Budget boost for UK wealth managers

In today’s newsletter:

• Budget boost for UK wealth managers

• NYC pensions urged to drop BlackRock over climate risk

• UK signals ‘radical’ borrowing shift

Budget boost for UK wealth managers

The UK’s Budget last week was certainly a boon for one part of the City: the wealth managers providing financial advice and guidance. They are likely to see greater demand from savers looking to put their cash to work in investments.

Chancellor Rachel Reeves announced a cut to the annual cash Isa allowance, first revealed by the Financial Times, to £12,000 a year from £20,000 from April 2027. The only cohort clinging on to the £20,000 allowance will be the over-65s.

Although this will come as a blow to savers and the building societies that use these products to fund their home loans, more money could flow into stocks and shares, leaving wealth managers poised to benefit.

Shares in St James’s Place, the UK’s largest wealth manager, leapt on the day after the chancellor’s announcement, followed by investment sites such as AJ Bell.

Alongside increased taxes on property income, the Isa changes should make “long-term market investments become more attractive than residential property”, said Arun Sai, a multi-asset strategist at Pictet Asset Management.

In addition, Reeves announced increases to taxes on dividends and savings income. From April next year, tax on dividends will increase by 2 percentage points to 10.75 per cent and 35.75 per cent for basic and higher-rate taxpayers respectively. This is expected to raise £1.2bn a year on average from 2027-28.

The government will also increase by 2 percentage points basic, higher and additional rates of income tax on savings from April 2027, in a move estimated to yield £500mn a year on average from 2028-29.

Jason Hollands, of wealth manager Evelyn Partners, said the moves “penalise people trying to do the right thing”.

Reeves also confirmed the government will cap the amount of money people can sacrifice from their pay cheques to put in their pension pots without paying national insurance at £2,000 per year. The measure will come into effect from April 2029.

NYC pensions urged to drop BlackRock

New York City’s top finance official has urged three of the city’s biggest pension funds to drop BlackRock as a manager of assets worth more than $42bn, as the metropolis looks to use its weight in the markets to tackle climate change.

Brad Lander, the city comptroller, on Wednesday said BlackRock and two other asset managers, Fidelity and PanAgora, had failed “to address climate risk with the seriousness we expect” as he recommended the pension funds begin reviewing new financial advisers to manage their stock portfolios, write Eric Platt, Zehra Munir and Sun Yu.

Lander, a Democrat, joins a broadening group of elected officials who are seeking to influence environmental and social causes through the investment choices of their pension plans, putting giants such as BlackRock and State Street in their crosshairs.

His push aims to counter gains that conservative activists made over the past three years as campaigns to divest from asset managers that sought to limit their investments in coal and oil and gas entities took shape.

Texas blacklisted several asset managers in 2022, including BlackRock, for what it called a fossil fuel “boycott”. Last year the state’s attorney-general, alongside 10 Republican-led states, sued the three largest US index fund managers over their coal investment policies.

Lander said BlackRock was “unable” to meet several of the pension systems’ climate expectations, including encouraging portfolio companies to take “concrete” actions, such as setting net zero goals and adopting clear transition plans.

The outgoing New York City comptroller, who campaigned alongside mayor-elect Zohran Mamdani ahead of his victory this month, is considering a run for US Congress.

As part of his recommendation, Lander criticised BlackRock’s interpretation of guidance from the US Securities and Exchange Commission in February, which he said was more conservative than rival asset managers.

Chart of the week

Investors are anticipating a “radical” shift away from long-term borrowing by the UK government after it said it was considering selling more short-term Treasury bills. 

A consultation announced alongside Wednesday’s Budget will examine the possibility of “expanding and deepening” the market for Treasury bills, a form of government debt of less than one year in duration.

With just £108bn in circulation, bills currently make up just a sliver of the £2.9tn in outstanding UK sovereign debt, write Ian Smith and Rachel Rees.

The UK has already been shortening the maturity of its debt — which at roughly 14 years on average is far longer than that of other countries — in a bid to lower its interest bill as demand for ultra-long-term bonds from pension funds wanes. Analysts said an expansion of the bills market is likely to accelerate that process.

“It adds to this view that there is a fairly radical shortening of the average maturity of gilt supply in future years,” said Moyeen Islam, an interest rate strategist at Barclays. 

It is cheaper for the UK to issue short-term debt compared with long-term bonds. One-month Treasury bills yield 4.05 per cent, while 30-year yields have fallen to 5.21 per cent from a 27-year high of 5.75 per cent in September.

But leaning more heavily on short-term borrowing would leave the government more exposed to swings in interest rates as it would have to return to the market more frequently to refinance its debt.

Five unmissable stories this week

Nicolai Tangen, head of Norway’s $2tn national fund, warned that the accelerating deployment of artificial intelligence risked deepening social and geopolitical inequalities across the globe.

Dame Julia Hoggett, chief executive of the London Stock Exchange, said that UK companies are now more “forceful” about rewarding top executives to attract top talent, noting that pay packets do not need to be “Elon Musk-style”.

Schroders chief executive Richard Oldfield has warned against calling the “death” of London’s equity market, arguing that listed companies were vital for transparency and holding management to account. 

James Brocklebank, a top dealmaker at private equity group Advent International, is leaving the UK for Luxembourg as Britain struggles to retain wealthy residents.

Robert Morris, founder of US private equity group Olympus Partners, has warned his investors that the push to place buyout fund investments into the accounts of US retirement savers could lead to poor returns, risking financial crisis-like taxpayer bailouts.

And finally

The Graphic Works exhibition is a display of art by Spanish surrealist Salvador Dalí, including original unique proof copies of the prints, each entirely hand-painted in watercolour by Dalí, and the original copper plates used to print the edition.

At the Shapero Modern, London, until February 1