Speech by the Financial Secretary to the Treasury. To be read in conjunction with the Economic Secretary to the Treasury's speech on investment management strategy.
Please see the Economic Secretary to the Treasury’s speech on investment management strategy to read what was said immediately before this speech.
We recognise the important role your industry plays.
We recognise the challenges it is facing.
And we recognise that this is the right time for us to take action to support you.
As such, and as many of you will be aware, the last budget launched an ambitious set of measures with the aim of improving the UK’s competitive position as a centre for investment management;
And alongside that – following collaboration with the industry – we’ve also published a comprehensive industry strategy to further this aim.
This is a strategy which has three main channels of action, namely:
Action on taxation.
Action on regulation.
And action on marketing.
And I’d like to spend my time with you this evening going through each of those in turn.
Firstly, on taxation, we want to make sure that our tax regime is simple, fair and streamlined.
We’ve consulted with the industry over the last few years and have already made some taxation changes – [on Property Authorised Investment Funds and Investment Trust Companies] – that will help the sector run more smoothly.
And now – following further consultation with the industry – we’ve announced a further package of tax measures:
The headline measure – if you will – is our abolition of Schedule 19 stamp duty reserve tax.
You identified Schedule 19 as a major deterrent to locating funds in the UK. You told us that that it is complex and burdensome, and that its costs are ultimately passed on to investors.
Furthermore, you argued that since the charge is only applied to UK funds, investors already have the option of avoiding Schedule 19 by investing in offshore funds.
So we listened, we took action, and the charge will be abolished.
On top of that change, we’ve also announced that we will consult on:
- proposals to allow UK based bond funds to pay gross interest where they are marketed to non-UK residents
- proposals to provide greater comfort to managers of non-UCITS funds domiciled offshore that managing the fund here won’t affect its tax residency; and
- some minor changes to expand the white list of transactions that are deemed to constitute investment activities
These consultations will take place over the summer, and we urge as many of you as possible to respond, to make sure that we get these policies right.
We expect to have these draft regulations ready for publication in the next week, and would welcome responses from industry.
When you do respond to these consultations, and when you come to us with issues, I want you to know that we will listen.
A lot of you advised us that HMRC’s recent Brief on the taxation of rebates could have unintended adverse consequences for the sale of UK funds abroad.
Working closely with the IMA we acted swiftly to protect our competitiveness and just this afternoon Sajid laid a Written Ministerial Statement in Parliament.
This states that the government will consult on regulations that will remove the duty to withhold tax from ‘rebates’ in cases where these payments are made to investors who are not UK resident for tax purposes.
An intervention that I hope will be welcomed by many of you here this evening.
And finally on tax, we are also introducing two new authorised contractual vehicles to improve the UK’s competitive position, namely:
- the limited partnership scheme; and
- the co-ownership scheme
Both of which are authorised fund vehicles that are transparent for the purposes of tax. We expect them to be attractive to any managers looking to pool assets from funds across Europe into a single vehicle.
[Because] By enabling more extensive pooling of assets we will allow lower management fees, lower administration costs, greater investment diversity, and higher returns.
[And] These schemes will be particularly suited to tax-exempt institutional investors, like pension companies, who may be able to take advantage of their transparent nature to secure more appropriate rates of foreign withholding tax.
I’m confident that this new tax transparent fund will be a success, and a major reason for my confidence is that the industry helped us to design it.
Our strategy: regulation
So we’ve worked with you to improve the taxation system.
And we also want to work with you to improve the regulatory set up – both domestically and in Europe.
At home, we’ve announced that we will work with the Financial Conduct Authority(FCA) to create a regulatory environment that is as responsive as it is rigorous.
[And] The FCA has agreed to engage actively with industry.
As a first step they will explore where improvements can be made to the process of fund authorisation, and they are also reviewing the application process and are producing new streamlined forms.
In fact, they recently hosted a roundtable event with the Treasury and with industry, where I understand the dialogue was constructive and helpful for all parties.
Major players in industry are already commenting to us on the improved regulatory atmosphere, and I am confident from my own discussions with the FCA leadership that this is set to continue
The Treasury itself will also continue to actively engage the industry.
We will – for example – be consulting shortly with a view to making technical changes to the Limited Partnership Act of 1907 as it applies to funds.
We know that this has been of particular concern to the private equity and venture capital sectors, and we will work to ensure that UK Limited Partnerships remain an effective and attractive vehicle for the private funds industry.
But we’re well aware that any review of regulation should also keep one eye firmly on Europe;
And we’ve already announced that in our implementation of European legislation, we will adopt a ‘copy-out’ approach wherever possible in order to simplify the regulatory approach for firms.
We also promise to consult closely with industry to ensure that opportunities to minimise costs and maximise benefits are identified and implemented.
As far as I’m concerned, the key thing here is that the UK continues to negotiate and make the case in Europe for effective and proportionate regulation. Because where we have been able to make that case and bring other countries with us, we have helped to deliver regulation that works better for both industry and investors.
In banking union for example, our action ensured that the Eurozone is able to regulate effectively while safeguards are in place for the City. And in AIFMD, we engaged strongly to ensure that investors retained access to third country funds.
Our strategy: marketing
So we will work with you to get the right taxation system in place.
We will work with you to get the right regulatory system in place.
And finally, we want to work with you to let the world know that the UK is the right place to do investment management.
And our action on marketing is the last – but by no means least important – area that I’d like to cover today.
The new Financial Services Trade and Investment Board prioritises the promotion of the UK’s IM sector, engaging closely with key stakeholders.
The City UK will play an expanded role in leading the marketing agenda, engaging closely with industry to lead a one-stop shop service for fund managers interested in setting up here.
We are also ensuring that the UKTI lead a sustained overseas marketing campaign, targeting overseas investors in key overseas markets such as Asia and the Americas.
We are getting those marketing operations in full swing, and we are getting them in full swing as quickly as possible.
So I hope we’ve provided you with some reassurance this afternoon that the government have listened to what you’ve told us, and that we’ve acted decisively.
[Because] As Sajid has said, we are determined to maintain our success in fund management and to reverse the trend that has seen us lose ground in fund domicile;
Put simply, our ambition is to make the UK the most competitive location to domicile and manage funds.
And through our action on tax, on regulation and on marketing, we are confident that we can achieve that.
So thank you for being here this evening.
You have a wealth of talent in the Q&A session that will follow shortly including Charles Roxburgh from HMT.
So let’s begin our dialogue now, and let’s take that dialogue forward into the future.