Lawyers across Herbert Smith Freehills' London office have responded to announcements made in today's Autumn Statement.
Amongst a broad range of announcements, the UK Chancellor of the Exchequer focused on efforts to mitigate the risk of carbon leakage, provide safe development of advanced artificial intelligence (AI) systems, deliver pension reform, focus on the next steps of the Mansion House reforms and speeding up planning permissions.
Commenting on steps being taken to mitigate the risk of carbon leakage, Silke Goldberg, partner and global head of climate change, says:
"The announced introduction of a carbon border adjustment mechanism (CBAM) in the UK similar to that of the EU is an important step which will help meeting the UK's decarbonisation objectives. In particular, the UK CBAM will help prevent carbon leakage and will help avoid that the UK becomes an inadvertent route for importers wishing to avoid the EU CBAM. Carbon leakage arises when domestic industries need to meet strict emissions regulations and move production to countries with weaker climate policies.
By implementing the CBAM, the UK aims to reduce carbon leakage risk. At the same time, it also encourages global partners to adopt a carbon price and to contribute to the goals of the Paris Agreement.
However, as with the EU CBAM, the UK CBAM means that businesses will need to prepare to comply with it. Businesses who import or export to the UK could face higher costs and carbon reporting challenges.
It is not clear yet how the UK CBAM will work in practice and what its proceeds will fund. Right now, on the cusp of COP28, policymakers and business understand the need to improve accessibility, transparency and equity of carbon emissions, but we need clarity as to the implementation of the UK CBAM."
Commenting on news that the government is developing its wider regulatory approach for AI to balance innovation and safe adoption, Alexander Amato-Cravero, regional head of Herbert Smith Freehills' Emerging Technology Group, says:
"As the hype around AI settles, any market with an unclear stance on the balance of innovation and protection risks being seen as the 'wild west'. The Government is making all the right noises about quickly providing much needed clarity on its regulatory approach while launching its AI sandbox to encourage innovation, but - as we are seeing in Europe around the AI Act - the devil will most certainly be in the detail."
His comments come in the wake of research which found that whilst 60 percent accept that AI will make the world run more efficiently by offering solutions quickly, just over half of those who do not trust AI say they are concerned about a lack of accountability in AI systems. One third (31 percent) also suggest that AI tools failing to meet ethical expectations is a problem.
Cravero adds: "The Government now has the hard task of articulating a suitably balanced approach in response to its AI white paper - one that drives confidence in the market by clarifying protections afforded to businesses and consumers, while remaining flexible enough to promote and account for future innovations. Given the breadth of risks posed by AI systems, collaboration between domestic and international policymakers will be key to the Government achieving its ambition of unlocking the potential of AI."
Reacting to the focus on the next steps of the Mansion House reforms, James Palmer, partner, senior corporate and governance lawyer, comments:
"Directionally this is all very welcome: the recognition of the need for more private capital and more effective use of that capital to provide wealth, investment and better long term returns for our pensioners and investors, is great progress and starts to position the UK for long term success."
"More still needs to be done, building on the progress of the last 12 months, to build private capital depth in the UK: the intergenerational need for far more saving and investment to fund future pensions, health and care, with an ageing and increasingly retired population, is a fundamental weakness of the UK: spend today leaving the young to shoulder the cost is not an acceptable or viable model."
Michael Jacobs, corporate partner, also comments on the Mansion House reforms, saying:
"This requires us increasingly to use the UK tax system and tax incentives to ensure a home/UK bias in capital deployment to ensure that our best and brightest companies can fulfil their full potential here in the UK whilst driving returns for pensioners and savers."
"Equity capital over time, diversified, has consistently delivered better returns for pensioners. Wealthier people are disproportionately invested in equities and private markets, yet our systems still skew most people heavily to lower return fixed income investments. We need to share the opportunity far more widely, so far more people are achieving those better returns through their pensions. That will at the same time create a much greater UK focussed base of private capital and drive the success of the UK as a whole."
