The City reflects on its love bomb Budget

Turns out being rich is all the rage again. You could forgive the City negotiators for feeling a bit giddy.

The tone of Chancellor Kwasi Kwarteng’s mini-budget was resolutely maximalist, for growth, for business and for financial services. The European cap on bankers’ bonuses is a thing of the past. Let everyone – but especially the better-off – keep more of what they earn, with the abandonment of the increase in national insurance and the abolition of the maximum rate of income tax. There was the promise of further announcements to come to “unleash the potential” of British finance.

The city is back, baby. Long live the creators of wealth.

What that will mean on the pitch (once the champagne wears off) wasn’t entirely clear. The government’s new affection for the residents of the Square Mile does not go as far as the lifting of the surcharge on the corporation tax of the banks: as part of the cancellation of the rise in corporation tax, the tax penalty for being a bank will remain at 8 percentage points, rather than falling to 3. A commitment to change the pension expense cap for defined contribution funds to allow for more investment in private equity and other illiquid assets was already a (questionable) policy. The inevitable evocation of the Solvency II rules for insurance, the ultimate regulatory talisman for today’s politicians, was limited to the promise of a package of reforms to come this autumn.

There was, ironically, more meat on the bones when it came to the kinds of infrastructure-focused upgrade policies associated with the previous administration. Businesses will no doubt complain that corporate tariffs have again gone unanswered and unreformed. But there were 24 “illustrative sites” on offer under the government’s investment zones scheme, with 38 local authorities vying for an area with generous tax and investment incentives. The country’s growth potential will surely be transformed by improvements to the Chippenham Bypass, one of 138 infrastructure projects to be accelerated immediately.

Building is a sensible thing to do, structurally and cyclically. And there were hints of more radical change that should be welcomed by businesses and others, such as an overhaul of a planning system that is “too slow and too fragmented”. This even extends to a promise to lift the effective ban on onshore wind farms.

The City will, frankly, want to see more details. There was no mention of the bank tax on UK balance sheets. It’s easy to shout about an “ambitious deregulation package” and much harder to deliver something that works.

The fact is that much of the regulation transposed from Europe to the UK after Brexit reflects internationally agreed standards and not the cold hand of Brussels bureaucracy. The ideological or politically desperate removal of the rules will not strengthen London’s position as an international centre. Many practitioners would love nothing more than a real focus on bog efficiency: faster regulatory approvals for basic issues or the ability to move senior executives faster and easier. Toning down the post-Brexit slash and burn rhetoric would, at this point, be good for everyone.

Companies may just be hoping that this latest iteration (or indeed any iteration) of conservatism really holds up. The sentiment of an economic Hail Mary, a desperate bid for growth at all costs, literally rattled the markets, with gilts and sterling falling sharply.

Boosting the UK’s struggling business investment will require a sense of stability and certainty as much as anything else – something sorely lacking since 2016. Would-be investors, at home or abroad, bemoan the unpredictability and lack of policy implementation. Market turbulence and a falling currency will not reassure policymakers that the third (or is it fourth?) variant of UK industrial and growth policy in five years is here to stay. Nor is the relatively short window before the next election and the possibility of another glaring leadership change, given the ideological chasm currently offered between government and opposition.

Kwarteng broke down to show the city – and business – lots of love, which only hopes to be meaningful if it lasts.

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