Rishi Sunak announces new green savings bonds

• UK Chancellor Rishi Sunak to reveal UK roadmap for financial services
• Plans for GBP 15 billion green savings bonds to fund solar and wind energy revolution
• UK Government plan for net-zero emissions by 2050
• Mr Sunak says he wants to sharpen London’s competitive edge
• An equivalence deal concerning financial services between the UK and EU have stalled
• UK Chancellor to secure a significant post-Brexit global tax boost for the UK

UK Chancellor Rishi Sunak has today revealed a roadmap for UK financial services, with plans to make the UK one of the world’s most advanced and exciting financial hubs. Today, the UK Chancellor spoke at Mansion House, outlining how the Government will sharpen the UK’s competitive advantage within financial services.

Mr Sunak has already implemented changes to increase investment funds, such as altering insurers’ capital guidelines and will issue draft reforms to capital markets. In addition, rules will ease to entice further technology company initiations, whilst a fast-track visa scheme will be introduced to support financial technology (fintech) firms.

The new financial services roadmap will emphasise climate change, with companies made to report their environmental impacts and how climate change is likely to affect them. The news follows a recent financial services risk management survey conducted by EY and IIF, which stated that climate change is now becoming a top priority for banks.

Mr Sunak has confirmed plans for new green savings bonds, which will fund green energy projects to help the UK become an eco-friendlier nation. The UK Government’s new focus on sustainability within financial services will rival EU competitors as the UK Chancellor claims the UK has one of the world’s most robust regulatory financial regimes. The UK finance sector contributes GBP 76 billion in annual taxes and employs over 2.3 million people.

In addition to banks, climate change has also become more of a focus for various industries worldwide. During early June, Shell vowed to reduce greenhouse emissions, making it more of a priority, whilst rivals BP pledged to reduce emissions to net-zero by 2050.

UK Government introduces green savings bonds

The UK Government has also opted for the same net-zero emissions target as BP and has confirmed their aim for 2050. In keeping with their new climate change priorities, Mr Sunak will reveal the UK government’s new green savings bonds today worth a total of GBP 15 billion. The green bonds will be backed by the National Savings and Investments (NS&I) organisation despite claims of poor customer service during the coronavirus pandemic.

Individuals aged 16 and over can place between GBP 100 and GBP 100,000 into green savings bonds, with funds locked in for three years. The UK Chancellor is hopeful that the green bonds could help encourage UK economic recovery by helping create additional jobs in the environmental sector.

The green savings bonds will fund environmental projects such as solar power initiatives and wind farms. The UK Government has been keen to elevate its green initiatives in advance of the COP26 UN climate change summit in Glasgow, which takes place in November 2021.

Although countries such as Germany and Sweden have also launched similar green bond schemes, the UK Government’s will be one of the largest in the world. The first tranche of the green savings bonds will be worth around GBP 7 billion and is said to be issued during September 2021.

The Green Gilt and NS&I’s Green Savings Bond has been described by the Treasury as a world-first, though numerous green savings products are currently on the market, such as Gatehouse Bank Green Saver and Oxbury Bank Forest Saver.

The Interest rate for the green savings bond is yet to be confirmed, although experts have wanted the bond may not be attractive if rates are too low. However, if interest rates are too high, there could be concerns as to whether the bonds offer sufficient value for money for taxpayers. Over recent years, many UK savers have been unable to receive substantial returns due to cheap borrowing rates.

The average interest rate for three-year bonds is around 0.76% a year. The most substantial interest rate for a three-year bond is currently 1.26% a year. Anna Bowes from Savings Champion said that the green bonds were unlikely to be competitive, given that the aim is to attract individuals who want to save safely into green initiatives.

The UK Government’s green bond scheme has been subject to criticism from members of the Labour party, who believe the scheme could be all talk and no action. Labour’s Bridget Phillipson, the shadow chief secretary to the Treasury, fears that the green bond scheme could go the same direction as the delayed Net Zero Review, which was due to take place in Autumn 2020. Ms Phillipson stated that the UK Chancellor must guarantee that funds from the green bonds will be spent appropriately.

The structure of the green bonds means that funds will go directly to the UK Government to spend on relevant eco projects, rather than the British public investing in a specific environmental project directly.

UK has not secured a financial services equivalence deal with the EU

UK Chancellor Rishi Sunak confirmed today at Mansion House that the UK has failed to secure a financial services equivalence deal with the EU. There has been a significant concern for the future of the UK financial sector post-Brexit. Amsterdam overthrew London as the principal financial trading centre in Europe in January 2021 following changes to financial guidelines instated by Brexit.

Financial services were largely ignored during the UK’s Brexit trade discussions with the European Union (EU), which has prompted Mr Sunak to develop a new financial strategy. Changes to the UK financial framework post-Brexit impacted over 7,500 jobs in the finance sector, with many required to shift from London to the EU.

The UK has struggled to negotiate an equivalence deal on financial regulations with Brussels, casting a shadow over the future of cross-border financial services between the UK and EU. An equivalence deal is where two sides acknowledge one another’s financial rules as equivalent to their own. The UK Chancellor revealed that these discussions have recently stalled but identified that Brexit has become an opportunity for the UK to do things ‘differently and better‘.

During attempts to establish a financial services equivalence deal with the EU, the UK has become frustrated by Europe’s inflexibility when granting access to EU services, which has already been approved for Canada, the US, Australia, Hong Kong and Brazil.

However, Mr Sunak outlined expectations for “ground-breaking” cross-border access for financial services with Switzerland, which he described as the most ambitious financial deal so far.

UK Chancellor to secure a significant post-Brexit global tax boost for the UK

Mr Sunak is set to seal a significant financial services deal regarding global tax rules. The agreement would provide a substantial boost for London, seeing some of the biggest banks within the financial hub not paying increased tax on profits in countries abroad.

Discussions at the Organisation for Economic Co-operation and Development (OECD) acknowledged the case from the UK financial services industry and will potentially be exempt from the newly proposed global tax system.

To establish the global tax deal, sources claim that Mr Sunak had to compromise concerning the US backing away from Britain’s digital services tax.

The first stage of the global tax negotiations has been labelled as pillar one, with the UK and France pushed to ensure the companies pay more tax within the countries they operate but are not physically located.

The priority for the next set of discussions will be to secure a deal regarding a global minimum corporate tax rate of at least 15% to deter businesses from switching profits to low-tax jurisdictions.