McGovern: No benefit to UK being “first mover” on OECD tax
London Market Group (LMG) chair Sean McGovern has warned there is “no benefit to being the first mover” in implementing the OECD’s global minimum tax rate as the regime can only work if “all major jurisdictions” adopt the approach at a similar time.
Speaking to The Insurer TV, McGovern, Axa XL’s UK and Lloyd’s CEO, said it was “questionable” whether it was a good idea or could achieve the ideal outcome without popular uptake.
McGovern noted that with “all the challenges” currently facing UK businesses, he felt it was more appropriate for the government to “wait until the rest of the world is ready” before adopting the OECD’s tax reform.
“There is no benefit to being a first mover in something like the OECD. This regime only works if all major jurisdictions move at roughly the same time, and in roughly the same way,” he said.
“While I admire the UK government's determination to help drive this, I do think it's questionable whether going first is a good idea, particularly given some of the economic headwinds that we currently have right now.”
He added: “This is not just about creating non-competitiveness from a tax point of view, it's also going to add additional costs to business because it's another cost that business is going to have to absorb.”
UK chancellor Jeremy Hunt’s Spring Budget revealed the tax reforms – which will apply a 15 percent effective minimum tax rate for all subsidiaries of large UK multinationals – will be included within the renamed Spring Finance Bill and enacted at the end of 2023.
“We are working to ensure that we can embed flexibility into the Finance Bill, so that the tax is done at the pace which best suits our businesses' ability to be ready to adopt, but that it also does not damage our ability to compete,” said McGovern.
The OECD tax reform has faced a degree of backlash from the industry, with some deeming it a further challenge to the UK’s competitiveness as a leading (re)insurance hub as it risks being disadvantaged if the government moves at a pace unmatched by rival jurisdictions.
Indeed, the subject of the industry’s competitiveness is one that has been frequenting the House of Parliament in recent months.
Key industry figures – led by the LMG – have been lobbying to ensure unwarranted regulation does not hamper the UK insurance sector’s ability to thrive and potentially threaten its relevance as a significant (re)insurance hub.
Whilst the much-anticipated Financial Services and Markets Bill has given the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) a secondary competitiveness objective, McGovern argued it doesn’t go far enough.
“I think all the legislation does is set a new framework for the regulators,” he said. “The real question is how are we, how is parliament going to hold those regulators to account for delivering on that objective for competitiveness?
“While I think it's an important first step, it is no more than that,” he added.
For greater certainty over the competitiveness objective, the LMG chair argued the bill needs some form of “accountability and performance metrics” to ensure it makes the “difference” the industry hopes for.
“We need to understand what the regulators are going to do to ensure that they're constantly testing the UK regime against other jurisdictions around the world. That's particularly important for the London market because we're competing for business and capital with other jurisdictions,” explained McGovern, while maintaining it’s “not about de-regulating” the industry.
McGovern is encouraged by the recently created Regulatory Reform Group (RRG), which has warned that regulators, including the PRA and FCA, are wielding huge power, but face too little scrutiny from parliament on their actions which is stifling the potential of City firms.
“I think it's fantastic that we're getting this level of discussion within parliament about one of the most important industries in the UK economy and so we're very encouraged that there is this level of debate,” he said.
“What's critical, in addition to the metrics, is the mechanism within parliament that is going to make this happen and what it looks like?
“There is a discussion about whether it should be a joint committee of both houses which could be very useful. This now seems to be a debate that parliamentarians are now fully engaged in through the RRG and that's a really good thing for our industry,” added McGovern.
Brexit a “net-negative” for UK insurance
One unavoidable “net-negative” for the London insurance market has been the “realignment” forced by Brexit.
“I don't think there's any getting away from the uncertainty that the whole Brexit debate and then post-Brexit implementation has caused because uncertainty, as I say, is bad for business,” said McGovern.
Indeed, he noted that Brexit has caused many businesses, including a “significant part” of Axa XL’s London books, to “migrate” to other jurisdictions.
However, a post-Brexit change McGovern was “very encouraged” by was the “opportunity to streamline” the “reporting requirements” though the government’s Solvency II update.
“I don't think the London market is looking for significant change to the fundamentals of Solvency II, but really looking for the opportunity to see what's necessary and what we can strip back,” said McGovern.
Industry must improve in attracting talent
Despite insurance being a “fantastic industry” to work in, the majority of people “fall into the London market by accident”.
McGovern underlined that “we need to get better at communicating” in order to ensure people can “easily access” the market in the future.
The chair touched on the LMG’s experimentation with TikTok, its two-week Visionpath-partnered summer programme and its outreach into universities, which he hoped could “funnel” talent into the market.
In his “pitch” to young talent, he argued that the market’s “strong purpose”, global “relevance” and its “variety” should all be key selling points used to attract young people into the market.
The Insurer TV was speaking to McGovern having completed his first 100 days as chair of the LMG. He concluded he had been “struck by the passion” of individuals in the London market to make it successful.
“I think it's great,” he said. “Clearly there is a lot for us to do, but I think we have got great traction on the areas that we have selected. We will continue with those and look into new areas.”