LEEDS REFORMS WELCOME BUT DEEPER CHANGE NEEDED TO FUTURE-PROOF UK FINANCE, SAYS INVESTMENT EXPERT

Chancellor Rachel Reeves unveiled the most extensive package of financial services reforms for over a decade in her Mansion House speech last week, in a move described by the Treasury as a “rewiring” of the UK’s financial system. The so-called Leeds Reforms focus on deregulating financial services, boosting housing access through a loosening of mortgage affordability, and promoting retail investment and capital markets. The government says the reforms are designed to boost innovation, increase competitiveness and make UK markets and investments more attractive globally.

Shaun Wood, Managing Director and Chief Investment Officer at Simpson Wood Financial Services Ltd, says he largely welcomes the reforms and that it is “encouraging to see Reeves finally listening to City lobbyists on tackling our listing and overall capital markets issues,” but that more needs to be done to bring the European exchanges together and better compete with the US. “We shouldn’t take our position at the top of the finance table for granted,” he says.

According to Wood, the Chancellor’s decisions emulate policies the US has been attempting to push through, with a clear aim to boost growth and expand retail investor access through new vehicles, such as Long-Term Asset Funds (LTAFs). “That’s generally good,” says Shaun, “but not without its dangers. And while it’s positive to see the government tackling regulatory barriers and expanding opportunities for investors, we must acknowledge the structural and cultural challenges the UK faces.”

Market Performance and Cultural Hurdles

UK small-cap equities continue to lag far behind their US counterparts, with five-year annualised returns for the MSCI UK Small Cap Index at 5.65%, compared to 12.10% for the MSCI USA Small Cap. This underperformance, coupled with sustained capital outflows from UK funds, reflects a shrinking domestic market and investor wariness.

“UK investors and pension schemes are underexposed to their own markets,” says Shaun. “Without a shift toward supporting domestic small and mid-cap firms, and better integration of European capital markets, the UK risks losing ground to international competitors. The lost opportunity in that simply doesn’t bear thinking about. Cultural change is essential,” says Shaun.

“The first step is simply to start considering a direct UK equities allocation — never mind increasing or adding to UK smaller companies. If this is part of the catalyst, it could turn years of gloom into a 1–5-year boom, delivering significant alpha for portfolios. When it moves, it could move on a big scale. But confidence in the market is key.”

The Leeds Reforms include targeting the longer-term goal of shifting the UK’s saving culture. Despite incentives like the Lifetime ISA, many young adults are not maximising their saving potential and are resistant to investment as a form of wealth-building and long-term financial planning. This method of asset-growth is more commonplace in the US than it is in the UK, where it is often seen as inherently too risky. Meanwhile, traditional savers in the UK have had decades of little to return on their “safe” nest eggs. Shaun says policy alone won’t fix this.

“It’s a matter of education and lifestyle choices. We need to better educate the younger generations about how money works, even getting down to the basics of what it is and what it’s for. Money has become nothing more than an abstract idea of transaction,” says Shaun, “which makes it harder for many people to adequately understand its value or its potential. Where money is simply exchanged for something else of a perceived equivalent value, the potential of it as a tool or as a way of building more money and security becomes lost. We need to prioritise education around saving and investing, so we can be better at building business and personal wealth and fuel economic growth.”

Shaun says that complementing the Mansion House reforms with measures such as a lifetime cap on cash ISAs to channel savings into growth assets, mandates for pension schemes to support UK equities, and the creation of inheritance tax–exempt ISAs to incentivise long-term investment, would help.

“Rachel Reeves’ reforms are a positive foundation,” says Shaun. “But sustained progress requires a holistic approach that combines deregulation, education, and market support. Otherwise, we’ll still be failing to futureproof the UK’s financial services sector and ensure it delivers for all investors.”