The Fiscal Dispatch with Atticus Partners

Welcome to the Atticus Partners Financial Services newsletter: The Fiscal Dispatch.

Once a month, we cover the topic stories relating to Financial Services (FS) in Westminster and Whitehall.

In this edition, we look ahead at some of the trends and top stories going into 2025, including the Government's growth initiative, Phase 2 of the Spending Review, smart data, green finance, and the future of AI in financial services.

For more information about Atticus’ work in FS, or queries about the support you require, please get in touch via [email protected].

Is Labour finally gearing up for growth??

As we approach 2025, the UK faces an uncertain economic landscape, from navigating post-Brexit EU relations to inflationary pressures and geopolitical tensions. To push through this, Chancellor Rachel Reeves, during her first Mansion House speech in November, set economic growth as the government's “national mission.” In this environment, the financial services sector is poised to be crucial in supporting the country’s economic targets, especially in this critical first year of a new government.?

Rachel Reeves laid the gauntlet down to her government when she remarked, “the UK has been regulating for risk, but not regulating for growth.” As part of the culture shift announced at the November Mansion House speech, Reeves stated that the government will publish the UK’s first-ever ‘Financial Services Growth and Competitiveness Strategy.' The strategy will focus on five priority growth – fintech, sustainable finance, capital markets, asset management – and build on the initial announcements made by the government, including the launch of the PISCES stock exchange and National Wealth Fund. Alongside the amendment to the financial regulator’s mandate, which now makes ‘regulating for growth’ a priority for regulators, Labour is seemingly laying the groundwork for significant growth in 2025 in the financial services sector.?

However, they have not made it easy. The government’s fiscal policies, aimed at controlling debt and deficit, may limit the financial flexibility needed for rapid growth. Higher rates of capital gains tax could also result in an exodus of business and investors overseas, with the UK currently having the 30th least competitive tax landscape of the 38 OECD nations. Meanwhile, the Autumn Budget’s increase in national insurance employer contributions and increase in minimum wage has put a new “heavy burden on business.” These measures have unsettled the very same people the government had built strong relationships with during the build-up to the summer election.??

Looking to 2025, the financial services sector will need to stay agile, responding to regulatory changes and tapping into the opportunities provided by government-backed initiatives within the new Growth and Competitiveness Strategy. While the road to achieving Labour’s plan for growth may be challenging, there are clear pathways for financial institutions to thrive in a changing economic landscape, especially if the party remains committed to its ambition of fostering innovation and entrepreneurship.?

Labour’s Phase 2 of the Spending Review?

As the government adapts to evolving economic landscapes, Phase 2 of the Spending Review promises to reshape fiscal priorities in 2025. The review process determines Departmental Expenditure Limits for key areas such as healthcare, education, and infrastructure, alongside Annually Managed Expenditure for demand-driven costs like welfare and debt interest.?

Phase 2 comes amid persistent inflationary pressures, moderate growth forecasts, and rising debt-to-GDP ratios. Policymakers face balancing fiscal prudence with targeted investments in growth-driving sectors such as technology, green energy, and healthcare. Infrastructure modernisation and green initiatives, including renewable energy grids and sustainable transport, are likely to receive significant attention.??

Geopolitical tensions could also drive higher defence spending, particularly in emerging technologies like cybersecurity and AI. The financial sector may feel the impact of these shifts through changes in public borrowing strategies and debt issuance. Additionally, the Spending Review's focus on value for money could influence tax reforms and regulations at the next Autumn Budget, particularly in industries aligned with net-zero goals.?

Key milestones to watch include the Treasury’s departmental budget submissions and the Review’s publishing in late spring. The integration of ESG metrics into public procurement could signal a significant shift in resource allocation, emphasising sustainability and efficiency.?

Smart Data: Finally arriving??

As we move into 2025, the UK is poised for a transformative leap in its digital economy, driven by the promise of smart data and the evolution of open banking. At the heart of this shift lies the Data (Use and Access) Bill, which lays the groundwork for the roll out of smart data schemes across the country. It has the potential to unlock ￡27.8 billion in annual GDP growth while empowering consumers and businesses alike.?

Smart data, a form of data portability, places control of personal data firmly in the hands of consumers, enabling seamless sharing across industries. Building on the success of open banking, where 11 million UK users have already benefited from enhanced financial visibility and savings opportunities, the government envisions applying these principles to sectors such as energy, telecommunications, and retail. By 2025, we could see smart data services helping consumers make greener decisions, gain insights into spending habits, and access tailored products across multiple domains.?

