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Category: Economy

  • Alistair Darling – 1997 Speech to the Proshare Annual Awards Dinner

    Alistair Darling – 1997 Speech to the Proshare Annual Awards Dinner

    The speech made by Alistair Darling, the then Chief Secretary to the Treasury, on 3 December 1997.

    Introduction

    1.   This is the fourth Proshare award ceremony that I have attended.

    2.   I am under no illusions about my fate.  The day that I entered the Treasury my attention was drawn to the rogues gallery – the portraits of my predecessors dating back to the early 1960s, when the ancient office of Chief Secretary was established.

    3.   An examination of the photographs revealed that my five immediate predecessors had all lost their seats at the election two days earlier.

    4.   In its short five years existence, Proshare has been enormously successful.  I have always thought that the 1980s rhetoric of the “shareholding democracy” was misplaced.  It was a political slogan.  It wasn’t real.  Indeed it was counter productive rhetoric.

    5.   The fact is that more and more people do shares directly or indirectly.  That’s all to the good.  People should know the relationship between the Stock Market and their shares. And individual shareholding has worked for many but it isn’t for everyone.  Lets be realistic about it.

    6.   But the more people understand share holding the better.   We want to encourage people to save and to invest.  And Proshare has played a vital part in promoting that wider understanding.

    7.   And of course, the best and most successful businesses are those where everyone in the enterprise from boardroom to the shop floor is fully engaged in its success.  Everyone should have a stake in the enterprise in which they are engaged.  It brings out the best in people.

    8.   And encouraging employee share ownership is a important part of that – nearly 2 million employees now belong to one of  the approved schemes.  We want to see employee share ownership expand.  Shareholding should encourage participation and responsibility.

    9.   And Proshare has been active promoting wider understanding of share holding and financial services  generally.  This award ceremony helps that process.

    10.  Indeed Proshare is something of a pioneer in promoting the use of plain English – helping demistify the world of finance.

    Share holding and saving

    11.  We want to encourage saving which is why yesterday we launched the new Individual Savings Account.

    12.  We believe that everyone should have the opportunity to provide for themselves – whether they are saving for their future, for their retirement or simply for a rainy day.

    13.  ISAs are aimed at encouraging everyone to save.  They will be simple, flexible and accessible – something everyone wants and will get.

    14.  Our objective is to develop a tax system for savings which benefits the many and not just the few. Half the population don’t save. So everyone should have the opportunity to save in a tax-favoured environment, however small the amounts they are able to put aside.

    15.  As we promised in our manifesto, the ISA builds on the experience of PEPs and TESSAs. That is why investments in ISAs will be tax-free – up to 50,000 – and 100,000 Pounds for couples.

    16.  We spend 1.3 billion Pounds on tax relief under the present system – rising to 1.7 billion Pounds in 2001-02.   Much of this goes to those who can already afford to save significant amounts and to tie their savings up for long periods of time.  That isn’t an efficient use of public money.  Our objective is to bring in new savers.

    17.  Far better and fairer to use the existing provision to bring the benefits of ISAs to a much wider population of savers – possibly encouraging 6 million new savers.  That is right in principle and it is fair.

    18.  Two weeks ago we published our consultation paper on stakeholder pensions.  The consultation document we published yesterday on ISAs builds upon this.  More and more people want to make provision for themselves and we want to encourage them
    to do that.

    Supervision and regulation

    19.  And if we are to encourage saving we need a regulatory environment that commands the support and respect of the industry and public alike.

    20.  We promised reform at the election.  Four days after the election we gave operational independence to the Bank of England.  And three weeks later we set out how we would deliver the radical overhaul to the regulatory system we promised.

    21.  And, just over a month ago the new Financial Services Authority was launched.  It will take over the work of  nine existing regulators.

    22.  In the global economy where markets are changing every day, where innovation and diversity are an essential part, the need for a new regulator that has power and flexibility is essential.

    23.  For the first time the regulator will have statutory objectives clearly set out.  And the authority will to promote a greater understanding of the benefits and risks associated with financial products.  The draft financial services Bill, updating and replacing the various pieces of legislation covering financial services, will be published next year for
    consultation.

    24.  If we want to encourage people to save and invest we have to make sure they have the information they need.To have confidence in the regulatory system.  That’s good for them and its good for business.  Good regulation should be complimentary to the business process.

    The savings culture

    25.  We want to build the savings culture. That is good for individuals. It is good for businesses and is therefore good for the country as a whole.

    26.  But of course the Government has also to foster  the right economic climate to enable businesses and individuals to plan for the long term.

    The Government’s economic approach

    27.  The world has been transformed over the last few years.  We live in a global economy.  Industries typically span geographical and political boundaries.  No country can go it alone.  Our objective is to ensure Britain is equipped to rise to the challenge of the world’s new and fast changing economies.

    28.  We are determined that this country, the first industrial nation, should be ready and equipped to seize the opportunities and a new global economy where its skills creativity and adaptability will mark us out.  And there is a new confidence in Britain today.

    29.  It’s not the job of the Government to pick winners or to second guess management.

    30.  But Government must address the fundamental weaknesses  that have held us back for too long.  Economic instability. Boom and bust. Underinvestment.  Productivity up to 20% below that of our competitors. Unemployment and the waste of talent of too many people.

    The Government’s economic objectives

    31.  In the six months since we took office, we have begun to  put in place the building blocks we need.  To raise the rate of sustainable growth to increase the prosperity of the country, so that everyone can share in higher living standards and greater job opportunities.

    32.  First, monetary stability and low inflation – the essential precondition for growth.  Good for business, for savers, for those on fixed incomes.

    33.  We have given operational independence to the Bank of England to set interest rates to achieve the Government’s target for inflation.  We have put in place the most open and accountable set of procedures in the world.  And already long term interest rates have fallen.

    34.  Second, fiscal stability.  The Chancellor in his Budget in July put in place a deficit reduction plan, cutting the huge burden of debt left by the last Government.  We spend 25 billion Pounds a year servicing public debt.  More than we spend on schools.  And at this stage in the cycle we should not be adding to the country’s debt.

    35. Thirdly, the Comprehensive Spending Review which I announced earlier this year will conduct a root and branch examination of the 320 billion Pounds the Government spends:  5000 Pounds for every man, woman and child.  It will ensure affordable and sustainable public finances and which will set the spending priorities of this Government, for the rest of this Parliament and beyond.

    36.  And fourthly, removing barriers to growth.  We must expand our economic capacity and create the right climate for high levels of investment.  That is why we have reformed the corporation tax system, removing the distortions that hinder long term, high quality investment.

    37. In the last Budget we cut corporation tax to the lowest level ever.  And we intend to cut the main rate again when ACT is abolished in 1999.  This further enhances our position as the country with the lowest rate of corporation tax of any major industrialised country and one of the lowest tax burdens on business.

    38. And modernising the welfare state, getting more people back into work.  Investing in skills and training.  Removing the inflationary pressures that have undermined growth in the past. We have taken the tough decisions.  Putting the funding of higher education on a sustainable footing for example.  All for the long term good of the country.

    39.  So the building blocks are there.  Stability, sound public finances, removing barriers to growth and a commitment to open markets.

    40.  This Government is outward looking.  We have to be and that has driven our policy in Europe as elsewhere.

    41.  We are determined to open markets and engage constructively in Europe.  Both the Chancellor and the Prime Minister have made it clear that we are determined to put in place the necessary preparations which will allow Britain to decide to join EMU if economic conditions justify it.

    42.    We’re one of the most open economies in the world – trading 25 per cent of our GDP compared with America’s 10 per cent.  And nearly 60 per cent of our exports are to mainland Europe and an astonishingly high level of international investment into Europe – 30 per cent of it – comes to the UK.

    43.    In less than 14 months from now the German business selling products to France and the Netherlands will be able to do so without exchange rate risk, with lower transaction costs and with more transparent prices, something that in itself will be a big challenge to a British competitor hoping to supply the same order.

    44.    So EMU will lead to fiercer competition for trade and for future investment across Europe.  And the time to prepare is now long overdue.

    45.  We are working with business to prepare for the introduction of the Euro in 1999.  The Euro will affect each and every one of us.

    Preparing for the future

    46.    In Europe and at home are objectives to obtain long-term stability.  Stability in policy making.  Stability in the economy.

    47.    Our pre-Budget report last week marks another innovation.   It sets out the major economic issues facing the UK in the run-up to the Budget in the Spring and beyond.

    48.    In the modern economy, demand for more openness and transparency than in the past.  Openness builds confidence in the Government’s ability and determination to maintain economic stability.

    49.    And we set out clear choices for the country.  There is the opportunity now for sustainable growth.  Growth that will create job opportunities and generate the wealth this country needs.

    Conclusion

    50.  Tonight sees awards for individuals and business on whose success we all depend. Government’s job is to compliment business effort.  To prepare the country for the future. To maintain economic stability.  To ensure a skilled and adaptable workforce.To open markets in Europe and elsewhere.

    51.    But no Government can ever take the place of individual flair.  It is that innovation and enterprise that we celebrate tonight.

  • Gordon Brown – 1997 Speech at the Centrepoint Annual General Meeting

    Gordon Brown – 1997 Speech at the Centrepoint Annual General Meeting

    The speech made by Gordon Brown, the then Chancellor of the Exchequer, at the Centrepoint Annual General Meeting on 2 December 1997.

    Let me say what a privilege it is to be at this annual general meeting, to be here to discuss with you some of the great social and economic challenges we face together in Britain today.

    And I want to start by congratulating you, the staff and supporters of centrepoint, on this the twenty eighth anniversary of centrepoint – on all the work you do, the service you offer, the time and hours you give up and the dedication and commitment you show.

    If ever there was a confirmation that community involvement and social commitment is alive and well and thriving in London and in Britain, it is the work of centrepoint and all its sister projects to combat not only homelessness, but hopelessness.

    This year, tragically, centrepoint has lost a loved, respected and deeply committed patron – Diana, Princess of Wales.

    And I want to assure you that the committee to commemorate and continue her work that we are setting in being today and the charity advisory group that will be announced later will have a membership that reflects her life and her work as the people’s Princess.

    And our task will not only be to provide a lasting memorial to her work. It will also be to look at how, in very practical ways, we can help the work that she started continue and flourish.

    And I want to assure you at centrepoint also of the support of thousands of people, of all political persuasions and none, right across the social and political spectrum for your work. And I want to pay tribute to your sponsors who through their generosity, enable you to improve the lives of so many of our young people – their continuing support is vital, and I would encourage others too, to make a difference by giving their support.

