I am too old now to stay up all night, fuelled by Redbull and adrenalin, to write the sort of in-depth technical budget reviews that I would have written in Inter Alliance days. Besides, Redbull is becoming expensive it seems.
Many clients will already know of the further cuts in corporation tax and smaller clients may even have already spent their business rate savings (in England, at least). So I will leave business taxes to HM Treasury and confine these comments to the implications of the budget for regulation and regulated clients (in their various forms).
There are three real areas of interest: two can be described as 'wins', though I will start on the third which should be noted for the issues and opportunities it raises.
Lifetime Individual Savings Account
In short, LISA is an ISA that can receive an annual 'bonus' - the new name for relief at source - from the tax man. Open one before the age of 40 and you can save up to £4,000 per annum up to the age of 50. Access, complete with the bonus, can be (1) to the conveyancer of your first property purchase (to live in) up to a purchase price of £450k, (2) from age 60, or (3) upon diagnosis of terminal illness. Unlike a conventional pension however, the money can be accessed any other time with the loss of the 'bonus' and an additional 5% tax penalty. There is to be a further consultation on savers being able to borrow from these accounts without such penalties. You can read a fuller explanation from the Treasury as to the technical design.
Firstly, this is quite clearly the 'stealth' approach to moving away from traditional pension schemes and the tax treatment thereof. It would have been awfully disruptive to rewrite the entirety of the pension tax rules yet again. The Chancellor knows this because according to the summary of responses to the earlier consultation, everyone told him so : "The strongest theme that emerged was the importance of stability. This was emphasised…by those who questioned the necessity of wholesale changes to the current system…" [Para.2.43]. In truth, with a slim majority and that referendum, wholesale rewriting of core voters' favourite tax planning vehicle became impossible when the first backbencher raised the first objections.
So instead we have a gradual move to a new pensions/ISA tax regime: a 'bonus' (tax relief) set at basic rate only on a modest amount, tax free access at retirement, but retirement age set to age 60 (not 55). We can spot the shift here through the plan to consult on penalty-free loanbacks for LISA, but with no mention of returning pensions to their pre-2001 rules in this area. The fact that the ISA allowance is now to reach £20,000 (about twice what the Chancellor inherited) compares to a lifetime allowance for pensions down by almost a half in the same period.
For investment advisers and financial planners, LISA will throw up a suitability conundrum. The compliance minded will be left to anticipate just which colour the FOS wheel-of-justice will stop on when the complaints come in: "I should have had higher rate relief via a pension" and "I should have had ease of access via LISA".
For smaller pension/SIPP providers, there is an issue of strategy and with it an issue of regulatory strategy. If the focus and demand is to shift from pension products to ISA style products, how does one get into this market? In the first part, there will be no 'occupational' LISAs. In the second, HMRC approval to act as an ISA manager is of course the easy part. These will be different products or instruments beyond the current permissions of SIPP operators. Holding the assets oneself, even in a global account with a firm of brokers or custodians, requires a very different set of FCA permissions and very different capital requirements. In short, you have to find capital of at least €125k, though for some, IFPRU status will deliver rather lower capital requirements than those being imposed on pure SIPP operators from September ['IPRU(Inv)'].
Money Advice Service
TPAS and PensionWise are to be merged, MAS is to be scrapped and replaced with a trimmed down 'Money Guidance Body'. The new approach is outlined in principle in this Treasury consultation.
The natural cynic in us all has seen what 'abolition' of public sector bodies typically means. FCA for example has been abolished twice in its 30 year life, but continues to take in functions, budgets and arbitrary powers. Some of its long-term less employable staff have remained notably undisturbed by either abolition.
Here however we have a real departure. The TPAS/PensionWise merger is designed to give us economies of scale. We will see if these transpire. The end of MAS however is a serious reduction in scope and role. The new body will not have a publicly facing brand. It will not have a consumer website. It will not deliver services. It will merely identify gaps (in the internet age) and commission third parties to fill them where needed. With any luck, it will stop spending levy-payers' money lobbying others in the 'regulatory family'.