Dylan Doran Kennett, corporate partner, adds comments relating to the Mansion House reforms:
"I'm delighted see the Government's proposed first stage implementation of the Mansion House reforms. High-growth and research-intensive industries will be direct beneficiaries of these improvements, which are long overdue for sectors that can deliver outsized returns for the wider economy. The further proposed investment of at least another £50m Future Fund: Breakthrough programme is a welcomed announcement, given the success the program deploying and attracting necessary growth capital in the UK and helping bridge the growth equity gap – however, this amount will not be transformative, and I welcome more investment. Furthermore, the creation of new vehicles in order to facilitate financing from pension funds is an essential step to give effect to the Government's ambitions to bring capital into the industry."
"The creation of a Venture Capital Fellowship scheme is a welcomed development from the Government. The UK is great at training the next generation of technologists and scientists in our world class universities; now we need to develop another talent pipeline of venture capitalists able to understand and help deploy capital to help high-growth companies flourish."
"I look forward to the government implementing the measures of the 'spin-out' review. As part of that review, I welcome the new recommendations on a more formalised and standardised spin-out model. The frictional cost of capital will be reduced for both investors and companies, thus allowing them to put more money where they need to – on R&D, rather than transactional costs."
Addressing the pensions policies announced, Michael Aherne, a partner in the firm's pensions practice, says:
"Whilst the pot for life proposal has received the majority of the media headlines, it is largely a distraction and unlikely to shift the dial in terms of member outcomes. The problem of stranded small pension pots was looked at closely by the Coalition Government back in 2011 and it was ultimately concluded it wasn't worth the effort and quietly dropped. In my view, the real headlines are around use of Defined Benefit (DB) scheme surpluses and the Local Government Pension Scheme (LGPS).
"On DB scheme surpluses, the Government has said it is reducing the applicable rate of tax from 35% to 25% from 6 April 2024. That could make a big difference to those employers who have seen large pension surplus grow in their schemes over the past 12-18 months. Any employers going through a surplus repayment process at the moment should clearly hold off until the new lower rate comes into force.
"The Government is also consulting on the mechanics of repaying surpluses to employers (which is currently very restrictive and dependent on the rules of a scheme) and it maybe that some employers pause buy-out projects until the outcome of that consultation is known. How that consultation will fit in to the Pension Regulator's new (and overdue) DB Funding Code – which generally encourages schemes to de-risk over time – is yet to be seen.
"On the LGPS front, consolidation is going to be accelerated and authorities given greater direction by Government to allocate up to 10% of assets to private equity investments. That is likley to make a tangible difference to the capital being applied by the LGPS to "productive finance" assets. UK businesses/funds will have to demonstrate they represent a good long term investment for pension schemes when compared to other similar investment options if they are to benefit from this additional capital.
"Whilst the continued consolidation of DC providers is welcome (with most savers in a £30bn scheme by 2030), there was nothing new in the Chancellor's statement on this and it is the continuation of existing trends. Indeed the statement says the Government's response on the value for money framework (which is intended to help drive consolidation of underperforming DC schemes) will be delayed by a further six months – until spring 2024."
Commenting on the announcement about planning permissions, Martyn Jarvis, Senior Associate at Herbert Smith Freehills, says:
"Whilst headline grabbing, it is not clear how in reality the approach of requiring fees for planning services to be refunded will speed up decision taking. Planning performance agreements are already common for major development proposals, which provide for the planning authority's costs of progressing planning applications to be met.
"The key issue with meeting timescales for decisions is that authorities are increasingly short of planning officers, and without significant measures brought forward to improve that position so that there is the necessary resource and expertise to progress planning applications, the situation will not improve.
"Rather, what seems likely is that planning authority resources will become further stretched, as they are required to refund applicants for failing to meet timescales and the cost of those employed in planning departments can no longer be met by the local authority (who will be dependent on payments made by applicants to pay salaries).
"It is a potentially very worrying situation that is being created, that appears to misunderstand the pressures planning departments face and that will lead to further issues for timely decision-making in the longer term."