ICAEW outlines the steps needed to encourage investment into UK companies, deliver on pension reforms, and reduce the regulatory burden on businesses.
The UK is at an economic inflection point. Persistent low productivity; wide regional inequality; and complex and costly regulation are stalling growth - from start-ups to multinationals. Competition globally is intensifying while business confidence weakens. The new UK Industrial Strategy’s bold commitments promise a fresh start, but it must deliver the impact intended for sustainable growth.
The Chancellor’s Mansion House speech and publication of the Financial Services Sector Plan are a prime opportunity for the government to convince business that it is serious about growth. Concrete steps are needed to encourage investment into UK companies, deliver on pension reforms, and reduce the regulatory burden on businesses. Government needs to:
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1. Attract long-term investment to UK capital markets
Private capital has succeeded in becoming a direct alternative to capital markets. Its understanding and tolerance of risk together with its commercial awareness contrast favourably with the more restrictive, less agile and more costly environment of public markets. Fiscal incentives have consistently targeted investment in private business.
The trend continues for de-listings, fewer IPOs, take-privates and domestic institutional investors ignoring UK listed equities. Public markets must be returned to providing the desirable competition in the UK funding landscape.
Regulatory reforms to public markets, which started in 2020, need to be implemented in full. The UK’s public growth market needs repositioning. Incentives are needed to encourage institutional investment back into listed equities. Government and regulators must lead national education on risk and growth. Information flows in the market must be trusted and reliable to promote confidence.
- Focus on competitiveness: Understand that radical action is needed to address the existential crisis at AIM; Increase mobilisation of private capital into the UK economy; Support the new opportunity for private company shareholders to access liquidity through the regulatory PISCES sandbox.
- Tackle risk averse regulation of capital markets: Regulation must be future-proofed and efficiently streamlined.
- Ensure the integrity of information and importance of trust: Recognise the importance of properly assured information to the integrity capital markets; Evolve the role of assurance to better support confidence and growth.
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2. Deliver the government's flagship pension reforms
Unlock pension capital to support UK growth, while safeguarding trustees’ fiduciary duties. Transparency and accountability are crucial, to compensate for increased risk.
- Encourage UK domestic Megafund investment, without compromising savers. Any reserve powers to mandate asset allocation must be subject to strict transparency, oversight and safeguards.
- Correct the misconception on defined benefit pension surpluses. It is important to recognise that many DB schemes have operated in deficit for much of the past two decades. Any surplus extraction must be linked to a rigorous funding test.
- Provide needed clarity on value-for-money requirement. Megafunds must operate under a clearly defined, independently assured value-for-money framework.
- Simplify the pensions system, through consolidation of small pots. This is a practical way to reduce fragmentation, raise engagement and cut costs.
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3. Abandon unfit regulation to drive growth
Through the Financial Services Sector Plan, apply credible steps to achieve the 25% reduction in regulation promised in the Industrial Strategy:
- Identify and eliminate inefficiencies and duplication in the remits of regulators.
- Streamline data collection, by reviewing what data is collected from firms and considering whether it is required or can be collected in more efficient ways.
- Foster a more service orientated regulatory mindset, where regulators are facilitators rather than blockers.
1. Attract long-term investment to UK capital markets
ICAEW members lead, advise and invest in companies that seek capital for growth, transformation and innovation. They recognise the importance of flourishing and competitive public and private markets, where transactions are supported by certain and proportionate regulatory frameworks that permit activity to take place efficiently. Drawing on their unique insights, we want to see the government deliver targeted reforms to boost the attractiveness of UK capital markets.
Focus on competitiveness
Without choice and innovation in capital markets, good business ideas may not get funded or may attract inappropriate funding.
The past five years’ development and implementation of regulatory reforms to the UK’s listing regime intend to enable more types of company, including younger, innovative ones, to access that market and more opportunities for a wider group of investors. Increasing flexibility in regulation amplifies the importance of investor diligence.
Public markets however are not the only sources of capital in the UK. Our members’ have seen the increasing importance of private capital, often as a direct alternative to capital markets, such that it has become, in the FCA’s words, "central to the economy".
Private capital’s success in matching business ideas with suitable financial backers and deal structures is influenced by its creativity, commercial awareness and understanding of the risk appetites of the parties involved. These qualities can lead to increased choice - such as the new channels for institutional investment in private assets - but may also need to be overlaid with wider social and economic considerations.