Not only are we likely to see a fall in levies with this sharply reduced role, but the structural changes in effect remove the drivers for ever-increasing 'relevance' and levy-growth that previously existed as MAS delivered ever more services free at the point of use and saturated the tele with their huge marketing spend.
We saw these drivers at work when they were subject to an 'independent review' by somebody who might charitably be called 'one of their own'. The Farnish review recommended sweeping cutbacks and loss of staff, with a smaller refocused role. The response was a classic exercise in bureau maximisation. They of course went out of their way to convince their critics of their continued usefulness by engaging in all manner of other activities. "We've made dramatic changes", they proclaimed "We've accepted X of the Y recommendations". Except they hadn't. They missed out the key ones: slashing budgets and canning half the staff.
Left to the machinations of the regulatory blob, they would probably have gotten away with it. Now the budget axe has fallen on them.
For all firms, this is likely to result in a fall in MAS levies raised by FCA, felt particularly so in the A13 (brokers & advisers) fee block. Levies for pension guidance will probably remain steady, perhaps with a very slight dip felt by investment managers in the A7 fee block.
Investment advisers and financial planners will be particularly pleased that such bodies will stop pretending to provide anything called 'advice'.
Claims Management Companies
CMCs are to be regulated by the FCA. The Treasury yesterday published the final report of the 'independent review' by Carol Brady into CMC regulation. This presented the Government with "the least disruptive" option of continuing MoJ regulation and a 'step change' option through FCA led regulation. The Government via the Budget Report itself has immediately chosen the latter [Para.1.206].
Ms Brady's report is fascinating in parts. It tells us that many PPI claims arose only because some complainants felt besieged by multiple calls [Para.2.39]. It tells us that from the six claims sectors, "financial services…makes up more than 60% of CMC turnover" [Para.10.35]. It also tells us that "[t]he Financial Ombudsman Service (FOS) also expressed concern over the amount of resource it dedicates to advising CMCs on compliance issues."
It just doesn't make the link here.
It suggests that maybe the use of CMCs arose from poor complaints handling by the Banks [Paras.2.32-2.33] - though why somebody with a rejected claim would call a CMC at this point rather than the Ombudsman whose details are on the decision letter and FOS leaflet that comes complete with pretty pictures of Vikings is not really explained.
Yet it omits to consider that maybe - just maybe - CMCs have been able to flourish, some with an extraordinary lack of competence, precisely because the DISP rules combined with the procedures of the FOS mean that in many cases they simply do not have to do anything or know anything, save from getting signatures on standard documents, to get their 25%.
Contrary to the stereotypes, some CMCs are quite ethical. Some are proper lawyers who cannot operate via the Legal Services Act framework through bone-headed barriers from their own regulatory bodies. Some are even professional IFAs. But most CMCs - including the great mass of the unskilled ones - have been operating a perfectly rational business model when it comes to financial claims. What is now being proposed is essentially to further regulate the symptoms of the problems, rather than addressing the root cause of it: DISP and the FOS jurisdiction.
This 'step change' in CMC regulation has undoubtedly arisen from lobbying by the Banks, stung as they were by paying out £billions, much of which has gone in fees to CMCs.
The devil here however is going to be in the detail. CMCs have not only been subject to a different regulator, but also to a different legislative framework: the Compensation Act (2006) and the regulations made thereunder.
Those investment advisers and financial planners who were yesterday celebrating the delicious irony of CMCs being FCA regulated may yet find their celebrations to be premature. To give CMCs the 'full benefit' of FCA regulation really requires the claims activities covered under the existing Regulated Claims Management Services Regulations to become 'regulated activities' under s.22, FSMA and the Regulated Activities Order. Only then could we see the possibility of CMCs themselves falling victim to the FOS wheel of justice, those witty FCA supervisory processes that closed down the Sale and Rentback market at one point, or indeed the possibility of cause for action arising under s138D, FSMA where a CMC breaches a regulatory rule.
In short, this is broadly a win for regulated firms. It could mean reduced risk of claims and with it reduced FOS levies and reduced PI premiums. Whether this works out in practice or not is yet to be seen.