Budget bonanza

SNEAK PEEK

— Budget expectations, from National Insurance cuts to inheritance tax latest.

— Bank capital treatment of SMEs might scupper retail-heavy budget plans.

— FCA investigates banks’ loans to small businesses amid “super complaint.”

Good morning … IT’S BUDGET DAY! POLITICO reporters have been running around like headless chickens trying to get the goss. At last, it’s here. 

Send tips to: emyers@politico.co.uk, jfitzgerald@politico.co.uk & hbrenton@politico.eu  

And why don’t you follow us on Twitter/X: @eleanor__myers, @jamesfitzjourno & @hannahcbrenton

DRIVING THE DAY

IT’S BUDGET DAY: Jeremy Hunt will address parliament at around 12:30 p.m. today and unveil his spring budget plans. He is under pressure to perform as this could very well be his last chance to woo voters before the next general election. Read our predictions here and read our colleague Esther Webber’s assessment here on why this is a scorched earth budget.

The chancellor is expected to say…that his budget policies will lead to more investment, more jobs, more productive public services and lower taxes.

Tax: Treasury insiders have been busy this week, as almost every lobby journo has been reliably informed that Hunt is going to cut the rate of National Insurance by 2p — which will cost the Exchequer around £10 billion. It will be the second reduction since November’s autumn statement, and is aimed at helping people in work, and not pensioners who get the record triple-lock payout. Income tax cuts were on the table, but are said to be too expensive. However… you never know. Other rumored changes include abolishing non-domiciled status and/or inheritance tax — both less likely. 

Savings: According to broker AJ Bell, the two successive cuts to NI would result in a saving of up to £1,508 a year for people earning £50,270 or more, and almost £900 a year for those on £35,000. But if Hunt doesn’t unfreeze tax thresholds, it will be far less.

Investments: Hunt looks likely to introduce the much-maligned GB ISA in some way or form, which POLITICO revealed in February. The chancellor could also look at slashing stamp duty on retail investment gains and provide more incentives for investing in the stock market. There could also be changes to the Lifetime ISA penalty rate.  

Fuel duty: In a shock to absolutely no one, Hunt also looks set to extend a 5p cut in fuel duty again — which would cost roughly £5 billion. 

Elsewhere…a tax on vapes is being considered, and the 99 percent mortgage scheme idea lasted all of two days before being reportedly scrapped. MPs have also been calling for tax-free shopping for tourists to be reintroduced, and VAT could be scrapped on things like hospitality to EV charging to building materials. 

Shadow chancellor Rachel Reeves said on spring budget eve: “The Conservatives promised to fix the nation’s roof, but instead they have smashed the windows, kicked the door in and are now burning the house down.” 

ALL BUDGET, ALL THE TIME: You already love POLITICO (right?!) — now you can follow us in real time. Keep across every twist and turn of the Budget run-up, speech and fallout from 11 a.m. Wednesday, including spot analysis and a bit of snark from our ace team of Playbook authors and deeply-sourced policy experts. We’ll crunch what Jeremy Hunt says — and what he actually means — as it happens, and annoy all the right people for reaction. Bookmark this link.

WHAT’S ON

U.K. Chancellor Jeremy Hunt presents spring budget, 12:30 p.m.

techUK hosts an event on operational resilience for critical third parties — including speakers from the Bank of England and HM Treasury, 9 a.m.

**A message from Nationwide: Unlike the banks, Nationwide Building Society is owned by its members, not shareholders. That’s anyone who banks, saves or has a mortgage with us. Which means we can always focus on what’s best for them. It’s our fundamental difference and what makes us a good way to bank.**

BANKS

BACKING THE BANKS: Our colleagues writing London Playbook heard yesterday that Hunt is trying to use today’s spring budget to announce he will loosen the U.K.’s rules on how much capital banks must hold in reserve to withstand financial shocks when lending to small businesses. But there’s a problem.

Computer says no: The proposals — known in the U.K. as Basel 3.1 reforms — would force banks that lend to SMEs to hold more capital, a move many lenders aren’t that keen on, as they say it will cost them more to lend to the economy, hurting small businesses. An industry insider familiar with the discussions told MFS U.K. that although the chancellor wants to ditch the higher capital proposals, he can’t do anything until the PRA finishes its consultation and policy work (likely second quarter of this year). Rules are rules, and the regulators are supposed to be independent, after all. 