Recommendations
Understand that radical action is needed to address the existential crisis at AIM, the LSEG’s growth market. Our members believe that there is a place for a public growth market. But AIM needs much stronger positioning and recalibrated, more transparent regulation so that it will support risk-taking by directors, businesses and investors. The Government must appreciate the importance of fiscal incentives and provide certainty as to this tax policy.
Increase mobilisation of private capital into the UK economy. Such initiatives can improve choice however, regarding institutional capital in private assets, we do not support imposing allocation targets and any reserve powers to mandate asset allocation must be subject to strict transparency, oversight and safeguards to mitigate undue risk of capital loss.
Support the new opportunity for private company shareholders to access liquidity through the regulatory PISCES sandbox (private intermittent securities and capital exchange system). We are pleased that certain core disclosures are being mandated by the FCA, so that there are minimum standards across PISCES operators.
Tackle risk averse regulation
The UK’s regulatory regimes have become excessively risk averse, and that this hinders innovation and growth in the economy.
More proportionate regulation can enable but will not transform the UK’s IPO market. Companies will choose where to list for a range of factors – the regulatory regime is typically not the principal factor.
Recommendations
Future-proof regulation. The UK’s public markets must continue to be a source of growth capital and operate to high standards. Regulation needs to be transparent and consistent in its direction but also agile in how it adapts to change. That means it:
- enables access to capital in a cost-effective way,
- applies appropriate guardrails with more dynamic re-evaluation,
- sets clear and proportionate ongoing obligations, and
- provides for timely flows of information and protection for investors.
Streamline regulation. This has been central to reforms. We look forward to the FCA finalising its reform of prospectus rules which will, among other things, allow further issuances of securities without the need for a prospectus.
Ensure the integrity of information and importance of trust
Information provides visibility of prospects and risks. Confidence in information builds trust. Management needs information to implement business change. Investors rely on information about deals for investment decisions. Providers of capital use information to make decisions and to monitor risk.
Recommendations
Whether public or private, flourishing capital markets attract companies and investors with information and trust. Government, regulators, investors and businesses must recognise the importance of properly assured information to the integrity capital markets. ICAEW members play a leading role in this.
As the capital markets landscape changes, that role must evolve so that assurance can better support confidence and growth. ICAEW has started to explore this in conjunction with market participants.
2. Deliver pension scheme reforms
Boosting investment is key to government’s mission to kickstart economic growth, and reform of the pension landscape is crucial to delivery. However, while it’s right to unlock pension capital to support UK growth, this must go hand in hand with safeguarding trustees’ fiduciary duties, transparency and accountability. Long-term investment success and public confidence in the pension system depend on keeping savers’ best interests at the heart of every decision.
ICAEW’s members are at the heart of UK business, leading or advising more than 3m businesses daily and sitting on 84% of FTSE 100 and 78% of FTSE 250 boards. Their feedback is clear. Reforms that help the UK’s economy return to high growth are welcome, but this should not erode pensioners’ rights, trustees’ independence, and pension reliability.
As one ICAEW member working as a pensions trustee puts it: “Mandating how pension funds invest is a worrying prospect. These are not just employer assets. Members have paid in and depend on them. If a scheme fails, or savers perceive losses from riskier investments, it's the savers who lose out, suffering lasting harm to their retirement security. Without a strong pipeline of viable investments and full risk transparency, we risk undermining trust in the entire pensions system. Those seeking higher returns already have other options.”
Mobilising pension capital into domestic investment to drive economic growth is necessary and timely. Yet it also contains inherent trade-offs and risks. While overly conservative investment strategies risk underperformance that leaves savers worse off, mandating allocations towards higher-risk or less liquid asset classes encroaches on the ability of fund managers to achieve good and secure outcomes for savers.
A complete avoidance of risk is neither feasible nor desirable; the key is to manage it pragmatically and responsibly. That means pension reform must contain proportionate safeguards, grounded in sound governance principles. As specialists in pension governance and investment, chartered accountants are well positioned to support parliamentarians and recommend safeguards that strike the right balance between growth, risk, and long-term sustainability.
Government should underscore its intention to unlock the investment potential of pension reform, protect savers, and support the UK’s world-leading financial services sector to drive growth across the country.
