Quarterly update – 2021: recovery with realism
Workplace Thought Leadership Team | April 27, 2021
Time to read: 3 minutes
The changes in No. 10 Downing Street – notably the departure of Dominic Cummings and the introduction of Dan Rosenfield as Chief of Staff and Allegra Stratton as Press Secretary – at the end of 2020 signified a shift in how the Government operated. Ambitious promises previously announced have been replaced by a cautious approach to the easing of restrictions, centred on the strength of the vaccine roll-out which continues to gather pace. This change in tone indicates a more streamlined manner of operating for the coming year, and one that is largely welcomed by businesses and the self-employed as they plan for the future.
A business focused Budget (with a catch)
The Budget is a case in point. In many regards it was a remarkable speech by the Chancellor Rishi Sunak: a £355bn deficit in 2020/21; 7.3% growth predicted next year; and £407bn spent during this parliament, taking debt to a high of 97.3% of GDP. Its focus was recovery; its purpose was provide calm reassurance. Measured on those terms, it largely delivered.
It was also remarkable for the ambition displayed. The 130% super-deduction was undoubtedly the rabbit out of the hat. A huge capital allowance under which businesses can reduce their taxable profits by 130% of the value of the up-front investment. However, the rise in corporation tax (CT) to 25%, for businesses with more than £50,000 profit, from 2023 was the catch.
Despite the fiscal retrenchment outlined by the Treasury, these announcements otherwise largely align with the Government’s key themes. Now that Brexit has been achieved, the levelling-up agenda continues to be trumpeted, backed by infrastructure announcements (confirmed in the Budget) such as the development of freeports, increased rail investment in the North, and numerous local town funds which are being rolled out. The aim here is to retain and cement the Conservative gains in ‘red wall’ seats, which have historically been Labour’s heartland.
Of course, there is also the focus on global Britain in the run-up to COP26, with green finance being the cornerstone of Johnson’s pitch to unify the international community ahead of November’s summit. The pensions industry is a key partner in this, which the Government hopes to lean-on to achieve its goals. In January, the pensions minister, Guy Opperman MP, outlined its latest consultation on ‘Taking action on climate risk’, a follow-up to the Task Force on Climate-related Financial Disclosures (TCFD) roadmap launched in November last year. The Pensions Regulator has now published a strategy that calls on scheme trustees to act now to protect savers from climate risk. Moreover, there is to be a new consideration of social risks and opportunities by occupational pension schemes, covering both the ‘E’ and the ‘S’ in ESG.
In February, our own joint research paper with the Pensions Policy Institute (PPI) on ‘Engaging with ESG: Climate change’ called for a more joined-up approach across Government and industry, especially in terms of the practical steps required, such as data standardisation, knowledge gathering, and good stewardship based on common goals.
Engaging with Government
Separately to our PPI research, we also continued our longstanding work on the challenges facing Generation X as they plan their retirement journey. In collaboration with the International Longevity Centre (ILC), our new report (‘Slipping between the cracks’) found that many Gen Xers (those born between 1965 and 1980) are ill-prepared for retirement and are sleepwalking towards financial hardship. Our findings were well received across Parliament, with the minister being briefed, and the Labour shadow pensions secretary, Jonathan Reynolds MP, speaking at the launch event.
Our engagement over the last few months with Guy Opperman has enabled us to better plan for the challenges and opportunities ahead, and demonstrate to Government our commitment to the UK’s recovery. A swathe of Government consultations will help break down barriers to investment, and better enable pension funds to invest in UK priorities and build back better.
Our continued work on key issues such as tackling pension scams, advice and guidance, and the ageing agenda will ensure we continue to work towards fostering a greater savings culture and improving financial wellbeing over the coming months and year ahead.
We will keep you updated on our progress and if you have any questions please get in touch with your usual Standard Life contact.
The information in this article should not be regarded as financial advice. Please remember that the value of investments can go down as well as up and may be worth less than was paid in.