    And in particular I want to congratulate you on the expansion of the work of entrepoint over the years

    The scale of your work is now such that with centrepoint’s 500 bed spaces, you help 3000 young people a year, half of them from ethnic minorities, a third of them under eighteen, and nearly half who have slept rough.

    the refuge for runaway children under sixteen;
    the emergency direct access shelter for teenagers;
    off the streets shelters for young rough sleepers;
    the young women’s hostels, one helping pregnant women and children;
    the intake house;
    Baffy house;
    Centrepoint kings cross;
    streets ahead, the recruitment agency linking the homeless to employers;

    And I would like to wish Centrepoint every success in running the admiralty arch winter shelter which will provide 60 bed spaces for young people.

    From work to provide immediate relief and emergency help to tackling the multiple causes of homeless and poverty

    And of course the network of foyers, starting in London, linking training to housing provision, now flourishing round the country – soon to provide 4,000 places, with a target of 16,000 by 2001-2002.

    And I am delighted to meet again young people here today from Centrepoint Camberwell foyer some of which I met back in may .

    You find unemployment homelessness and poverty an offence against standards of decency. So do I. And we must together tackle the problem

    What people remember of the in the 1930s is unemployed men Standing on street corners.

    What people identify with the eighties are youngsters begging and sleeping rough in our city streets.

    If the 1980s are remembered for social exclusion I want the 90s to be remembered for inclusion – when individuals, the voluntary sector, and government worked together with shared purpose for a common endeavour.

    Your aim is to tackle the causes of homelessness, worklessness and poverty, a blight on every community in the country and on a society that calls itself civilised .

    Homelessness and poverty not only means deprivation and isolation, it means: hopes crushed, aspirations stifled, potential wasted, indignities and miseries visited upon the poor.

    For 28 years you have been working as a voluntary group mobilising support.

    I can tell you today that tackling homelessness and poverty is no longer solely the ambition of voluntary organisations like you.

    It is now the ambition of the country’s government .

    And your values – to support the vulnerable and build a society in which everyone has a contribution to make – are now the values shared by this government.

    And let me say what that change means at a personal level.

    For years as a labour opposition, I and my colleagues were angered by the injustices we saw, but we were powerless to take the action in government that we knew was needed.

    Now we can take action and we recognise the responsibility that places upon us. But we will only achieve success if we work together.

    So I want today to discuss with you how our economic approach in government ties in with the work you are doing, and to explain how the common theme of empowering individuals through providing opportunity lies not only at the heart of your approach to tackling homelessness, but our analysis of the economic challenge our country faces.

    Of course our energies must ensure relief where there is suffering. But our ambition is not limited to bricks and mortar; it is to enable young men and women bridge the gap between what they are and what they have it in themselves to become. So we must
    not only deal with the consequences of poverty, we must tackle its causes.

    So I want to discuss with you how the government’s economic approach, for which I have responsibility, is aimed at tackling the root causes of homelessness and poverty in our country, and our shared task in doing so.

    Let me start with what I believe is common ground.

    Poverty diminishes not only an individual but the society which tolerates it. We are indeed our brothers and sisters keeper, and we must not walk by on the other side.

    So we start from the recognition that everybody needs decent and affordable accommodation and that no young person should have to sleep rough in Britain. Something close to the heart of centrepoint’s aim it is to ensure that no young person is at risk because they do not have a safe place to stay.

    that is why we have made a start with the phased release of capital receipts from council house sales: an additional 900 million pounds – over the next two years – which will increase the stock of housing for rent. And we encourage the foyer movement to seek assistance from local authorities which have access to more funds via the capital receipts initiative.

    and we have refocused the rough sleepers initiative to provide 20 million pounds for 13 rough sleeper projects outside central London. With 1 million pounds of pump priming funding over the next 18 months to support new rough sleeping strategies in six other areas. And 8.1 million pounds in the spring, specially targeted at single homelessness, particularly amongst the young;

    and we want to encourage more partnerships to help tackle homelessness and follow the example of crash – the construction industry group which encourages firms to provide materials for winter shelters provided through the rough sleepers initiative.

    But this is not enough. Only by tackling the cause of homelessness and poverty – in unemployment, the lack of opportunity and skills for employment – can we build a better future for the long term.

    So our anti-poverty strategy for this country, starts from the importance of providing opportunities for work.

    Its founding principle is that we must tackle the causes of poverty, not simply deal with its consequences.

    It is built around a new deal programme that offers new opportunities directly to young people.

    It rests on rights and responsibilities going hand in hand – rights to work: responsibilities to work – rights and responsibilities of government and people together, so that together we tackle the problems we face.

    So work is central to our anti-poverty strategy.

    And last night, in downing street, I met teenagers from Newham to hear from them what they thought had to be done to improve prospects for young people. They said jobs.

    The true scale of poverty, published in the last few days by the treasury, is a terrible indictment of the past and a call to action for the future. Despite an official rate of under 6 per cent unemployment 3 1/2 million households in Britain have no one in work.

    And in Britain today there are nearly 400,000 young people out of work – where there really should be no young person wasting their talent, doing nothing.

    And our strategy is built on recognising that poverty is caused from the workplace outwards – lack of job opportunities, inadequate skills, inadequate income to make proper provision for accidents, retirement and sickness. And the measures we propose include not just benefits reform, but tax changes, new learning and education measures and the introduction of a national minimum wage.

    In this way a new anti-poverty strategy for Britain is now being implemented.

    So what are our proposals?

    First everyone in need of work should have the opportunity to work – young people, lone parents, and disabled men and women who want to work.

    And for young people we are creating a new deal – four options:

    a job with an employer;
    work with a voluntary organisation;
    work on the environmental task force;
    and, for those without basic qualifications, full time education or training.

    From January these options will be available in 12 pathfinder areas to young people who have been unemployed over six months. And from April, the programme will go nationwide – available in every community in Britain.

    Our new deal recognises that some young people will require more intensive support to ensure that they are able to take up one of the four options on the programme and have a chance of benefiting fully from it.

    And I am very glad that foyers, who are already doing excellent work with young people throughout the country, are bidding for provision of elements of the new deal gateway. And I would also like to encourage foyers to bid as providers for the education and training element of the new deal.

    So we want to work in conjunction with Centrepoint, the foyers and other organisations to maximise the help given to our young people.

    And I am very pleased that the Camberwell foyer has been closely involved in designing the gateway to the new deal programme in the Lambeth pathfinder area, and I expect them to be heavily involved in delivering the programme too.

    So I believe it was right to tax the privatised utilities to raise the 5 billion pounds to help a generation of people – today excluded from the chance of prosperity – to have new opportunities.

    And I am pleased that some of the country’s best known businesses are now agreeing to take part in the new deal project:

    Allied Domecq, who have said they will offer at least a 1000 opportunities;

    Tescos, who have guaranteed an interview for all new deal clients who apply to work in their new stores.

    Ford, who have agreed to raise substantially the number of training places they provide for unskilled young people;

    Nat West, who have agreed that their small business advisers will promote the new deal to employers.

    And other companies are coming up with ways they can support the new deal – BAA, Radisson Hotel Group, Lloyds-TSB, Dixons, Marks and Spencer, Sainsbury’s, Unipart, Amersham International, Northern Foods, Grand Metropolitan, GEC, Rover, Jaguar, Peugeot, The Prudential, Tarmac – along with many others.

    But I want to emphasise that the new deal is just the first part of this government’s mission to create a more just and fair society – starting with jobs and the chance to gain work skills – but continuing by modernising a welfare state that too often stifles talent and denies opportunities to men and women.

    Our goal is not just to take people off the streets for a few months, but to make the unemployed fully employable and to rebuild the welfare state around the work ethic.

    So second we must ensure work is worthwhile and it pays.

    650,000 people in Britain face a poverty trap where the lion’s share of every extra pound earned goes in tax.

    So there is no solution to poverty that does not involve a fundamental restructuring of the tax and benefit system.

    That is why our pre-Budget statement proposed an integrated tax and benefit plan involving action at every level.

    To maximise the rewards from work, a 10p starting rate of tax and a reform of benefit tapers will be introduced when it is prudent to do so.

    To ensure that work pays for families with children, we propose a working families tax credit, backed up by affordable child care.

    And to ensure the rewards of these reforms flow directly to the employee, we are committed to a statutory national minimum wage.

    To improve rewards from work, to simplify administrative burdens on employers, and to encourage them to take on more people, we are considering the scope for bringing the national insurance structure for the low paid more closely into line with income tax.

    And to ensure parents can work, our national childcare strategy.

    But everyone who seeks to advance through employment and education must be able to make the most of their talents and potential. We will also create a new ladder of opportunity that will allow the many, by their own efforts, to benefit from opportunities once open only to a few.

    The relationship between skills, employment and wages is clear – half the unemployed under 35 have no qualifications worth their name, 75 per cent of those unemployed for five years or more have no skills.

    That is why we need to invest in our poorest communities with resources for education. It is why we put an emphasis on nursery education early on. It is why we want more young people to stay at school and more to go to college and university. It is why we place emphasis on lifelong learning with every employee entitled to an individual learning account and a university of industry which uses modern communications, satellite, cable and interactive technologies. To give educational opportunities to men and women in their homes and workplace.

    That is why in the pre-budget report we also announced our skills initiative – pilot projects nationwide under which any employer who takes on and trains a young or long-term unemployed person and keeps them on, can now receive up-front three quarters of their new deal allocation thus giving immediate help with training costs – in the case of young people about 1700 pounds and for the long-term unemployed, 1500 pounds.

    So we tackle homelessness, but we also tackle the causes of homelessness – and offer new opportunities in education, for jobs and for making work pay. Full employment is not, for us, a slogan; it is about providing employment opportunity for all.

    It will take time to right the wrongs. But let me say: not only have we made a start by working together, but we will do more year on year.

    But with 3 1/2 million households out of work, we do not deny the scale of the task we face, and the circumstances in which we came to power. I know more than anyone the cost the country has had to pay for 18 years of avoiding the problems, so I wont pretend solutions will be instant it will take time and none of our decisions will be easy.

    We have had to and will continue to have to make hard decisions about where our resources are to go. Our priority is to put the money that we have available into new job training and child care opportunities for lone parents rather than just on benefit. While we could have given even more tax relief to those who have already accumulated considerable savings, our priority is to put some of the 1 1/2 billion pounds resources we are spending on encouraging savings to do more to help those who do not at the moment save – up to 6 million new savers. Our priority is to encourage more people to attend college and university by sharing the costs of higher education, rather than continue to limit higher education to an elite of the country’s young people. And our priority is to put money into the new deal for the young through the cash we raised from a windfall tax on the privatised utilities.

    Difficult choices, but necessary choices. For we are starting out on a long journey with a route map and a clear destination – to make Britain a country where everyone, no matter their circumstances today, from wherever they come or whatever they have done, whoever they are – everyone has opportunity to make the most of their potential. That is my aim. And I believe that working together that can be our achievement: a new Britain where everyone has a contribution to make.

