Impact of recent governance reforms and Budget proposals on making London a more attractive place to do business

October has been another busy month for the regulators. Having been dubbed by the Chancellor as “the boot on the neck of business” the government continues to seek to relax the burden of regulation on companies. Its message is that the government is on the side of business. Its priority is to enhance the attractiveness of London as the place to do business, raise capital and float shares. But there is a Budget looming, bringing with it potential tax rises of over £20bn.

There are, as ever, mixed messages emanating from Whitehall.

On the plus side, the government’s Regulation Action Plan mandates changes to the UK Corporate Governance Code to make it clear that NEDs may be paid in shares. The UK Corporate Governance Code (“UKCGC”) is unequivocal in stating that NEDs should not receive performance-related pay (including share options) but it does not prohibit companies from paying NEDs in shares in its current form. The fact is that very few (certainly among larger listed companies) choose to do so.

Strong arguments have been expressed both for and against paying NEDs in shares, so clarity about how this government mandate is intended to work in practice will be essential. Those concerned about threats to NEDs’ independence are likely to seek comfort from firms proposing to pay NEDs in shares about safeguards to manage conflicts of interest. Engagement with investors and other stakeholders will be critical.

Abolition of the IA public register of votes of 20% or more against remuneration-related resolutions will take some pressure off remuneration committees. That said, UKCGC Provision 4, requiring companies to publish their responses to so-called shareholder revolts remains.

For financial services firms, simplifying the FCA and PRA remuneration codes is designed to provide remuneration committees with more flexibility to design remuneration policies and structures better suited to a firm’s specific circumstances and requirements. The FCA Remuneration Code has been cut by 70%, which means that many firms will be required to comply only with the PRA Remuneration Code. Much has already been written about the impact of this reform, of which the following is a summary of the key elements:

• A single definition of material risk takers (MRTs) now limited to the top 0.3% of a firm’s earners
• Deferral period for MRTs reduced from 8 to 4 years
• Higher 60% deferral requirement now applies only to the amount by which variable pay exceeds £660k
• Removal of minimum 3-year vesting period; deferred pay may now vest rateably from year 1
• The requirement that variable pay must be split 50% cash and 50% shares/instruments stays but need not be applied equally to both immediate and deferred awards
• Dividend/interest payments now permitted on deferred shares/instruments.

Disclosure requirements are being reduced for a wider range of firms. No Strategic Report will be required of medium-sized companies or wholly-owned subsidiaries, if covered by their parent. In addition, the government will remove the requirement to publish a separate Directors’ Report, although parts of the current format may be required elsewhere in the Annual Report.

If the effect of the above is to make life a little easier for boards and remuneration committees and is consistent with the government’s aim to make it easier to do business in the UK, the following might not be so helpful.

The government is reported to be working on proposals to charge NICs on partner profits from Limited Liability Partnerships (“LLPs”). The LLP has become the structure of choice for many financial services firms (notably private equity firms) and other professional services firms. Taken together with the abolition of non-domiciled tax status and changes in the tax treatment of carried interest, the UK may begin to look less attractive to alternative investment entrepreneurs.

According to British Venture Capital Association research, in 2024 investment of £46bn was led out of the UK, a global hub for investment across Europe and beyond, £33.1bn was raised by UK managed funds for investment globally and £29.4bn was invested in UK businesses. We would urge the government not to take a short-term decision that risks the UK’s long-term position as a global leader in alternative investment and support for entrepreneurs and which potentially runs counter to its aim of cementing the UK’s position as a world-leading financial centre.

In a similar vein, there have been calls from the financial services sector to abolish stamp duty on share dealings.  According to HMRC figures, stamp duty raised £3.2bn in 2023/24 (0.3% of total tax revenues) 15% lower than the preceding year. Financial services raise significantly more tax revenue.

AstraZeneca plans to list its shares directly on the NYSE, whilst retaining its LSE and NASDAQ Stockholm listings (for the present). There is no stamp duty on share transactions in the US. Abolishing stamp duty might be a small price to pay in pursuit of the government’s aim to make London a more attractive place to do business.

MM&K is a leading independent adviser specialising in remuneration, performance and associated corporate governance. We serve the remuneration committees of a wide range of clients, including financial services firms, large and small listed and private firms. The current situation in the UK provides both challenges and opportunities for boards and remuneration committees. To obtain more information or to discuss how we might assist your firm, in the first instance please contact paul.norris@mm-k.com.

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