In his Autumn Statement, Chancellor Jeremy Hunt announced an overhaul of important aspects of insurance regulation known as Solvency II rules.
Insurance industry lobbyists claim that their proposed reforms to Solvency II will enable firms to release billions of pounds of capital for investment in energy and infrastructure, but campaigners warn that they could water down protections for consumers and the wider economy.
The Bank of England’s Prudential Regulation Authority has clashed with the Treasury on this in recent months, with Deputy Governor Sam Woods warning that new rules must not be a ‘free lunch’ for the industry.
The Financial Times reports that an agreement on Solvency had been part of a “wider discussion” that could see the Treasury drop its proposal to give ministers the power to “call in” regulators and challenge regulatory decisions, which the Bank of England governor has also opposed.
Hunt also confirmed that he had scrapped Liz Truss’ plans to review the remit of the Bank of England, which he said had done an ‘outstanding job’ of tackling inflation.
This is despite the government in 2013 having promised a new review of the monetary policy framework by the end of 2019, which has not yet happened.
September’s pension fund chaos was a warning sign of the fragility of our financial sector. Despite the Chancellor’s rhetoric about prioritising ‘stability’, this government is signalling it intends to push ahead with its reckless deregulatory agenda for the City of London.
The government has swallowed the insurance industry’s spin that deregulation via Solvency II reform will unlock tens of billions of pounds to invest in the economy.
Not only is there little reason to think that insurers will take advantage of deregulation to suddenly change course towards productive or socially useful investment, rather than increasing share buybacks or dividends, it’s also unclear how much capital they actually have to spare.
We shouldn’t be relying on risky deregulation to increase investment in energy and infrastructure – which will only cost the public more in the long-run.l
Positive Money’s live public petition argues that a review of the Monetary Policy Framework is long overdue:,
We need public investment to take a leading role in upgrading our economy.
The trouble is that the financial lobby spent over £17 million on influencing politics in 2020 and 2021.