  • Bank of England – 2022 Statement on Interest Rates

    Bank of England – 2022 Statement on Interest Rates

    The statement issued by the Bank of England on 15 December 2022.

    Monetary Policy Summary, December 2022

    The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 14 December 2022, the MPC voted by a majority of 6-3 to increase Bank Rate by 0.5 percentage points, to 3.5%. Two members preferred to maintain Bank Rate at 3%, and one member preferred to increase Bank Rate by 0.75 percentage points, to 3.75%.

    In the MPC’s November Monetary Policy Report projections, conditioned on the elevated path of market interest rates at that time, the UK economy was expected to be in recession for a prolonged period and CPI inflation was expected to remain very high in the near term. Inflation was expected to fall sharply from mid-2023, to some way below the 2% target in years two and three of the projection. This reflected a negative contribution from energy prices, as well as the emergence of an increasing degree of economic slack and a steadily rising unemployment rate. The risks around that declining path for inflation were judged to be to the upside.

    Domestic wage and price pressures are elevated. There has been limited news in other domestic and global economic data relative to the November Report projections.

    Most indicators of global supply chain bottlenecks have eased, but global inflationary pressures remain elevated. Advanced-economy government bond yields have fallen, particularly at longer maturities. The sterling effective exchange rate has appreciated by around 2¾%. There has been some reduction in UK fixed-term mortgage rates since the Committee’s previous meeting, but rates remain materially higher than in the summer.

    Bank staff now expect UK GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than expected in the November Report. Household consumption remains weak and most housing market indicators have continued to soften. Surveys of investment intentions have also weakened further.

    Although labour demand has begun to ease, the labour market remains tight. The unemployment rate rose slightly to 3.7% in the three months to October. Vacancies have fallen back, but the vacancies-to-unemployment ratio remains at a very elevated level. Annual growth of private sector regular pay picked up further in the three months to October, to 6.9%, 0.5 percentage points stronger than the expectation at the time of the November Report.

    Twelve-month CPI inflation fell from 11.1% in October to 10.7% in November. The November figure was slightly below expectations at the time of the November Report. The exchange of open letters between the Governor and the Chancellor of the Exchequer is being published alongside this monetary policy announcement. Although the introduction of the Energy Price Guarantee (EPG) in October has limited the rise in CPI inflation, the contribution of household energy bills to inflation has risen further. Since the MPC’s previous meeting, core goods price inflation has fallen back, while annual food and services price inflation have strengthened. CPI inflation is expected to continue to fall gradually over the first quarter of 2023, as earlier increases in energy and other goods prices drop out of the annual comparison.

    The announcement in the Autumn Statement that the extension of the EPG will cap household unit energy prices at a level consistent with a typical household dual fuel bill of £3,000 per year from April 2023 to March 2024 implies a slightly lower near-term path for energy bills than the working assumption made in the November Report. All else equal, this will reduce the MPC’s forecast for CPI inflation in 2023 Q2 by around ¾ of a percentage point.

    Other additional near-term fiscal support was also announced in the Autumn Statement, but fiscal policy is expected to tighten by progressively larger amounts from fiscal year 2024-25 onwards. Overall, Bank staff estimate that these measures, combined with the impact of the EPG, will increase the level of GDP by 0.4% at a one-year horizon, leave it broadly unchanged at a two-year horizon, but reduce the level of GDP by 0.5% in three years’ time, relative to what was assumed in the November Report. The overall impact on the CPI inflation projection at all of these horizons is estimated to be small.

    The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a succession of very large shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target.

    The Committee has voted to increase Bank Rate by 0.5 percentage points, to 3.5%, at this meeting. The labour market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response.

    The majority of the Committee judges that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target.

    There are considerable uncertainties around the outlook. The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary.

    The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. The Committee will, as always, consider and decide the appropriate level of Bank Rate at each meeting.

    Minutes of the Monetary Policy Committee meeting ending on 14 December 2022

    1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices.

    The international economy

    2: UK-weighted world GDP had increased by 0.5% in 2022 Q3, stronger than had been expected in the November Monetary Policy Report, and was expected to increase by 0.1% in Q4, in line with the projection in the November Report. Most measures of global supply chain bottlenecks had eased, but global inflationary pressures had remained elevated.

    3: In the euro area, GDP had increased by 0.3% in 2022 Q3, stronger than incorporated into the November Report but weaker than the 0.8% growth in Q2. Bank staff expected GDP to fall by 0.2% in the fourth quarter, a little weaker than had been anticipated in the November Report. The composite output PMI had increased slightly in November but had remained in contractionary territory for the fifth month in a row. The weakness had been broad based across euro-area economies and across sectors.

    4: In the United States, GDP had increased by 0.7% in 2022 Q3, stronger than had been expected in the November Report. The share of services in consumption had risen throughout the third quarter, tentatively pointing to the expected rotation in US demand, although this had partly reversed in October. In the fourth quarter, US GDP was expected to rise by 0.1%, broadly in line with the expectation in the November Report. Non-farm payrolls had increased by 263,000 in November and the unemployment rate had remained unchanged at 3.7%.

    5: In China, a sharp increase in Covid cases had contributed to a slowing in activity. China’s quarterly GDP growth in 2022 Q4 was likely to be some way below the 1.4% rate that had been anticipated at the time of the November Report. Covid outbreaks and related restrictions had weighed on consumption, and import growth had contracted sharply as a result. Chinese export growth had also contracted in November, reflecting slowing global growth and some Covid-related disruption to production. The Chinese government had issued new guidelines recently that had eased some zero-Covid policies. The weakening property sector had continued to have a negative impact on activity.

    6: Most measures of global supply chain constraints had eased in recent months, broadly in line with the assumption in the November Report. This was evident in the movements in October and November of an indicator of supply constraints based on global PMI surveys, although that indicator had remained elevated compared with historical averages. In China, that measure had increased in October and November, but had remained below recent peaks and around its historical average. Shipping costs had fallen across a number of regions. Further Covid outbreaks and any associated disruption to output in China could pose a risk to global supply chains in future, although the precise effect would depend on the Chinese economy’s response to changes in Covid policies and the extent to which global supply chains had become more resilient.

    7: Energy price movements had been mixed since the MPC’s previous meeting. At the time of the December MPC meeting, the Brent crude oil spot price was around $80 a barrel, having fallen by around 15%, although only to around the same level as at the start of the year. The Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, was €137 per MWh, up 18% since the previous MPC meeting. Gas futures prices had remained elevated, reflecting concerns around the impact of Russian restrictions to gas supplies and an expectation that supply constraints would continue into next winter. Global agricultural goods prices were broadly unchanged over this period and compared to a year ago, though remained at elevated levels

    8: According to the flash estimate, euro-area annual HICP inflation had fallen from 10.6% in October to 10.0% in November, with core HICP inflation remaining at 5.0%. US CPI inflation had fallen from 7.7% in October to 7.1% in November, suggesting PCE inflation would also ease further.

    9: The MPC discussed the outlook for global inflation. In the November Report, world export price inflation had been expected to peak at 14% in 2022 Q2, and UK-weighted world consumer price inflation to peak at just over 8% in 2022 Q4. Developments since then had been consistent with that view. World export prices had been projected to fall over 2023 as a whole and global consumer price inflation was expected to decline to 1.9% by the end of next year. Absent further shocks, the assumed future path of energy prices and the easing of global supply constraints were consistent with this fall in global traded goods prices. Services price inflation in advanced economies could fall back more quickly than expected if its recent strength had in part reflected indirect effects of energy prices. The tightening in monetary policy across many economies would bear down on global demand and inflation, as the effects of increases in policy rates fed through with a lag. Further shocks to energy and other commodity prices continued to present some upside risks to the central outlook, as would more persistent tightness in advanced economy labour markets. In addition, there could be upside risks to services price inflation if persistently high input costs became embedded, including through higher wage growth.

    Monetary and financial conditions

    10: Since the MPC’s November meeting, government bond yields had moved lower across major advanced economies, particularly at longer maturities. Ten-year yields had fallen by around 20, 60 and 20 basis points in the United Kingdom, United States and Germany respectively. Those movements had only partially offset the significantly larger increases in global yields that had occurred since the end of July. Supported by the recent reduction in yields, risky asset prices had risen globally since the MPC’s previous meeting.

    11: Market expectations for the near-term path of policy rates were little changed across major advanced economies since the MPC’s previous meeting. Both the Federal Open Market Committee and the ECB Governing Council were expected to raise policy rates by 50 basis points at their forthcoming meetings concluding on 14 and 15 December respectively. The market-implied policy paths in the United States and euro area were expected to peak around the middle of next year at a little under 5% and a little under 3% respectively, not materially changed from at the time of the MPC’s previous meeting.

    12: A large majority of respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be increased by 50 basis points at this MPC meeting, consistent with market-implied pricing. The median MaPS respondent expected Bank Rate to peak at 4¼% in the first half of next year and remain at that level throughout the remainder of 2023. The market-implied path for Bank Rate, which would also reflect any upside skew in Bank Rate expectations, rose to around 4¾% by around the middle of next year and remained close to that level throughout the remainder of 2023. While the market-implied path was a little higher than the MaPS median, the gap between these measures had narrowed since the previous MaPS survey, conducted in mid-October.

    13: Further out, market-implied policy paths had fallen across major advanced economies since the MPC’s November meeting. Expectations for policy rates three years ahead, had declined by around 50, 75 and 40 basis points in the United Kingdom, United States and euro area respectively. In the United Kingdom, this was in addition to the material reduction that had occurred in the immediate run-up to the MPC’s November meeting, after the November Monetary Policy Report projections had been finalised. Nevertheless, expected rates at the three-year horizon had remained higher in the United Kingdom than in other major advanced economies.

    14: Medium-term inflation compensation measures were little changed in the United States and euro area since the MPC’s previous meeting. Interpreting the moves in UK medium-term inflation compensation measures remained challenging. Nevertheless, these measures had fallen since the MPC’s previous meeting, following significant volatility in September and October, when there had been large distortions from the repricing in long-dated and index-linked UK government debt, and associated pressure on liability-driven investment (LDI) funds. Looking further back, there had been a material reduction in UK medium-term inflation compensation measures since their peak in March, although they had remained above their average levels of the past decade. In the latest MaPS, the median respondent’s expectation for CPI inflation at both the three and five-year horizons had been 2%, having fallen since the previous survey. Responses, however, had remained skewed to the upside.

    15: The sterling effective exchange rate had appreciated by around 2¾% since the previous MPC meeting. In part, that had reflected a broad-based depreciation of the US dollar, consistent with the somewhat larger declines in US interest rate expectations relative to other advanced economies over the period and some improvement in global risk sentiment.