Encourage UK domestic Megafund investment without compromising savers
Supporting greater UK investment is welcome where it aligns with pension members’ best interests. Pooling investment in “Megafund” platforms can help direct capital into SMEs, net-zero and regional ventures. However, we are concerned the Bill, without prudent safeguards, risks politically motivated steering of pension assets, which could compromise returns and erode trust in the system.
Recommendation
Government should focus on enabling frameworks and ensuring an adequate supply of high-quality infrastructure and private/public partnership investment opportunities. Any reserve powers to mandate asset allocation must be subject to strict transparency, oversight and safeguards to mitigate undue risk of capital loss, particularly where such risk is elevated by exposure to higher-risk or less liquid asset classes.
Correct the misconception on defined benefit pension surpluses
The main purpose of defined benefit (DB) pension scheme assets, including any associated surplus, should always be to ensure members receive the pensions they were promised. While recent surpluses are a welcome development, they should be viewed in the context of broader macroeconomic conditions, particularly the prevailing interest rate environment.
It is important to recognise that many DB schemes have operated in deficit for much of the past two decades, highlighting the need for prudent financial management and long-term sustainability when considering pension surpluses.
Recommendation
Any surplus extraction must be linked to a rigorous funding test confirming full coverage of future obligations and consider the current economic environment.
Provide needed clarity on value-for-money requirement
Greater transparency to help savers understand how their pension funds are performing, is essential for informed retirement planning. However, the Government should learn from Australia’s experience with its Performance Test, which has drawn criticism for driving short-term investment behaviours at the expense of long-term outcomes. Additionally, the Bill’s value-for-money requirement lacks clarity on how it aligns with the FCA’s consumer duty.
Recommendation
Consolidation and the creation of Megafunds is welcome, provided they operate under a clearly defined, independently assured value-for-money framework. This needs strong governance and fiduciary alignment.
Simplify the system through consolidation of small pots
The modern pension landscape is too complex and difficult to navigate. Savers with multiple, often lost, small pension pots face inefficiencies and poorer outcomes.
Recommendation
The consolidation of sub £1,000 pots into consolidated schemes is a welcome reform. This is a practical way to reduce fragmentation, raise engagement and cut costs. The Government should seek further simplification opportunities and engage with the financial services sector and public to explain more clearly how this will work.
3. Abandon unfit regulation to drive financial services growth
To deliver on its pledges to reduce compliance costs by 25% and support growth, the government’s upcoming financial services sector plan must focus on delivering a reduction in regulatory drag and a coherent regulatory environment that better recognises interdependencies and aligns oversight.
Drawing on the experiences of its 23,000 members in the financial services sector, ICAEW has been contributing to the development of the government’s plan. We believe that three areas should be tackled as a priority: clarity of regulators’ roles; coordinated data collection and a proportionate approach.
Recommendations
Adopt a clear purpose and approach for regulators
- Clarify regulatory roles. Clearly delineate responsibilities between multiple financial regulators (FCA, PRA, Bank of England, Payment Systems Regulator) to reduce overlap and complexity.
- Simplify and align regulation. Create rules that are easy to find and easy to follow, especially for start-ups and smaller firms.
- Ensure proportionality. Apply regulation according to the scale and likelihood of risk, avoiding a one-size-fits-all model.
- Adopt a service-oriented regulator mindset. Shift the tone of regulation to treat financial institutions more like ‘customers’ needing support, rather than potential wrong doers needing to be constrained.
- Reduce “soft guidance”. Limit informal and excessive regulatory guidance that adds complexity and makes regulation harder to navigate.
Reduce data overload
- Coordinate data requests. Improve alignment between regulators to prevent duplicative or conflicting data demands.
- Apply sunset clauses to data collection. Require regulators to review the use of collected data annually and justify continued collection.
- Streamline regulatory reporting. Support initiatives like the PRA’s 2025 review of data collection to reduce the reporting burden on firms.
Apply rules proportionally
- Build on existing regulatory reform momentum. Integrate reforms across the economy in trade, infrastructure, and industrial strategies into financial services.
- Consider cumulative burden. Evaluate the combined impact of all regulations across the sector, not just individual rules or regulators.
- Support fintech navigation. Encourage efforts like the “concierge service” for international firms and the Regulatory Innovation Office’s digital “one-stop” regulation library.
More recommendations
Drawing on members expertise and our research into business confidence, ICAEW has outlined recommendations to policymakers advice on how to approach regulating for growth.
Find out moreDownload