The coming year will also test the UK’s ability to deliver on its smart data ambitions without falling into the trap of over-deliberation. Industry leaders have cautioned against excessive reliance on committees, advocating instead for clear, actionable frameworks that foster rapid deployment. By prioritising execution over consultation, the FCA and Smart Data Council must ensure that 2025 marks a turning point, with significant progress in delivering interoperable and efficient data-sharing systems. Already industry stakeholders are cautious as when pushed, Baroness Jones declined to provide a timetable for the roll-out of smart data schemes following the passage of the Data (Use and Access) Bill.?

Nevertheless, if successful, the UK’s efforts could solidify its position as a global leader in the smart data economy. Smart data schemes will not only enhance consumer choice but also drive innovation, making data-driven insights more accessible and actionable. By addressing the challenges of regulation and implementation, 2025 could usher in a new era where smart data truly powers growth and competition across every sector of the UK economy.?

Greener finance in 2025??

Green finance is set to play a pivotal role in the UK economy in the year ahead as the government accelerates its transition toward net-zero emissions. Financial markets are expected to see increased issuance of green bonds, with the UK continuing to solidify its position as a leader in sustainable finance. The Green Gilt programme launched to fund environmentally focused projects, is expected to expand, supporting investments in renewable energy, clean transport, and biodiversity initiatives.?

Private sector interest in green finance is also growing, with major financial institutions aligning portfolios with ESG goals. Regulatory pressure, particularly from the FCA, will ensure stricter climate-related financial disclosures, enhancing investors' transparency. Corporate sustainability reporting, underpinned by the UK Green Taxonomy, will further drive alignment between capital flows and environmentally sustainable activities.?

Innovations in green finance products are expected to gain momentum. Green loans, sustainability-linked finance, and retail products aimed at environmentally conscious investors are likely to grow in prominence. Additionally, the increasing adoption of carbon markets will provide businesses with tools to offset emissions while meeting ambitious decarbonisation targets.?

Challenges remain, however, as the transition to a greener economy demands significant upfront investment. Policymakers and market participants will need to strike a balance between driving sustainability and maintaining economic competitiveness. Collaboration between government, industry, and investors will be essential to unlock the full potential of green finance in 2025 and beyond.?

The Future of AI in Financial Services: Is Regulation on the Horizon??

Though Labour had a multitude of issues to contend with after winning the General Election in July, it still surprised many when Labour’s first King's Speech avoided introducing legislation regulating the use of artificial intelligence (AI). Since then, a consultation has been launched exploring the use of AI in the creative sector, while the AI Safety Institute has received increased media attention as it looks to expand to the United States. However, the financial services industry—where AI adoption is accelerating—has been conspicuously devoid of government attention. With 75% of financial firms already using AI and another 10% planning to adopt it within three years, could financial services be next in line for regulatory focus??

The Bank of England’s November report on the use of AI highlights the transformative potential of AI in financial services, particularly in anti-money laundering, fraud detection, and operational efficiency. Yet, it also underscores the sector’s growing dependence on third-party AI providers, with a significant proportion of use cases involving outsourced models. This reliance on external technology could potentially raise concerns within the government about accountability, model transparency, and systemic risks, especially as AI models grow more complex.?

Despite its benefits, AI risks are widely documented. Cybersecurity remains the top systemic concern, with third-party dependencies and data challenges—such as privacy, security, and bias—expected to grow. Of more concern to regulators, only 46% of firms admitted only partial knowledge of the AI technologies they employ.?

Regulatory and non-regulatory constraints currently focus on data protection, resilience, and AI model safety. However, the financial services sector has proactively established governance frameworks, with 84% of firms assigning accountability for their AI frameworks, often involving multiple stakeholders.?

Given the government’s increasing interest in AI’s societal impact, as seen in the creative industries consultation, could we see 2025 as the year financial services come under similar scrutiny? With Labour’s push for growth and the sector being encouraged to increase risk-taking, the absence of specific AI regulation feels like a temporary reprieve. As AI reshapes the financial landscape, comprehensive legislation may not be far behind to ensure innovation proceeds responsibly.?

For more information about Atticus’ work in FS, or queries about the support you require, please get in touch via [email protected].