    16: There had been some reduction in UK owner-occupied fixed-term mortgage rates since the Committee’s previous meeting, but rates had remained materially higher than in the summer. Lending rates for new fixed-rate mortgages had fallen by around 40 to 80 basis points since the November MPC meeting, reflecting the reduction in risk-free market rates following their sharp rise in late September around the time of the announcement of the Government’s Growth Plan. The number of mortgage products available had continued to recover from October lows, but had remained below the levels seen in the summer.

    17: Over the past year, overall bank credit availability had reduced. According to supervisory intelligence that had, in large part, been related to an expected deterioration in borrowers’ balance sheets.

    18: There were some early signs that tighter lending conditions and a decline in credit demand were feeding through to lower lending volumes. In the mortgage market, approvals for house purchase had fallen below 60,000 in October, which, excluding the Covid lockdown period in the first half of 2020, had been the lowest level since 2013. In the corporate sector, net finance raised by businesses in October had declined to its lowest level since 2009.

    19: There had been a net reduction in sterling broad money in October, although that had only partially offset the very large increase in September. Sterling net lending had also fallen in October following a sizeable increase in September. These flows were accounted for primarily by some firms in the financial sector and one contributory factor was likely to have been the significant market volatility towards the end of September, associated with developments at LDI funds.

    20: The MPC had been informed that, on 29 November, the Bank had begun to unwind, in a timely but orderly way, the specific gilt purchases resulting from the financial stability operations conducted between 28 September and 14 October. As of 13 December, around 40% of the gilts purchased during those operations had been sold.

    Demand and output

    21: According to the ONS’s first quarterly estimate, GDP had fallen by 0.2% in 2022 Q3, a smaller decline than the expectation in the November Monetary Policy Report of a 0.5% fall. Within the expenditure components, household consumption and business investment had both fallen by 0.5%, while government spending was estimated to have risen by 2.1%. Underlying output, defined as market sector output adjusted for the estimated effects of recent additional bank holidays, was estimated by Bank staff to have fallen by a similar amount as headline GDP.

    22: Monthly GDP had risen by 0.5% in October, following a 0.6% fall in September, and marginally stronger than had been expected by Bank staff immediately prior to the release. The rebound in the level of output had in large part reflected the unwind of the economic impact of the additional bank holiday for the Queen’s state funeral. At a sectoral level, private sector services had risen in line with expectations, with upside news concentrated in manufacturing output and, to a lesser degree, the government and construction sectors.

    23: Bank staff now expected GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than had been expected in the November Report. This was consistent with a weakening in quarterly underlying growth to between -¼% and -½%, partially offset by the boost to headline output growth from the effect of the additional bank holiday unwinding in October and an assumption that government output would contribute positively to GDP during the quarter. The S&P Global/CIPS UK composite output PMI had remained below the 50 no-change mark for the fourth consecutive month in November. Intelligence from the Bank’s Agents was consistent with only a modest further weakening in activity in the fourth quarter, centred in consumer-facing sectors.

    24: For growth prospects further ahead, the composite future output PMI had recovered to close to its September levels, albeit remaining below its long-run average. In contrast, the CBI composite expectations balance had fallen sharply in November. An aggregate estimate of real growth from the latest Decision Maker Panel suggested that respondents expected sales volumes to stagnate over the next year. Taken together, the forward-looking survey evidence was broadly consistent with the projection in the November Report of a slight fall in GDP in 2023 Q1.

    25: Indicators of household consumption had remained weak. Retail sales volumes had risen by 0.6% in October, in part reflecting the boost to growth from the effect of the additional bank holiday unwinding, but had remained 1.2% below their 2019 Q4 level. GfK consumer confidence had edged higher in November, but had remained very weak by historical standards. Household real incomes were expected to be broadly flat in the near term.

    26: Most housing market indicators had continued to weaken in recent months, after several years of strength. Although the official UK House Price Index had increased strongly in October, house prices had fallen quite sharply in the Nationwide and Halifax indices in October and November. The November RICS survey had shown further declines in price balances and continuing weakness in indicators of housing market activity. According to higher-frequency Zoopla data, the volume of offers made on properties by potential buyers had declined to below their normal seasonal levels.

    27: Surveys of investment intentions had weakened further, and were consistent with small declines in business investment, following a period of greater strength in capital spending after the worst of the pandemic. Agency intelligence indicated that business confidence had remained weak, although mentions of uncertainty in the Agents’ reports had fallen back somewhat in recent weeks.

    28: The Autumn Statement had taken place on 17 November, accompanied by both an Economic and fiscal outlook from the Office for Budget Responsibility (OBR) and new fiscal rules as set out in an updated Charter for Budget Responsibility. Some additional fiscal support had been announced in the near term, including targeted cost-of-living support in addition to the extended Energy Price Guarantee scheme, cuts in business rates, and increased spending on health, social care and education. From fiscal year 2024-25, planned fiscal policy would tighten by progressively larger amounts, with net tax rises accounting for around half of this tightening and reductions in both departmental current and capital spending accounting for the other half. Overall, Bank staff estimated that the additional policy measures announced in the Autumn Statement could, relative to what had been assumed in the November Monetary Policy Report, increase the level of GDP by 0.4% in one year’s time, leave it broadly unchanged at a two-year horizon, but reduce the level of GDP by 0.5% in three years’ time.

    29: The Committee discussed how the OBR’s latest macroeconomic projections compared to those in the November Monetary Policy Report. The OBR’s GDP projection was broadly similar to the MPC’s over the first year of the forecast period. Thereafter, the forecast profiles diverged very significantly, with the OBR expecting GDP to be around 5% higher than in the November Report by 2025 Q4. This gap reflected the OBR’s judgement that both demand and supply would be stronger than the MPC was expecting in the medium term. Productivity was expected to be around 1½% higher in the OBR’s projection, with that difference in part reflecting a much stronger projected path for business investment and hence the capital stock.

    Supply, costs and prices

    30: The Labour Force Survey (LFS) unemployment rate had risen to 3.7% in the three months to October, slightly higher than the expectation of 3.5% at the time of the November Monetary Policy Report. LFS employment had grown by 0.1% in the three months to October, slightly weaker than the 0.3% expected at the time of the November Report. HMRC employee payrolls had increased by 107,000 in November. LFS inactivity had fallen slightly, but had remained high by historical standards.

    31: Regarding more forward-looking indicators, the KPMG/REC Report on Jobs for November had shown that hiring had remained below historical averages. The ONS vacancy survey had continued to decline in recent months, while remaining at a very high level. The vacancies–to-unemployment ratio had remained close to record highs, based on comparable series since 2001. Online indicators of vacancies had flattened off in recent months, but they had remained significantly above pre-Covid levels. Planned redundancies had remained low, although there had been a decrease in the S&P Global UK Household Financial Index and YouGov survey measures of perceptions of job security. Intelligence from contacts of the Bank’s Agents was consistent with some early signs of the labour market loosening, albeit from a very tight starting point, as employment intentions were flat and recruitment difficulties had eased slightly.

    32: The Committee discussed recent labour market developments. Overall, recent data suggested that the labour market was historically very tight but appeared to be past its peak tightness. Labour demand appeared to have weakened somewhat and the November Report was consistent with a further weakening, given the usual lags between GDP and the labour market. While the earlier strength in the labour market had partly reflected the recovery in demand following the pandemic, recent weakness in labour participation appeared to have somewhat exacerbated the tightness of the labour market. This weakness in participation in part reflected an ageing population, early retirement decisions for some workers and ill health. Given that these trends could continue for some time, a key uncertainty was the speed of the downward adjustment to labour demand as labour supply fell, and thus the extent to which any supply-demand imbalance exerted upward pressure on inflation. The MPC would have an opportunity to review these judgements as part of its annual supply stocktake, which would conclude alongside the February 2023 Monetary Policy Report.

    33: Annual whole-economy total pay growth had picked up slightly to 6.2% in the three months to October. Private sector regular pay growth had also picked up further to 6.9%, 0.5 percentage points stronger than the expectation at the time of the November Report. On a three month on three month annualised basis, private sector regular pay growth had fallen back to 6.7%, a level more in line with the annual rate of increase than earlier in the year. Annual public sector pay growth had remained weaker, at 2.7% in the three months to October.

    34: Annual private sector wage growth was expected to flatten off at around 7% in coming months, before declining later in 2023. There were risks on either side. Pay indicators in the November KPMG/REC survey, which tended to lead the official data, had weakened a little further. However, a number of contacts of the Bank’s Agents expected further upward pressure on pay growth next year, in part as strength in CPI inflation could encourage workers to continue to demand high pay settlements. Some contacts had nevertheless reported that weaker demand, affordability constraints for firms and an easing in recruitment difficulties could limit the extent of pay increases.

    35: Twelve-month consumer price inflation had fallen to 10.7% in November, from 11.1% in October. The November figure had been slightly lower than expected in the November Report, with the downside news concentrated in food and core goods prices. This release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. Core CPI inflation, excluding energy, food, beverages and tobacco, had eased slightly from 6.5% in October to 6.3% in November.

    36: Considering non-energy inflationary pressures, core goods inflation had fallen back from recent peaks, in part due to weaker vehicle price inflation and was expected to ease further in the near term. This was consistent with an easing of supply chain bottlenecks and some cost pressures softening. However, food and non-alcoholic beverage price inflation had been 16.4% in November, its highest level in 45 years, and was expected to rise further. This had in large part reflected global factors including adverse climate conditions, supply constraints caused by the war in Ukraine and rising energy and fertiliser costs in food production. Core services inflation had risen to 6.3% in October and to 6.4% in November. Contacts of the Bank’s Agents reported that consumer services prices continue to be pushed up by higher input prices, particularly pay, food and energy.

    37: The largest component of the overshoot of the 2% inflation target had continued to be the contribution from energy prices. CPI inflation was expected to stay elevated in the near term, but to continue to fall gradually over the first quarter of 2023, in large part as earlier increases in energy and other goods prices dropped out of the annual comparison. These effects were expected to outweigh continuing strength from food and services price inflation.

    38: Since the November Report, the Government had announced that the cap on household unit energy prices under the Energy Price Guarantee would rise, from April 2023 to March 2024, to a level consistent with a typical annual dual-fuel bill of £3,000, from £2,500. Over the early part of the MPC’s forecast period, this implied a lower path for household energy bills than the working assumption made in the November Report of an indicative path for household utility bills that sat halfway between the previously announced £2,500 cap on the typical household bill and the level implied by futures prices under the Ofgem price cap framework. This downside news would lower the forecast for CPI inflation in 2023 Q2 by 0.8 percentage points, all else equal, and would boost household real incomes to a similar degree.

    39: Most measures of households’ and businesses’ inflation expectations had fallen back in the latest data, but had remained at elevated levels. The one-year ahead Citi and Bank/Ipsos household measures had both fallen in November. At longer horizons, the five- to ten-year ahead Citi measure had fallen, while the Bank/Ipsos measure had risen a little. Respondents to the Decision Maker Panel in November had indicated lower own-price and inflation expectations over the next year, and lower inflation expectations three years ahead, although all of these series had remained above 2%.

