Our Policy and Public Affairs Team explores the contents of the Autumn Statement 2023 most relevant to the work of actuaries
The Autumn Statement 2023 is likely to be the government’s penultimate financial statement ahead of the next general election. The Chancellor delivered a marked reprioritisation of the government’s economic approach, from one focused on fiscal responsibility and ‘correction’, to one concerned with growth and greater enterprise.
There are headline-grabbing announcements that include a cut to national insurance and the retention of the pensions triple lock. This blog provides analysis of the Autumn Statement beneficial to the actuarial eye by considering the contents most impactful to the work of actuaries.
The government announced a package of reforms to pensions that it states “will provide better outcomes for savers, drive a more consolidated pensions market and enable pension funds to invest in a diverse portfolio”. These measures represent the next steps of the Chancellor’s Mansion House reforms, welcomed by the IFoA.
At the core of the Chancellor’s proposals is the belief that large pension schemes can drive down costs for savers and are best placed to diversify into growth equity. In the statement, the government welcomed and acknowledged the current trend of defined contribution pension fund consolidation. It expects to see a market in which most savers belong to schemes of £30 billion or larger by 2030.
In a move for greater investment in productive finance from defined benefit schemes, the government will consult this winter on the Pension Protection Fund. It will consult on:
There was also a move to support pension scheme investment into disruptor companies and future industries. The Chancellor confirmed that the government would award £250 million to 2 successful bidders in the Long-term Investment for Technology and Science (LIFTS) initiative, subject to final agreement.
The objective of the LIFTS initiative is to capture new investment vehicles tailored to the needs of pension funds. That investment would then generate over a billion pounds of investment from pension funds and other sources into UK science and technology companies.
The government has committed the Financial Conduct Authority to consulting next spring on the next steps of the new Value for Money Framework. Schemes will be required to compare themselves against others in the market, including large scale schemes, to ensure they are delivering value for their members.
Moreover, the Chancellor will move to introduce the option of a lifetime pensions provider model. It’s a move arguably designed to tackle the long-standing problem of ‘small pot’ pensions. The aim is to permit individuals to have contributions paid into their existing pension scheme when they change employer.
The government is also establishing a March 2025 deadline for the accelerated consolidation of LGPS assets into pools. And it is setting a direction towards fewer pools exceeding £50 billion of assets under management.
Announcements on financial services went a considerable way in further enabling many of the government’s Edinburgh Reforms, as announced in December 2022. Of these, the Chancellor committed to introduce secondary legislation to give effect to Solvency II (SII) reforms.
The IFoA has contributed extensively to government proposals to reform Solvency to a UK-bespoke model to better incentivise private investment in long-term productive assets.
We have been particularly vocal in our support for the Treasury’s ambition to remove unnecessary restrictions in the use of the matching adjustment. It remains our firm view that the underlying proposals are pragmatic and should help provide insurers with a greater range of investment opportunities – including prized green investment.
Beyond SII, the Chancellor confirmed that the government would publish a response to the consultation on the Digital Securities Sandbox (DSS). This will facilitate the adoption of digital assets across financial markets. The government will also introduce a statutory instrument to implement the DSS, delivering on the Edinburgh Reform announcement to implement a Financial Market Infrastructure Sandbox in 2023.
The government also stated it would consult on the design of a new framework for encouraging the establishment and growth of captive insurance companies in the UK. The consultation will launch in spring 2024.
Recent commentary has suggested a row back from the government on its overall commitment to net zero. But there was nevertheless tentatively positive action on seizing the economic opportunities of the changing climate within the statement. Around £4 billion is earmarked for investment in green technologies and clean energy.
Significantly, the Chancellor announced a £960 million Green Industries Growth Accelerator fund. It aims to unlock private investment into a range of manufacturing capabilities across clean energy sectors which include CCUS, hydrogen, wind, and nuclear.
A further £2 billion was also made available for the manufacturing and development of zero emission vehicles, their battery production, and associated supply chains. There were also numerous, tail-gating financial commitments for the requisite vehicle charging infrastructure network.
All these announcements were boosted with the move to make full capital expensing permanent. This means capital investments in areas like technology and machinery will be tax-exempt, with a 50% first-year allowance for special rate assets.
Potentially game changing, this announcement is quite literally a move to more easily provide the tools needed up to build the green, renewables-based economy of the future.
Lastly, there was further progression on enhancing financial education. This is after the Prime Minister’s announcement at the start of this year for a stronger national emphasis on maths – to which the IFoA expressed broad support. The Chancellor green-lighted a new Baccalaureate-style qualification that will combine A-Levels and T-Levels to create a unified structure that puts technical and academic education on equal footing.
This reform is seen as a vehicle to the Prime Minister’s ambitions for maths. The government said it would also support the establishment of a national academy focused on mathematical sciences.
The government sees better maths ability as being synonymous with a stronger position to benefit from emerging technologies such as AI. It is perhaps then unsurprising that the statement also committed £500 million in further funding for UK-based compute. This is to enable universities, scientists, and start-ups to have easier access to compute power – helping to ‘make the UK an AI powerhouse’.
On a macro-level, this year’s Autumn Statement was a strong conduit for further delivery of the government’s longer-term projects of rebalancing and reforming the economy for a post-Brexit, zero emissions future.
On a more micro-level, there is much for actuaries to take stock of. This is particularly in regard to the government’s:
The question that looms over all of these plans is how much progress can be made with a general election just around the corner in 2024.
To outline the Autumn Statement in more detail, we have produced a member briefing. You can view it at: Autumn Statement 2023.
