Britain announced new plans on Thursday to help it become the world’s most competitive financial center, including easing capital rules for insurers, lowering a tax rate for banks, and promising to review all European Union financial rules.
After leaving the EU, Britain will be able to write its own financial rules, and its parliament is already considering legislation to make its financial services and markets more competitive.
On Thursday, Finance Minister Jeremy Hunt announced new steps to “make the UK the world’s most innovative, dynamic, and competitive global financial centre.”
Insurers have pressed the government to relax and better tailor EU capital rules known as Solvency II in order to keep the sector competitive and allow it to invest more in infrastructure.
“So to further support investment across our economy, I can also announce we are publishing our decision on Solvency II, which will unlock tens of billions of pounds of investment for our growth-enhancing industries,” Hunt said.
Britain would also employ its “Brexit freedoms” by the end of next year to write its own rules to review and decide changes to EU regulations in five growth industries, including financial services.
The Prudential Regulation Authority of the Bank of England has expressed concern about going too far in easing buffers, and the finance ministry has rejected some of the Bank’s recommendations for reforming Solvency II.
“Following the government’s announcements today about its plans to legislate reforms to Solvency II, the key decisions will now be for Parliament and we will implement those decisions faithfully,” the PRA said in a statement.
The finance ministry also confirmed that it would reduce the surcharge on bank profits above and beyond corporation tax to 3% from 8%, rather than imposing a new tax on the industry.
Given the need to protect policyholders, the Bank of England has warned that relaxing insurance capital rules must not be a “free lunch.”
The reform of the so-called fundamental spread or haircut on how much insurers can ease capital requirements, which the PRA wanted to tighten, was a key point of contention.
“Although the Government has decided not to take forward the PRA’s proposals for reform of the fundamental spread, the Government recognises the importance of policyholder protection,” the finance ministry said.
“With this in mind, the Government recognises that the rules set out in legislation must work in close combination with supervisory tools held by the regulator.”
According to the ABI, maintaining the fundamental spread will result in less volatile annuity prices and a more stable income for UK pensioners.
According to Aviva, Hunt’s plan will be a welcome boost for UK investment, allowing the company to invest at least $25 billion over the next ten years.
(Adapted from Investing.com)