    The immediate policy decision

    40: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.

    41: In the MPC’s November Monetary Policy Report projections, conditioned on the elevated path of market interest rates at that time, the UK economy had been expected to be in recession for a prolonged period and CPI inflation had been expected to remain very high in the near term. Inflation had been expected to fall sharply from mid-2023, to some way below the 2% target in years two and three of the projection. This had reflected a negative contribution from energy prices, as well as the emergence of an increasing degree of economic slack and a steadily rising unemployment rate. The risks around that declining path for inflation had been judged to be to the upside.

    42: Domestic wage and price pressures were elevated. There had been limited news in other domestic and global economic data relative to the November Report projections. Bank staff now expected UK GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than had been expected in the November Report. Most housing market indicators had continued to weaken. Vacancies had fallen back, but the vacancies-to-unemployment ratio had remained at a very elevated level. Annual growth of private sector regular pay had picked up further and had been 0.5 percentage points stronger than had been expected at the time of the November Report. A number of contacts of the Bank’s Agents expected further upward pressure on pay growth next year, although pay indicators in the KPMG/REC survey, which tended to lead the official data, had weakened a little further. Twelve-month CPI inflation had fallen to 10.7% in November, slightly below expectations at the time of the November Report. Since the MPC’s previous meeting, core goods price inflation had fallen back, while annual food and services price inflation had strengthened. Most measures of households’ and businesses’ inflation expectations had fallen back, but had remained at elevated levels.

    43: The Autumn Statement had taken place on 17 November, accompanied by an Economic and fiscal outlook from the Office for Budget Responsibility and new fiscal rules as set out in an updated Charter for Budget Responsibility. The Chancellor of the Exchequer had also written to the Governor setting out the remit for the MPC, including some updates to the government’s economic strategy. In this letter, the Chancellor had stated that, although the Bank of England Act required him to reaffirm the MPC’s remit annually, to provide certainty he could confirm that this government would not change the definition of price stability.

    44: The announcement in the Autumn Statement that the extension of the Energy Price Guarantee (EPG) would cap household unit energy prices at a level consistent with a typical household dual fuel bill of £3,000 per year from April 2023 to March 2024 implied a slightly lower near-term path for energy bills than the working assumption made in the November Report. All else equal, this would reduce the MPC’s forecast for CPI inflation in 2023 Q2 by around ¾ of a percentage point.

    45: Other additional near-term fiscal support had also been announced in the Autumn Statement, but fiscal policy was expected to tighten by progressively larger amounts from fiscal year 2024-25 onwards. Overall, Bank staff estimated that these measures, combined with the impact of the EPG, would increase the level of GDP by 0.4% at a one-year horizon, leave it broadly unchanged at a two-year horizon, but reduce the level of GDP by 0.5% in three years’ time, relative to what had been assumed in the November Report. The overall impact on the CPI inflation projection at all of these horizons was estimated to be small.

    46: The Committee would make a fuller assessment of this news, taken together with other developments since the November Report, as part of its forthcoming forecast discussions ahead of the February MPC meeting. The MPC would also have an opportunity to review its judgements on the supply side of the economy as part of its annual supply stocktake, which would conclude alongside the February Monetary Policy Report.

    47: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a succession of very large shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target.

    48: Six members of the Committee judged that a 0.5 percentage point increase in Bank Rate, to 3.5%, was warranted at this meeting. The labour market remained tight and there had been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justified a further forceful monetary policy response. Both services price inflation and private sector regular wage growth had increased significantly over the second half of the year, with the latter continuing to surprise on the upside since the November Report. There remained a risk that, following a protracted period of high inflation, inflation expectations could be slow to adjust downwards to target-consistent levels once external cost pressures had passed. Although activity in the economy was clearly weakening, there were some signs that it was more resilient than had been expected and it was therefore uncertain how quickly the labour market would loosen. Other economic forecasters had also continued to predict a stronger outlook for demand than in the MPC’s November Report projections. A 0.5 percentage point increase in Bank Rate at this meeting would help to bring inflation back to the 2% target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening later.

    49: Two members preferred to leave Bank Rate unchanged at 3% at this meeting. The real economy remained weak, as a result of falling real incomes and tighter financial conditions. There were increasing signs that the downturn was starting to affect the labour market. But the lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. That implied the current setting of Bank Rate was more than sufficient to bring inflation back to target, before falling below target in the medium term. As the policy setting had become increasingly restrictive, there was no longer a strong case for further tightening on risk management grounds.

    50: One member preferred a 0.75 percentage point increase in Bank Rate, to 3.75%, at this meeting. Although there was some evidence of an inflection point in CPI inflation, there was greater evidence that price and wage pressures would stay strong for longer than had been projected in the November Report. Another more forceful monetary tightening now would reinforce the tightening cycle, importantly leaning against an inflation psychology that was embedding in wage settlements and inflation expectations, and was pushing up core services and other underlying inflation measures. Pulling forward monetary action now would reduce the risk that Bank Rate would need to rise well into next year even as the economy slowed further.

    51: The majority of the Committee judged that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate might be required for a sustainable return of inflation to target.

    52: There were considerable uncertainties around the outlook. The Committee continued to judge that, if the outlook suggested more persistent inflationary pressures, it would respond forcefully, as necessary.

    53: The MPC would take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. The Committee would, as always, consider and decide the appropriate level of Bank Rate at each meeting.

    54: The Chair invited the Committee to vote on the proposition that:

    • Bank Rate should be increased by 0.5 percentage points, to 3.5%.

    55: Six members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members voted against the proposition. Two members (Swati Dhingra and Silvana Tenreyro) preferred to maintain Bank Rate at 3%. Catherine L Mann preferred to increase Bank Rate by 0.75 percentage points, to 3.75%.

    Operational considerations

    56: On 14 December 2022, the total stock of assets held for monetary policy purposes was £844 billion, comprising £831 billion of UK government bond purchases and £13.6 billion of sterling non‐financial investment‐grade corporate bond purchases.

    57: At its September 2022 meeting, the MPC had voted to begin sales of UK government bonds held for monetary policy purposes. In 2022 Q4, the Bank had completed a total of £6 billion of sales of these bonds via eight auctions. Taken together with maturing bonds, this had led to a reduction in the outstanding stock of £7 billion in 2022 Q4 and £44 billion over 2022 as a whole. The MPC had been briefed on progress on these gilt sales and on the operational arrangements for 2023 Q1, which would be published in a Market Notice on 16 December at 6pm.

    58: In February 2022, the MPC had voted to unwind fully the stock of sterling non-financial investment-grade corporate bond purchases no earlier than towards the end of 2023. The stock of corporate bonds had since been reduced by a total of £6.4 billion, including £4.2 billion via sales through the Bank’s auctions since September. The Committee was content with the current rate of reduction in the stock, which, if sustained, would permit an earlier unwind of the portfolio than initially anticipated. The Committee would keep the pace of sales, and the implications for the completion date, under review.

    59: The following members of the Committee were present:

    • Andrew Bailey, Chair
    • Ben Broadbent
    • Jon Cunliffe
    • Swati Dhingra
    • Jonathan Haskel
    • Catherine L Mann
    • Huw Pill
    • Dave Ramsden
    • Silvana Tenreyro

    Clare Lombardelli was present as the Treasury representative.

    60: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, David Roberts was also present on 7 and 9 December, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

  • Jeremy Hunt – 2022 Comments on Inflation Figures

    Jeremy Hunt – 2022 Comments on Inflation Figures

    The comments made by Jeremy Hunt, the Chancellor of the Exchequer, on Twitter on 14 December 2022.

    Inflation is plaguing economies across Europe – it’s the number one enemy that makes everyone poorer. Getting it down is my top priority

    We have a plan to help halve inflation next year. But if we make the wrong choices, high prices will persist and prolong the pain for millions.

  • Jeremy Hunt – 2022 Comments on ONS Growth Figures

    Jeremy Hunt – 2022 Comments on ONS Growth Figures

    The comments made by Jeremy Hunt, the Chancellor of the Exchequer, on 12 December 2022.

    It’s a very challenging international picture. About a third of the world’s economies are predicted to be in recession either this year or next. We’re no different in this country.

  • Rachel Reeves – 2022 Comments on ONS Growth Figures

    Rachel Reeves – 2022 Comments on ONS Growth Figures

    The comments made by Rachel Reeves, the Shadow Chancellor of the Exchequer, on Twitter on 12 December 2022.

    GDP figures show UK economy shrank by 0.3% in the three months to October – underlining Tory failure to grow our economy.

    We do not have to continue on this path.

    Labour will get our economy growing, with our Green Prosperity Plan and an active partnership with business.

  • Jeremy Hunt – 2022 Statement on Financial Services

    Jeremy Hunt – 2022 Statement on Financial Services

    The statement made by Jeremy Hunt, the Chancellor of the Exchequer, in the House of Commons on 9 December 2022.

    In the autumn statement, I set out the Government’s strategy for boosting growth by investing in our people, in the infrastructure that connects our country, by creating the right environment for business investment, and by supporting our world-leading financial services companies and innovators. Alongside this, I identified five growth sectors—one being financial services—for which the Government will prioritise the review of retained EU law, to ensure we identify changes that will support these sectors to grow.

    I am today setting out a bold collection of reforms taking forward the Government’s vision for an open, sustainable, and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens. These reforms will create jobs, support businesses, and power growth across all four nations of the UK.

    The UK is one of the world’s leading financial centres and our financial services sector is one of the engines of the UK’s economy. Financial and related professional services employ over 2.3 million people, two thirds of whom are outside of London, with hubs in Belfast, Birmingham, Cardiff, Edinburgh, Glasgow, Leeds, and Manchester.1 In 2021, the financial services sector contributed £173.6 billion to the UK economy, 8.3% of total economic output.2

    The announcements being made today build on the reform agenda the Government are taking forward through the Financial Services and Markets (FSM) Bill. The Government’s approach recognises and protects the foundations on which the UK’s success as a financial services hub is built: agility, consistently high regulatory standards, and openness. This approach will ensure that the sector benefits from dynamic and proportionate regulation, and that consumers and citizens benefit from high-quality services, appropriate consumer protection, and a sector that embraces the latest technology.

    I have set out below details of the measures being taken forward, which I look forward to delivering in close collaboration with our vibrant financial services sector.

    A competitive marketplace promoting effective use of capital

    Building a smarter regulatory framework for the UK

    The Government have today published their policy statement “Building a smarter financial services framework for the UK”. A copy will be deposited in the Library. This is an ambitious plan for repealing retained EU law in financial services and replacing it with a new framework tailored to the UK, embracing the new opportunities presented by our position outside the EU.

