By Huw Jones, Iain Withers and Carolyn Cohn
LONDON (Reuters) -Britain set out more plans on Thursday to help make it the world’s most competitive financial centre by easing capital rules for insurers, trimming a tax rate for banks, and promising to review of all financial rules from the European Union.
Leaving the EU allows Britain to write its own financial rules and its parliament is already approving a law to make its financial services and markets more competitive.
Finance minister Jeremy Hunt set out additional steps on Thursday to “make the UK the world’s most innovative, dynamic and competitive global financial centre”.
Britain has faced pressure from insurers to ease and better tailor EU capital rules known as Solvency II to keep the sector competitive and allow it to invest more in infrastructure.
“So to further support investment across our economy, I can also announce we are publishing our decision on Solvency II, which will unlock tens of billions of pounds of investment for our growth-enhancing industries,” Hunt said.
By the end of next year, Britain would also use its “Brexit freedoms” to write its own rules to review and decide changes to EU regulations in five growth industries, including financial services.
The Bank of England’s Prudential Regulation Authority has raised concerns about going too far in easing buffers and the finance ministry has rejected some of the Bank’s recommendations for reforming Solvency II.
“Following the government’s announcements today about its plans to legislate reforms to Solvency II, the key decisions will now be for Parliament and we will implement those decisions faithfully,” the PRA said in a statement.
The finance ministry also confirmed it would cut a surcharge on bank profits over and above corporation tax to 3% from 8%, opting not to launch an additional tax raid on the industry.
NO CHANGE TO SPREAD
The BoE has warned that easing insurance capital rules must not be a “free lunch” given the need to protect policyholders.
A key bone of contention is the reform of the so-called fundamental spread or haircut on how much insurers can ease capital requirements, which the PRA wanted to tighten up.
“Although the Government has decided not to take forward the PRA’s proposals for reform of the fundamental spread, the Government recognises the importance of policyholder protection,” the finance ministry said.
“With this in mind, the Government recognises that the rules set out in legislation must work in close combination with supervisory tools held by the regulator.”
Industry body ABI said leaving the fundamental spread unchanged will mean less volatile annuity prices and a more stable income for UK pensioners.
Insurer Aviva said Hunt’s plan will be a welcome boost for UK investment and allow the company to invest at least 25 billion pounds over the next 10 years.
(Additional reporting by Iain Withers, editing by Andy Bruce and Bernadette Baum)