Under pressure: As we reported, banks are urging the PRA to reduce higher capital charges for SMEs in the Basel 3.1 proposals, and the regulator looks increasingly likely to bend to their wishes. Politicians in U.K. Parliament’s Treasury Committee, as well as Treasury officials, have also been putting pressure on the regulator to not hike prudential requirements, because of the political implications of making it more expensive for small companies to borrow money. But the issue is timing — in a retail-heavy budget, Hunt wants to be able to say he’s delivering on making it easier for SMEs to borrow and to grow. It looks like the PRA, in insisting it sticks with the regular consultation process, might scupper those plans. 

Fine print: However, there could be a brief mention of capital requirements in the budget documents as part of Hunt’s package of measures to boost SME investment. Watch this space.

MONEY LAUNDERING

FCA WARNS FIRMS AFTER ANTI-MONEY LAUNDERING FAILINGS: The FCA has written to chief execs of 1,000 firms, warning that some are “still not getting the basics right” with their financial crime controls. The letter, sent yesterday, was to “Annex 1 businesses,” which includes lenders, money brokers and financial leasing companies. There are about 1,000 of them, and they’re not subject to wider FCA regulation. 

Back to basics: The FCA found several “common failings” in firms’ anti-money laundering frameworks. Firms were told to assess their financial crime weaknesses within the next six months or face enforcement action. The FCA found firms whose registered and actual activities are different (they’re not doing what they say they are), financial crime controls which didn’t keep pace with business growth, and inadequate resourcing and oversight of financial crime issues. “These must be addressed,” said Emad Aladhal, director of a team of specialists at the FCA dedicated to reducing and preventing financial crime and fraud.

**Berlin Playbook, the newest addition to POLITICO’s Playbook family, launched! Täglich informieren wir Sie darüber, was am vor Ihnen liegenden Arbeitstag wirklich zählt. Die aktuellsten Ereignisse aus Kanzleramt, Bundestag und den politischen Zentren der Welt. Mit nur einem Klick anmelden.**

RETAIL FINANCE

FINANCIAL CONDUCT AUTHORITY INVESTIGATES SMALL BUSINESS LOAN COMPLAINT: The FCA has opened an investigation into banks demanding personal guarantees in small businesses loans — which could be making them more risk averse and limiting their ability to grow. 

Far from super: The “super complaint” was brought by the Federation of Small Businesses (FSB). These are only allowed when consumer bodies believe something has significantly damaged consumer interests.

Going forward … The FCA will collect data on the prevalence of personal guarantees in loans for small businesses. The FSB wants the FCA to consider giving limited directors and shareholders companies the same consumer protection as others receive. 

Welcome: Finance & Leasing Association’s director of business finance, Simon Goldie, said: “We welcome the FCA’s measured approach as they seek more information on the operation of personal guarantees in the market. We will work closely with them to ensure that the context of these guarantees is understood, not least the fact that our latest research suggested an enforcement rate of only 2 percent in 2023.”

INSURANCE

YOU’RE INVITED: The Prudential Regulation Authority is holding a roundtable for insurers (and other interested stakeholders) to discuss planned Solvency U.K. liquidity reporting requirements. The roundtable is scheduled for March 19, between 11 a.m. and midday, and will involve discussions on new reporting rules, which are being implemented following liquidity strains experienced by insurers during market stresses such as the March 2020 “dash for cash” and the September 2022 LDI crisis. It will be followed by regular subject expert group meetings until September 2024.

WHAT WE’RE READING

Should Norway’s sovereign wealth fund be able to invest in private equity? asks the FT.

Bitcoin back in vogue as prices reach a record-breaking $69,000, writes the Guardian.

Reuters reports that a UN-backed alliance of banks weakens its climate rules to avoid departures.

Thanks to: Fiona Maxwell and Izabella Kaminska.

**A message from Nationwide: Our mutual status means that Nationwide does not have to pursue profit to pay shareholders dividends. Instead, we return additional value to our members as owners through our Fairer Share products and payments, and a focus on keeping branches open. To support diversity of business models, we would like all policymakers to commit to doubling the size of the cooperative and mutual economy, and in particular strengthening mutuals in the financial services sector. Key actions could include better consideration of mutuals when making regulation and legislation, new capital instruments that work for mutuals and a dedicated “Minister for Mutuals” in Government. Find out more.**