    Our approach includes:

    Publishing draft statutory instruments to demonstrate how the Government can use the powers within the FSM Bill to reform the prospectus and securitisation regimes and to ensure the Financial Conduct Authority (FCA) has sufficient rulemaking powers to regulate payments services and e-money. Overhauling the prospectus regime will enable the Government to implement recommendations from Lord Hill’s UK listing review, helping to widen participation in the ownership of public companies, simplify the capital raising process for companies on UK markets, and make the UK a more attractive destination for initial public offerings. The Government are also committed to working with the FCA and Prudential Regulation Authority (PRA) to bring forward relevant reforms identified in HM Treasury’s 2021 review of the securitisation regulation.

    Plans to repeal the regulations for the European long-term investment fund (ELTIF), without replacement. This reflects the fact that no ELTIFs have been established in the UK, removing unnecessary retained EU law, and that the newly established long-term asset fund (LTAF) regime provides a fund structure better suited to the needs of the UK market. Firms have already begun to seek FCA authorisation for funds taking advantage of this new structure.

    Publishing the short selling regulation review, a call for evidence on the UK’s regime for regulating short selling, with the aim of putting in place a regulatory regime tailored to the UK, which supports market integrity and bolsters the competitiveness of UK financial markets.

    Publishing PRHPs and UK retail disclosure, a consultation on a proposed alternative framework for retail disclosure in the UK. Following the repeal of the packaged retail and insurance-based investment products (PRIIPs) regulation, the new framework for retail disclosure in the UK will work more effectively with the UK’s dynamic capital markets and foster more informed retail investor participation.

    Publishing the information requirements in the payment account regulations consultation which examines proposals to remove unnecessary customer information requirements related to bank accounts imposed by the EU in the payment accounts regulations. This would reduce unnecessary regulations on banks, freeing them up to better meet the needs of UK customers.

    Updating banking regulation and the ringfencing regime

    The Government will bring forward secondary legislation in 2023 to improve the functionality of the ringfencing regime. These reforms, in response to the independent review on ringfencing and proprietary trading, will benefit customers, the financial services industry, and the economy, while maintaining appropriate financial stability safeguards. The Government will also issue a public call for evidence in the first quarter of 2023 to review the practicalities of aligning the ringfencing and resolution regimes.

    The PRA intends to consult on removing rules for the capital deduction of certain non-performing exposures (NPEs) held by banks. This would allow the PRA to apply a judgment-led approach to address the adequacy of firms’ provisioning for NPEs, help to simplify the UK rulebook and avoid the unnecessary gold plating of prudential standards. Such an approach would be possible only because of our regulatory freedoms outside the EU.

    The PRA intends to consult on removing rules for the capital deduction of certain non-performing exposures (NPEs) held by banks. This would allow the PRA to apply a judgement-led approach to address the adequacy of firms’ provisioning for NPEs, help to simplify the UK rulebook, and avoid the unnecessary gold plating of prudential standards. Such an approach would only be possible because of our regulatory freedoms outside the EU. The Government will also legislate, when parliamentary time allows, to amend the Building Societies Act 1986 to give building societies in the UK greater flexibility to raise wholesale funds, enabling them to grow and compete on a more level playing field with retail banks, while retaining their mutual model. As part of this, the Government will also modernise relevant corporate governance requirements in line with the Companies Act 2006.

    Ensuring a regulatory focus on growth and competitiveness

    The Government are legislating through the FSM Bill to introduce new secondary objectives for the FCA and PRA to provide for a greater focus on growth and international competitiveness while maintaining their existing primary objectives. To further support this aim, I will today lay before Parliament new remit letters for the FCA and the PRA which will set clear, targeted recommendations for how the regulators should have regard to the Government’s economic policy.

    Separately, the Government and regulators will separately commence a review of the senior managers and certification regime in Q1 2023. The Government will launch a call for evidence to look at the legislative framework of the regime, and the FCA and PRA will review the regulatory framework. The Government’s call for evidence will be an information gathering exercise to garner views on the regime’s effectiveness, scope and proportionality, and to seek views on potential improvements and reforms.

    Wholesale markets reforms

    The Government are committed to strengthening the UK’s position as a world-leading wholesale capital markets centre, and is taking forward reforms to the markets in financial instruments directive (MiFID) framework through the wholesale markets review. Measures in the FSM Bill deliver key elements of this. To further support this agenda, the Government:

    Will today lay before Parliament the Markets in Financial Instruments (Investor Reporting) (Amendment) Regulations 2022, which will remove burdensome EU requirements related to reporting rules. This also builds on the reforms brought forward through the Markets in Financial Instruments (Capital Markets) (Amendment) Regulations 2021 laid in June 2021.

    Will bring forward secondary legislation in Q1 2023 to remove burdens for firms trading commodities derivatives as an ancillary activity, for example, when manufacturers seek to fix the future price of their purchases of specific raw materials.

    Are committing, alongside the FCA, to having a regulatory regime in place by 2024 to support a consolidated tape for market data. A consolidated tape will bring together market data from multiple platforms into one continuous feed. This will improve market efficiency, lower costs for firms and investors, and make UK markets more attractive and competitive.

    Will launch the investment research review: an independent review of investment research and its contribution to UK capital markets competitiveness. The review is part of the Government’s wider commitment to enhance the UK’s ability to attract companies to list and grow.

    Will establish a new industry-led accelerated settlement taskforce to explore the potential of faster settlement of financial trades in the UK. Reducing settlement times from the current industry standard of two days could reduce counterparty risk and increase operational efficiency. The taskforce will bring together industry stakeholders to recommend an approach that works for the UK.

    Unlocking investment to drive growth across the whole economy

    The UK’s financial services sector is an engine for growth across all four nations of the UK. The Government are therefore bringing forward measures that will unleash the sector to drive investment and growth.

    The Government set out their plans to reform Solvency II at autumn statement, unlocking more than £100 billion pounds for UK insurers to invest in long-term productive assets. HM Treasury is working with BEIS to deliver the recommendations made to Government as part of the secondary capital raising review, and more broadly on reforms to corporate governance, to further enhance the attractiveness of UK public markets.

    Going further, the Government announce today that they:

    Will, in early 2023, consult on new guidance to the local government pension scheme (LGPS) in England and Wales on asset pooling. The Government will also consult on requiring LGPS funds to ensure they are considering investment opportunities in illiquid assets such as venture and growth capital, as part of a diversified investment strategy.

    Are committed to accelerating the pace of consolidation so that no pension savers are left in poorly governed and underperforming schemes. In the new year DWP will lead the way by consulting on a new value for money framework, alongside the FCA and the Pensions Regulator, which will set required metrics and standards in key areas such as investment performance, cost and charges and quality of service that all schemes must meet.

    Will amend the tax rules for real estate investment trusts (REITs). With effect from April 2023, new rules will remove the requirement for a REIT to own at least three properties, where they hold a single commercial property worth at least £20 million; and amend the rule that applies to properties disposed of within three years of significant development activity, to ensure that this rule operates in line with its original intention.

    Have today published a technical consultation, VAT treatment of fund management: consultation, which sets out proposals for legislative reform intended to codify existing policy to give legal clarity and certainty, not to make policy changes. The consultation seeks input on whether the proposed changes achieve this objective.

    A world leader in sustainable finance

    The Government are ensuring that the financial system plays a major role in the delivery of the UK’s net zero target, and are acting to secure the UK as the best place in the world for responsible and sustainable investment. The UK is the world’s premier financial centre for sustainable finance.

    The Government are acting to ensure the UK retains global leadership in this rapidly growing sector. To deliver on their commitment to align the financial services sector with net zero and to support the sector to unlock the necessary private financing, the Government:

    Will publish an updated green finance strategy early 2023.

    Will consult in Q1 2023 on bringing environmental, social, and governance (ESG) ratings providers into the regulatory perimeter. HM Treasury will also join the industry-led ESG data and ratings code of conduct working group, recently convened by the FCA, as an observer. These services are increasingly a component of investment decisions, and the Government want to ensure improved transparency and good market conduct.

    A sector at the forefront of technology and innovation

    Our regulatory framework for financial services must support innovation and leadership in emerging areas of finance. To ensure the sector is prepared to embrace and facilitate the adoption of cutting-edge technologies, the Government are:

    Setting up a financial market infrastructure sandbox in 2023, and is legislating to implement this in the FSM Bill. This will enable firms to test and adopt new technology and innovations, such as distributed ledger technology, in providing the infrastructure services that underpin markets.

    Working with the regulators and market participants to bring forward a new class of wholesale market venue, which would operate on an intermittent trading basis. This highly innovative approach would be a global first and would act as a bridge between public and private markets, boosting the UK as a destination for all companies to get the investment they need to create jobs and grow.

    Legislating in the FSM Bill to establish a safe regulatory environment for stablecoins—which may be used for payments—and ensure the Government have the necessary powers to bring a broader range of investment-related cryptoasset activities into UK regulation.

    Publishing their formal response to the consultation on expanding the investment manager exemption to include cryptoassets, which will facilitate their inclusion in the portfolios of overseas funds managed in the UK. The Government intend for this change to be made through HMRC regulations this year

    Bringing forward a consultation in the coming weeks to explore the case for a central bank digital currency—a sovereign digital pound—and consult on a potential design. The Bank of England will also release a technology working paper setting out cutting-edge technology considerations informing the potential build of a digital pound.

    Delivering for consumers and businesses

    The Government are committed to a financial services sector that supports the real economy and will continue to work with the regulators and industry to ensure that the sector is delivering for people and businesses across the UK. The Government:

    Have published a consultation, Reforming the Consumer Credit Act 1974. By modernising the regulation of consumer lending, reform will update consumer protections and ensure they work well in a modern and increasingly digital economy. It will also increase accessibility of credit products by allowing firms to better serve consumers through more innovative credit products.

    Have consulted on reforms to remove well-designed performance fees from the pensions regulatory charge cap and will lay regulations early in the new year. This will provide clarity for industry and ensure pension savers can benefit from investing in UK innovation.

    Are committed to working with the FCA to examine the boundary between regulated financial advice and financial guidance, with the objective of improving access to helpful support, information and advice, while maintaining strong protections for consumers.

    I am confident that the measures announced today, in tandem with the work taken forward through the FSM Bill, will deliver for this key growth sector, and the people and businesses that rely upon it.

    ——

    Documents relating to all announcements can be found on gov.uk : www.gov.uk/government/collections/financial-services-the-edinburgh-reforms.

    1 TheCityUK calculations based on Nomis, “Business register and employment survey: open access”, (May 2022), available at:

    https://www.nomisweb.co.uk/query/construct/components/date.asp?menuopt=13&subcomp=

    2 House of Commons Library “Financial services: contribution to the UK economy”: https://commonslibrary.parliament.uk/research-briefings/sn06193/

  • Rebecca Evans – 2022 Welsh Government Response to the UK Autumn Statement

    Rebecca Evans – 2022 Welsh Government Response to the UK Autumn Statement

    The statement made by Rebecca Evans, the Welsh Minister for Finance and Local Government, on 17 November 2022.

