Key Takeaways:
- Reeves announced reforms that tackle regulation gone “too far.”
- Long-term asset funds will be allowed in stocks and shares ISAs.
- Pension funds will be able to invest in a wider range of assets.
Chancellor of the Exchequer, Rachel Reeves, has announced changes to the stocks and shares ISA investment universe, pension fund investments and capital requirement changes.
The reforms, part of the government’s “Financial Services Growth and Competitiveness Strategy”, were announced in her annual Mansion House speech to financiers on Tuesday, July 15. She said her aim was to roll back regulation gone “too far” in seeking to eliminate risk.
Reeves confirmed long-term asset funds, or LTAFs, can be included in stocks and shares ISAs from April 6, 2026, “allowing long-term ISA investors to benefit from this innovative product.”
“I recognize the potential for ISA reform to improve returns for savers and access to capital for UK businesses,” she said in her speech.
Ahead of the speech, rumors of a cut to the cash ISA allowance emerged, only to be squashed on the back of industry criticism. However, Reeves noted that she will continue to consider further changes to the ISA regime.
“Despite the differing views on the right approach, we are united in wanting better outcomes for both UK savers and for the UK economy.”
Pension Funds to Access Private Assets
At last year’s Mansion House speech, Reeves set out plans to overhaul the pension system by creating “megafunds” of defined contribution (DC) and local government pension schemes.
DC funds that committed to the Mansion House Accord have now pledged to invest at least 10% of their main funds into private assets including infrastructure and growth, and half of this funneled to UK projects.
Retail investors and boosting investments were a key focus in the speech. Reeves said that the government and the FCA are working on targeted support for consumers ahead of the new financial year, a campaign to promote “the benefits of retail investment”, and the current approach to risk warnings.
She said: “For too long, we have presented investment in too negative a light, quick to warn people of the risks, without giving proper weight to the benefits. And our tangled system of financial advice and guidance has meant people cannot get the right support to make decisions for themselves.”
There was also some good news for those looking to get on the property ladder. Changes to the loan-to-income limit on mortgage lending, implemented immediately, means “tens of thousands more people could be able to get a mortgage in the next year alone”.
The Industry Reacts: Will the Government Raise Taxes?
The inclusion of private assets in ISAs and pensions was welcomed by the financial sector.
Phoebe Nguyen, head of UK asset management sales at Berenberg Asset Management, said alternatives investments are a must.
“The Lord Mayor’s call to move beyond fee-based decision making and to deploy pension capital into alternatives is a welcome shift. Long-term member outcomes depend not just on selecting the right managers, but also on using the right tools. That includes resilient alternative strategies and public market approaches that help manage downside risk while preserving potential growth opportunities.”
Charlotte Kennedy, chartered financial planner at Rathbones, added that changing the narrative on investment risk is welcome: “Too often, risk is seen as something to be avoided entirely, when in reality, understanding and managing it is key to achieving better financial outcomes. Leaving money idle in savings accounts might feel safe, but it often fails to keep pace with inflation, let alone build wealth over the long term.”
Meanwhile, Sarah Brown, principal and senior actuary at Gallagher warned that a mandate for schemes to invest in UK assets may alienate trustees. Only around 25% of DC schemes are invested in the UK.
“Trustees must allow for the membership’s best interests, and some trustees may not be willing to funnel assets into a UK-based investment to appease the Chancellor. Retirement security is a pressing concern for millions of people, and members will need reassurance that trustees are considering every investment option—regardless of geographical location,” Brown said.
What’s more, commentators are not convinced the measures are going far enough to ease concerns that the “black hole” in public finances will have to be funded through higher taxes.
James Flintoft, head of investment solutions at AJ Bell, commented: “The persistence of inflation above 3%, well ahead of the Bank of England’s 2% target, further highlights the risk that higher inflation is here to stay, and parts of the gilt market need to adjust.
“This comes at a time when there are widespread concerns over the UK’s fiscal path, with the Mansion House speech […] providing little clarity on the situation ahead of the Autumn Budget.”
More Working Capital for the Banking Industry
In changes coming for banks, Reeves said she will “allow UK banks to do more lending and release more capital for investment into our infrastructure and businesses.”
Some of these measures include support for a raise to the MREL (Minimum Requirement for Own Funds and Eligible Liabilities) asset threshold to between £25 and £40 million and lower capital requirements for domestically focused banks from January 2027.
Reeves is also looking to cut waiting and processing times across the Financial Ombudsman, senior manager certification and authorization by the FCA and the PRA.
Reeves, Bailey Views Diverge on Crypto
The Chancellor also committed to innovation within the payments system, she stated: “I will drive forward developments in blockchain technology, including tokenized securities and stablecoins, and an ambitious design for a new digital gilt instrument so that UK financial services can be at the forefront of digital asset innovation.”
Meanwhile, Bank of England governor Andrew Bailey, who spoke after Reeves, seemed less convinced about the relevancy of cryptocurrencies’ role in the payments industry.
Bailey said: “There may well be a role for stablecoins going forward, but I don’t see them as a substitute for commercial bank money.
“Perhaps there may also be a role for retail central bank digital currency, but I remain to be convinced why the natural next step is to create a new form of money rather than put digital technology into retail payments and bank accounts.”
Bailey noted that replacing aging infrastructure and promoting growth in the UK is a priority, and the bank will move forward with designing and delivering “the next generation of UK retail payments infrastructure”.
