. Further details of this levy will be set out at the Spending Review in the autumn.
For business more widely, Osborne continued his trend on reducing Corporation Tax and this will be lowered to 19% in 2017 and then 18% in 2020.
So, a mixed budget for the financial services sector at large with taxation changes rewarding some and burdening others. More policy and regulation consultations could lead to product amendments, but also new commercial opportunities for those looking to adapt.