    The Chancellor of the Exchequer today presented his Autumn Statement against the backdrop of inflation at a 40-year high and the ongoing cost-of-living and cost-of-energy crisis for people, public services and businesses.

    The Office for Budget Responsibility (OBR) has confirmed the UK economy is in the early phase of a recession that will likely be lengthy and which will result in real and significant costs for people across the UK. The rate of unemployment is expected to increase substantially. People’s household disposable incomes are expected to fall by more than 7% over next two years – the biggest fall on record – to levels last seen in 2013.

    Ahead of the Autumn Statement, I called on the Chancellor to invest in people and public services. This was partially reflected today, with additional funding over the next two years but it does little to address the immense challenges created by rising inflation.

    Our overall settlement over the three-year spending review period (2022-23 to 2024-25) is still worth less in real terms than it was at the time of the Spending Review last year. We will receive an additional £1.2bn over the next two years (2023-24 and 2024-25) but our overall budget in 2024-25 will be no higher in real terms than in the current year and our capital budget will be 8.1% lower.

    As the London School of Economics, OECD and others have stated, additional capital investment is vital to improve productivity and growth, yet there was little of substance in the Chancellor’s statement to support our energy security and decarbonisation.

    The tax measures announced today do mean that those on higher incomes, and more able to afford it, are being asked to contribute more to help fill the hole created by the UK Government’s mismanagement of public finances. However, everyone is being asked to pay more.

    I am concerned about the UK Government’s stealth tax increases on workers with its decision to freeze income tax thresholds, particularly the personal allowance. As more workers are drawn into higher tax bands, a greater proportion of their pay will immediately be lost. People in Wales are likely to be disproportionately affected by this measure.

    The UK Government has listened to my suggestion to increase the windfall tax on the energy sector, however it could have done more to close loopholes that enable oil and gas companies to offset their tax liability if they invest profits in the UK. There was also scope for the UK Government to expand this tax to cover the banking sector.

    Targeting support to the most vulnerable is an absolute necessity and it was essential that the Chancellor responded to our call to raise pensions and benefits in line with inflation. There was nothing in the statement about additional measures which could have made a practical difference to the cost-of-living crisis, such as help for those on pre-payment meters, support for credit unions and further action to prevent people becoming homeless.

    While the Chancellor’s Statement provided further details of the energy price guarantee for homes, from April next year the average household can still expect to see a further increase of £500 in its annual energy bill and there was no clarity for businesses about what tariffs they will be paying next year.

    Inflation has eroded the Welsh Government’s budget to worrying levels and local authorities and NHS organisations are reporting significant shortfalls in funding as a result of inflation, pay pressures and rising energy costs. The Chancellor’s statement today fails to address this significant funding gap.

    To make up this shortfall and secure the short-term future of the vital public services on which we all rely, we needed to see our budget increase in line with inflation. This has not happened.

    As a Welsh Government, we will continue to work to prioritise our budgets to shield the most vulnerable and maintain our commitment to create a stronger, fairer and greener Wales as we prepare our draft Budget 2023-24.

    We will carefully consider the detail of today’s statement as we work towards publication of the draft Budget next month.

  • Andrew Griffith – 2022 Speech at the TheCityUK’s National Conference

    Andrew Griffith – 2022 Speech at the TheCityUK’s National Conference

    The speech made by Andrew Griffith, the Economic Secretary to the Treasury, in Edinburgh on 1 December 2022.

    Introduction

    Good morning, everyone. And thank you, of course, to Miles and TheCityUK for the opportunity to be here.

    You don’t need me to remind you of the uniquely constructive role TheCityUK plays on behalf of this great industry.

    I want to thank you, among many other things, for your forward-looking research.

    And I note, for instance, your recent Six-point Plan for Growth for the Sector, and your statistics on financial services across the UK – which are invaluable for our understanding of the breadth and depth of this industry.

    That’s particularly relevant because of where we are today.

    Not too long ago we could have closed our eyes, taken a deep breath, and known for certain that we were in Auld Reekie.

    The geographical giveaway these days is the sound of clicking of computer mice echoing from the offices of RBS, Standard Life, Baillie Gifford, Abrdn and Scottish Widows. And Blackrock, JP Morgan Chase, HSBC and more.

    Because this city, as we all know, is a financial services powerhouse.

    The second largest financial services cluster in the UK after London. More than 50,000 people – one seventh of the entire workforce – employed in banking, insurance and pensions, asset management and FinTech. And an increasingly important centre of excellence for sustainable finance and investment.

    And to avoid accusations of favouritism, let me also praise Glasgow where recent growth in the sector has attracted global attention, and made it the third largest financial centre in the UK behind London and Edinburgh. While green finance credentials, the fintech cluster and a developed talent pool extend beyond Edinburgh and Glasgow to Perth, Stirling, Dundee and Aberdeen too.

    Of course, this is nothing new. Scots and Scotland have been pioneering financial services for centuries.

    Adam Smith gave us the intellectual framework. Nicknamed both ‘the Father of Economics’ and ‘the Father of Capitalism’, Smith is said to have expressed disappointment that he didn’t achieve more in life. Which seems a little bit harsh.

    John Law – an inveterate gambler and duellist – dreamt up paper money… claiming – and I quote – that ‘I have discovered the secret of the philosopher’s stone: it is to make gold out of paper’.

    Robert Wallace and Alexander Walker – presbyterian clergymen both, and founders, of course, of what became Scottish Widows – created the first insurance fund, based on actuarial and financial principles rather than mercantile gambling.

    Robert Fleming, of the eponymous bank, left school at 13 – not that I’m advocating that – and went on to become one of the world’s leading investors and pioneer of investment trusts.

    You get the point. For whatever reason – and I suspect there are many – Scotland has been at the leading edge of this intellectually and practically for a long time.

    Financial services and the Union

    The larger point here is that it’s no coincidence that Scotland and the UK’s financial services industry have evolved – and thrived – together over the last two centuries.

    That’s just one of the countless reasons why I’m a Unionist – and why this Government is utterly committed to bolstering the Union.

    And, by the way, the Autumn Statement of a fortnight ago made good on that commitment by boosting UK-wide devolved administration funding by £3.4 billion over 2023-4 and 2024-5.

    But I don’t want this to be a political speech. I want it to be a celebration of this extraordinary industry, and clear statement of intent regarding the future.

    If you can’t tell, I am determined to do everything I can to help this industry succeed. And I share that determination with the occupants of both Number Ten and Number Eleven Downing Street.

    And given the contribution you already make to the UK, why wouldn’t we feel that way?

    One pound of every ten of the UK’s economic output – a higher proportion than in France, Germany or the US. Hundreds of thousands of jobs. Billions in taxes supporting our vital public services.

    And while I may be the City Minister, that doesn’t just mean the City of London. Yes, it’s Edinburgh and Glasgow and Aberdeen. But it’s Manchester, Cardiff, Belfast, Newcastle and Birmingham too. Because two-thirds of financial services jobs are outside London, serving vast numbers of people who’ve never even set foot in the Square Mile.

    The government’s ambition

    As an industry, you are at the forefront of our minds.

    When we ask ourselves what, in a globally competitive marketplace, we want to be good at, you are a huge part of the answer.

    The big picture ambition is straightforward: financial stability, fiscal sustainability and growth.

    In the Autumn Statement, the Chancellor outlined five areas for growth: digital technology, life sciences, green industries, advanced manufacturing and financial services. And, when you think about it, even the first four of those rely on financial services – for their day-to-day operations as well as investment capital.

    On the bank surcharge, the Autumn Statement confirmed the position we announced last year, underlining the government’s commitment to maintaining competitiveness and encouraging growth within the banking market.

    We also published a consultation response setting out the final policy approach on Solvency II. This will deliver a more tailored, clearer and simpler regulatory regime, better suited to the unique features of the UK market.

    The reforms we’re making are as follows: cutting the risk margin significantly, with a 65% cut for long-term life insurers; maintaining the existing fundamental spread; increasing investment flexibility by overhauling matching adjustment eligibility rules; and slashing red tape.

    The ABI have said the reforms we have made could unlock over £100 billion from UK insurers for productive investment.

    On that note, we’ve also listened to industry’s proposals, and created the Long-Term Asset Fund to help unlock access to long-term illiquid assets.

    We believe that’ll mean a significant boost to the productive capacity of the UK economy – including much-needed infrastructure and decarbonisation products.

    Long-term investments in illiquid assets can be an incredibly important part of a portfolio. A regulatory environment that is too focused on short-term, liquid assets or low costs at the expense of quality is a problem.

    Another positive with that, of course, is helping pension savers to diversify their investments, and access higher long-term returns.

    I should also say that the work on LTAFs is best understood in the context of wider work on the UK funds regime review, which seeks to make the UK a more attractive location for funds domicile.

    I’ve been really keen for some time to see the launch of the first LTAFs. And am delighted to reveal today that the first firm has submitted an LTAF application to the Financial Conduct Authority.

    My personal view is that good decision-making is sometimes about appropriate risk-taking. In government we should take calculated risks – to get the very best outcomes for the people of this country. And I celebrate those who do the same in business.

    Refining ESG

    Another thing I’d flag is the fact that we’re introducing new sustainability disclosure requirements which take a climate-first approach to sustainability reporting, in turn helping people to make informed investment decisions. We will do this in a proportionate and UK-tailored manner while in step with international standards.

    The FSM Bill

    Part of the context for all our efforts to boost the sector is, of course, our departure from the European Union.

    And we’re seizing related opportunities there too.

    That’s the point of the Financial Services and Markets Bill which is making its way through Parliament more-or-less as I speak.

    The headline goals are tailoring financial services regulation to UK markets to bolster the competitiveness of the UK as a global financial centre, while delivering better outcomes for consumers and businesses.

    You’ll be pleased to know that I’m not going to take you through every sub-clause of the Bill – that’s available on Parliament TV if you’re interested – but let me at least sketch out the most salient points.

    First, the implementation of the Future Regulatory Framework Review – with new objectives for the regulators to facilitate growth and competitiveness, and the repeal of retained EU law to enable reforms to key areas of financial services regulation, including Solvency II and MiFID. The result will be a comprehensive, domestic model of regulation.

    Second, harnessing new technologies safely and responsibly. With an FMI Sandbox to facilitate experimentation and the development of best practice.

    Third, we’re implementing the outcomes of the Wholesale Markets Review – removing unnecessary restrictions on where and how trading can happen whilst maintaining high standards of regulation.

    I also want to take this opportunity to reiterate the government’s commitment to taking forward the recommendations from Mark Austin’s Secondary Capital Raising Review.

