Labour enters shark attack mode

SNEAK PEEK

— Labour goes after City fat cats — but expect a fight.

— Government finally unveils autumn statement ISA reform legislation.

— Car loan mis-selling bill wont hit PPI-scale disaster, says FCA boss.

Happy Friday! We made it!

After another busy week MFS U.K. has more content goodness for you to get through before you clock off for the weekend. Today also just happens to be the Ides of March — so beware/celebrate accordingly.

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DRIVING THE DAY

LABOUR WANTS TO TAKE A CHUNK OUT OF CITY SHARKS: The Labour Party has been busy schmoozing the City of London to try to convince business that it’s worth trusting with the economy. 

But: That charm offensive doesn’t extend to the pocketbooks of multi-millionaire executives at the top of private equity, venture capital and hedge funds. And there’s a battle ahead.

Carried interest: Shadow Chancellor Rachel Reeves wants to hike taxes on those wealthy bosses, if Labour forms the next government, by closing a tax loophole called carried interest where they pay capital gains (28 percent) rather than income tax (45 percent) on payouts.

Why do they want to do this? It could raise £440 million a year, Labour estimates, and the party needs revenues for its plans for public services — particularly after Conservative Chancellor Jeremy Hunt swiped other money-raising schemes like taxing non-doms in his Budget last week. 

Battle ahead: It’s an easy political win for Labour to take on City fat cats. But don’t expect private equity, one of the most aggressive areas of finance, to go down without a fight. Politicians in Washington have repeatedly tried to close the tax loophole — without success.

Could it backfire? While the tax may raise revenues for the public purse, money managers argue it could dent the attractiveness of the U.K. as a place to invest and the City as a place to do business.

City’s standing: Paris, which has been trying to entice financial businesses over the Channel after Brexit, might, for one, be quite willing to make private equity more comfortable. Read Hannah’s story in full here.

WHAT’S ON

Bank of England: Consolidated worldwide claims (Q4 2023), 9 a.m.

Bank of England/Ipsos Inflation Attitudes Survey (February 2024), 9:30 a.m.

Mark your calendars! Our week ahead calendar landed in your inbox Thursday. Help us to help you, and go online to export and plan your week or suggest your own event.

**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.**

INVESTMENTS

N-ISA TO SEE YOU: They’re here! After four months and a lot of grumbling from industry the government has finally published the final details of legislation for ISA regulation changes Jeremy Hunt announced at his autumn budget. 

Wh-ISA long: The government has given ISA providers almost no time to implement these changes as the next tax year starts in less than a month, which has irked many larger U.K. providers who have been screaming for more clarity on the legislation since it was announced in November. 

Made the list: Pretty much all changes announced by Hunt in November made it, including increasing the age at which a cash ISA can be held from 16 to 18, permitting investors to subscribe to more than one ISA account in the same tax year and removing the requirement to make a fresh application to open an account that they already hold. Also, the government will allow certain illiquid investments to be held in an innovative finance account, and have removed a provision which allowed certain ISA providers based in the EU to conduct business without being present in the U.K. There is also a change which will allow HMRC to withdraw approval of an ISA manager if they have not acted as such within 18 months of being approved. You can see the full list of changes here. 

What didn’t: As first revealed by MFS U.K. last week, the proposed rule change allowing investors to hold fractions of shares — like a portion of Apple and Tesla et al — in stocks and shares ISA accounts did not make the cut. HMRC and Treasury will instead consult on this change throughout the summer. 

RETAIL FINANCE

MOTOR FINANCE SCANDAL ‘NOT PPI’: Nikhil Rathi has refuted suggestions that the motor finance scandal (which has already seen Lloyds Banking Group set aside £450 million) will be the next Payment Protection Insurance (PPI) scandal. It’s been the message from some analysts, who predict the bill could reach £16 billion, making it the costliest financial fallout since the almost £40 billion for PPI. The FCA chief executive told an audience at Morgan Stanley yesterday that the regulator would set out its next steps on motor finance in the autumn.

What Rathi said: “Some, not us, have sought to draw comparisons with PPI. In PPI, the regulator’s work took place over many years and this and action on redress dragged on for some time. With motor finance, because of the impact on firms, as well as consumers, we want to clarify matters in a more condensed time frame and on a basis that is robust and fair … I do not anticipate this issue playing out as PPI did, not least because we have intervened early in the interests of market orderliness.”

What he didn’t say: That the financial redress for consumers won’t reach the heights of PPI. Rathi wants to make it clear that the regulatory approach won’t be the same and compensation for consumers won’t take yonks — but that doesn’t mean the financial impact won’t be comparable.

Do you remember: The FCA is “working hard to get to the bottom of the facts and will set out next steps by the end of September,” Rathi said. The regulator will “act proactively and thoroughly” to get to the bottom of the problem, he said, adding that while he could not prejudge the FCA’s investigation, it is “improbable we will find nothing to report as we look at historic motor finance sales.”

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BANKING

GOVERNMENT LEGISLATION ON DE-BANKING NEARLY FINISHED: New government legislation published Thursday seeks to make it harder for banks to offload customers, and provide more information on the reason for doing so, in the wake of the Nigel Farage-Coutts debacle. The government said it plans to bring the proposed legislation to parliament in the summer, and that it anticipates requirements will begin “as soon as practicable thereafter.”

New rules: The draft legislation changes the U.K.’s payments regulation to increase the minimum termination notice period from two months to 90 days. Also, banks and other payment service providers will be required to explain the reasons for termination to customers, and they must inform the customer of their rights to complain. But other legal requirements, like criminal activity or money-laundering concerns, take precedence when it comes to account shuttering. 

GREEN FINANCE

HOW TO TRANSITION WITH THE CITY: The City of London Corporation wants feedback on how to make London a global center for financing the transition to a greener, net-zero economy. A call for evidence opened on Thursday under the government’s Transition Finance Market Review, led by lawyer Vanessa Havard-Williams and hosted by the City of London. 

Balancing act? The review wants answers from banks, insurers, money managers, stock exchanges, NGOs and business on how to balance meeting the U.K.’s climate goals — like reaching net zero by 2050 — with allowing finance to scale up and avoid unintended consequences like capital flight. Respondents have until April 24. Read more here.

WHAT WE’RE READING

Tom Hayes’ Libor conviction “extraordinarily unfair,” court hears: in the Financial Times.

HSBC lining up state-backed loans for U.K. Sizewell nuclear plant, finds Bloomberg.

Asset managers think faster U.S. stock settlement poses “systemic risk” to Europe, reports Reuters.

Thanks to: Fiona Maxwell and Izabella Kaminska.

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