    The Treasury is working with BEIS on these recommendations and on reforms to corporate governance more broadly. This will help to enhance the international competitiveness of UK capital markets and support the growth ambitions of companies listed on them.

    In addition, you may have noticed that the PRA published their consultation yesterday on their proposals to implement the remaining post-financial crisis banking reforms known as Basel 3.1.

    In parallel, the government has also published its own consultation on the Basel 3.1 reforms… setting out the legal changes we’re considering, and seeking views on improving aspects of the Capital Requirements Regulation, particularly in terms of equivalence, resolution and overseas exchanges.

    This is a huge package of reforms, which we know will have far reaching impacts and so we ask you to please continue to engage with both the PRA and the Treasury on these important issues. As ever, we want your insights and your advice.

    Let me also just say a few words about the powers of the financial services regulators, who do a fantastic job.

    The government is absolutely committed to their operational independence.

    We were considering the introduction of a so-called ‘Intervention Power’ in the Financial Services and Markets Bill. But last week decided not to proceed with the Intervention Power.

    Our view, in short, is that existing provisions in the Bill are sufficient to allow the UK to seize the opportunities of Brexit, by tailoring financial services regulation to UK markets to bolster our competitiveness.

    We are also using the Bill to strengthen our already high standards for Central Counterparties – or CCPs – ensuring the Bank of England, have the powers they need to determine the regulatory standards for these firms and also upgrading our resolution regime.

    We are making changes to ensure that the UK remains an open, global financial centre for clearing. In fact, just yesterday a statutory instrument was laid in Parliament extending two transitional regimes for overseas central counterparties, or CCPs.

    Two years ago, the Prime Minister told a Mansion House audience that the UK already had “one of the world’s most robust regulatory regimes for central counterparties.”

    He also said that there was “no reason of substance why the UK cannot or should not continue to provide clearing services for countries in the EU and around the world”.

    And that is as true today as when he said it.

    The opportunity

    Ladies and Gentlemen,

    That’s a lot of hard graft done already – and I want to thank colleagues at the Treasury and across the industry for getting us this far.

    But let me be clear that we’re only just getting started.

    Our goal, plain and simple, is to be home to the most open, well-regulated and technologically advanced capital markets in the world.

    We want to reposition financial services for a time of great change so that they can contribute even more to this country’s long-term prospects.

    That’ll mean, for instance, a further package of reforms repealing EU law, and replacing it with rules tailor-made for how things are done here.

    It doesn’t mean deregulation for deregulation’s sake but it will mean selectively looking for ways we can use our freedoms to be more agile and competitive.

    I’m incredibly excited about what we can achieve.

    We think it is only by expanding our ties with markets around the world – from the most advanced to the fastest -growing – that we boost growth and productivity here at home.

    The UK has an abiding interest in a prosperous and productive Europe, with many shared interests, and we continue to have valuable relationships with our EU partners.

    But the success of Brexit has given us a clear opportunity to strengthen ties with advanced markets beyond Europe, from the US to Singapore, Japan to Australia.

    At the same time, we need to deepen links with the fastest growing markets across Asia, Africa and Latin America. Links that will have an important impact on the UK’s future prosperity.

    Our proposition is to increase the range of markets and consumers that benefit from the UK’s innovative financial services offering – including by looking to the markets of the future.

    Fintech and crypto

    The government is also committed to retaining the country’s global leadership position in fintech.

    In the first half of this year, investment in the sector was a record £7.8 billion, 24% up on the same period last year. Meaning, in turn, that fintechs in the UK attracted more funding than the rest of Europe combined.

    There’s also, of course, the opportunities presented by distributed ledger technology and blockchain.

    You may have heard my predecessor, John Glen, setting out our ambitions on crypto in April.

    He said this: “If crypto-technologies are going to be a big part of the future, then we – the UK – want to be in on the ground floor.”

    We’re driving forward this agenda and I continue to chair the crypto-engagement group to hear from industry and share progress.

    Yes, there are questions about the future of crypto – but we’d be foolish to ignore the potential of the underlying technology. For me, recent events in the crypto market reinforce the case for timely, clear and effective regulation.

    The Financial Services and Markets Bill already enables us to establish a framework for regulating cryptoassets and stablecoins in the UK, and we will be consulting on a world-leading regime for the rest of the cryptoasset market later this year.

    Financial education

    Another thing I wanted to touch on is financial education. It’s away from the everyday hustle and bustle of the financial markets, but an important element of the path to sustainable success.

    According to the Money and Pensions Services’ UK Strategy for Financial Wellbeing, more than five million children ‘do not get a meaningful financial education’. While ‘poor financial wellbeing, affecting tens of millions of people, is holding the UK back’.

    We’re already committed to increasing the number of children and young people receiving meaningful financial education, as MAPS’ five-point plan to improve the UK’s financial wellbeing by 2030.

    Our view is also that the better our young people understand finances early on, the more likely they are to be able to make a professional contribution to this industry later in life.

    Conclusion

    Ladies and Gentlemen,

    I hope you’ll agree with me that that’s a pretty full slate of activity – and a clear statement of our ambition for financial services.

    The story of UK financial services – so much of it written here in Scotland – is already dynamic and proud.

    We have everything we need to thrive long into the future: the talent, the experience and the ambition.

    I’m excited by that. And I am thrilled to be on this journey with you.

    Thank you very much.

  • Peter Aldous – 2022 Speech on the Finance Bill

    Peter Aldous – 2022 Speech on the Finance Bill

    The speech made by Peter Aldous, the Conservative MP for Waveney, in the House of Commons on 28 November 2022.

    For a moment, I thought that you had forgotten me, Mr Deputy Speaker, but that is greatly appreciated.

    The purpose of the Bill, as the Minister—my fellow Suffolk MP—said at the beginning, is to put on to the statute book many of the tax and spending decisions that the Chancellor announced in his autumn statement, with some others being deferred until the spring Finance Bill in 2023. The Chancellor was confronted with an incredibly difficult challenge on 17 November, so in many respects, he was between a rock and hard place. I genuinely believe that he struck the right balance and delivered the statement that the nation required in these very precarious times. He was right to protect the most vulnerable and to provide additional funding for health and social care and education, although on the latter, I think that he should also have included further education and colleges, which are so important in improving the UK’s productivity and providing the many, not the few, with the opportunity to participate in the proceeds of growth that we are so elusively seeking. That said, the Chancellor has appointed Sir Michael Barber to provide a skills reform programme, and he is to be commended for confirming support for Sizewell C, for providing Suffolk with a devolution deal, and for committing to a step change in the drive to improve the energy efficiency of our existing homes and businesses.

    I feel that my right hon. Friend had no alternative other than to introduce levies on oil and gas producers and electricity generators. I will focus much of the remainder of my speech on that issue. There is a need to avoid any unintended consequences in the way that the levies operate, which could deter inward investment, which is so important to ensuring our energy security, meeting our net zero targets that enable us to tackle climate change, and regenerating the economies of many coastal communities, such as the Lowestoft and Waveney constituency that I represent.

    Clauses 1 to 3 detail the changes proposed to the oil and gas profits levy: raising the rate of the levy to 35%; reducing the investment allowance from 80% to 29%, although it remains at 80% for investment on upstream decarbonisation; and extending the levy to 2028. That last provision appears somewhat random, because it takes no account of the fact that our current very high gas prices may have fallen by then. We should remember that, only a few years ago, gas prices were on the floor. I hope that, if we are in a different place before 2028, the Government will look at bringing forward the sunset clause.

    I note that HMRC’s assessment concludes that the

    “changes to the Energy Profits Levy are not expected to have a significant macroeconomic impact on the level of business investment”

    and that the impact on business will extend only

    “to around 200 companies operating in the UK or on the UK Continental Shelf.”

    Those findings are very different from those of Offshore Energies UK, which is the trade representative of many of the businesses affected and which provides the secretariat for the British offshore oil and gas all-party parliamentary group, which I chair. It states that

    “the tax changes would impact not just North Sea operators but the hundreds of other companies in their supply chains”,

    which are so important to coastal communities such as Lowestoft and which extend right across the UK. It notes that such businesses

    “provide specialised services such as marine engineering, deep sea diving or subsea communications”,

    which are not just important to the oil and gas sector, but vital to the emerging industries of offshore wind, carbon capture and storage, and hydrogen production.

    Offshore Energies UK points out that the industry—private business—

    “is participating in plans to invest £200 billion by 2030 across all energies, including the lower-carbon ones needed to drive the energy transition.”

    There is a real worry that disruption to the tax system could deter that vital investment. Although the Bill does not cover the electricity generator levy— I welcome the Minister’s commitment to engage with the industry before detailing the Government’s proposals— that levy’s provisions and implications should be considered alongside the energy oil and gas profits levy. That is because today’s renewables and oil and gas industries are inextricably interlinked and intertwined.

    There is a real worry in the renewables sector that the electricity generator levy may deter the investment needed to end our reliance on fossil fuels. The companies that will be affected are those to which we are looking for investments of billions to accelerate the renewable energy transition. It is only by attracting such private sector investment that the UK can successfully grow its capacity in renewable energy. To meet our 2030 and 2050 targets, we need to attract more private investment, not deter it.

    With that in mind, it is concerning that electricity generators are due to miss out on an investment allowance for new wind projects. If we are to be a global leader in offshore wind, including being a pioneer in floating offshore wind technology, there is a strong case for tax incentives to encourage new investment. That does not mean helping energy firms to avoid tax, but it does mean encouraging them to invest in the UK’s clean future for the benefit of the environment, of our future prosperity and of our energy security.

    There needs to be a windfall tax, but it must be introduced in a form that is predictable, transparent and fair so as not to undermine investor confidence. I fully recognise that the enormous cost of shielding people and businesses from the worst impacts of the gas crisis requires a windfall tax, but there is a concern that the current and updated proposals for the oil and gas levy and the emerging plans for the electricity generator levy may, or might, have the unintended consequence of deterring investment at a time when we urgently need it, with a negative impact on the key policies of energy security, combating climate change, and levelling up.

    It is good news that the Government have undertaken to carry out a long-term review of the tax treatment of UK oil and gas production. I also ask them to keep the oil and gas profits levy in place only while there is a windfall, rather than until 31 March 2028 if present conditions do not continue until then. There is much work to be done to create the stable, long-term fiscal environment required to maximise inward investment. Moving to net zero is a monumental challenge; the state of the public finances is such that we need more than ever to unlock private finance if we are to meet our targets.

    Government and business must work together to put in place the long-term, stable tax regime that will ensure that companies make a full but fair contribution. Until recently, Government and business were working well together and a clear industrial strategy was in place, culminating in the 2019 offshore wind sector deal and the 2021 North sea transition deal. There is an urgent need for the Government and the energy industry to renew their marriage vows. I urge my right hon. Friend the Chancellor and his very good team on the Front Bench to set about the task immediately.