Weekly Briefing: Pension Reforms, Business Resilience, Tax Rises for Millions & Tariff Changes Ahead

This week’s briefing unpacks four key developments shaping today’s investment landscape. These include a shift in pension investment strategies, signs of resilience from businesses of all sizes despite tougher conditions, the risk of rising tax burdens in the years ahead without headline rate increases, and yet another change in U.S. tariff policies.

Read on for insights into each story—and how best to navigate them.

UK Pension Reforms: The Rise of 'Megafunds'

• The UK government has unveiled a significant overhaul of the pension industry, introducing plans to consolidate numerous pension schemes into large-scale 'megafunds'. This initiative aims to pool assets from 86 Local Government Pension Scheme (LGPS) authorities and various defined contribution (DC) schemes, potentially unlocking £80 billion for investment in infrastructure and innovative businesses.
  
  
• By merging these funds, the government seeks to emulate successful models from countries like Canada and Australia, where larger pension funds have facilitated substantial investments in infrastructure and private equity. The Treasury notes that Canadian pension schemes invest approximately four times more in infrastructure compared to UK schemes, highlighting the potential benefits of such consolidation.
  
  
• To ensure these megafunds contribute to domestic growth, the government plans to set local investment targets for LGPS funds, encouraging investments in local economies and public services. This move is expected to not only boost economic development but also enhance returns for pension savers.
  
  
• However, the reforms have faced criticism from some industry leaders who express concerns about potential government overreach and the risks associated with large-scale investments. Despite this, the government maintains that the consolidation will lead to improved governance, diversified investments, and better bargaining power for pension schemes.
  
  
• The reforms will be introduced through a new Pension Schemes Bill, with the government holding consultations on measures such as setting minimum size requirements for DC schemes to drive consolidation. The aim is to create fewer, larger funds that are better positioned to invest in productive assets and deliver greater returns for members.

UK Businesses Navigate Trade Challenges with Resilience

• A recent survey of 1,000 UK businesses reveals that despite facing tariffs and trade uncertainties, nearly half (48%) report positive business performance, and over half (56%) anticipate a favourable impact on trade in the next two years. Notably, 76% view trade pressures as a catalyst for growth, prompting them to evolve and seek new opportunities.
  
  
• In response to these challenges, a significant majority of businesses have adopted adaptive strategies: 94% have embraced new technologies or platforms, 92% have entered or plan to enter new import or export markets, and 94% have improved internal efficiencies or cost structures. Additionally, 91% have launched new products or services to stay competitive.
  
  
• Despite this optimism, concerns about rising costs persist. Approximately 69% of businesses have experienced increased operational costs due to trade uncertainties, and a majority expect expenses to continue rising in both the short term (77%) and long term (74%). This has led 72% to reconsider their long-term business models or strategies.
  
  
• To mitigate risks, businesses are exploring various strategies: 86% plan to expand into regions less affected by trade disruptions, adjust pricing to reflect higher costs or market changes, and form partnerships to strengthen market positions or supply chains. Furthermore, over 80% have diversified suppliers, started utilising inventory buffering, and reshoring operations.
  
  
• Stephanie Betant, head of Global Trade Solutions at HSBC UK, emphasises the importance of adaptability: "Businesses are looking for greater clarity but continue to show great resilience and adaptability in the way they operate. Many are even seeing the ongoing uncertainty as a catalyst for growth despite rising costs."

Income Tax Threshold Freeze Could Impact Millions

• Analysis indicates that Deputy Prime Minister Angela Rayner's proposal to maintain the freeze on the 45p additional rate income tax threshold beyond 2028 could significantly increase the number of high-rate taxpayers. Currently, around 1.13 million people pay this rate, but projections suggest this could rise to 8.66 million by 2032-33, equating to about one in six earners.
  
  
• The freeze, initially implemented in 2021-22, has already led to more taxpayers entering higher brackets due to inflation and wage growth. Extending the freeze would continue this trend, effectively raising taxes without altering nominal rates.
  
  
• Critics argue that this approach disproportionately affects middle earners, particularly professionals in London and the Southeast. Jason Hollands of wealth manager Evelyn Partners describes the policy as "slow, painful financial torture" and "little more than a disguised tax rise."
  
  
• In addition to income tax, other areas are experiencing similar effects. Inheritance tax allowances have remained frozen since 2010, despite rising house prices, leading to more estates being subject to the 40% levy. By 2030, it's estimated that 10% of estates will be liable, up from around 4% today.
  
  
• The Chancellor's decision to make unspent pension wealth subject to inheritance tax from 2027 further compounds these concerns. These measures, while not overt tax increases, effectively raise the tax burden on individuals through unchanged thresholds amidst economic growth.
  
  
• As tax burdens continue to rise in various forms, more individuals will be seeking ways to reduce them. To support this, we’ve outlined several potential strategies in our tax-efficient investing guide.

US Court Blocks Trump's Sweeping Tariffs

• In a landmark decision, the U.S. Court of International Trade has ruled that former President Donald Trump exceeded his authority by imposing widespread tariffs under the International Emergency Economic Powers Act (IEEPA). The court emphasised that only Congress holds the constitutional power to regulate trade, invalidating all related tariff orders issued since January.
  
  
• The ruling specifically addresses the "Liberation Day" tariffs, which included a baseline 10% tariff on imports from most countries and higher rates on goods from nations like China, Mexico, and Canada. The court found that the IEEPA does not grant the president unilateral authority to impose such broad tariffs, especially when the declared national emergencies do not meet the statutory threshold.
  
  
• This decision significantly undermines a key component of Trump's economic policy, which aimed to use tariff revenues, projected between $200 billion and $600 billion annually, to fund tax cuts and spending increases. With these revenues now nullified, concerns over increasing the national debt have intensified among fiscal conservatives.
  
  
• Financial markets responded positively to the ruling, with U.S. stock futures rising and the dollar strengthening against safe-haven currencies. Investors viewed the decision as a potential easing of trade tensions, bringing a degree of stability to global markets. But this could still be short-lived.
  
  
• The White House has announced plans to appeal the decision and explore alternative legal avenues to reinstate some tariffs. However, the court's ruling sets a precedent that may limit the executive branch's ability to impose trade measures without congressional approval unilaterally.

Final Note

From an almost certain shift in pension investment strategies to signs of business resilience despite economic challenges, the UK finds itself in a mixed position. With rapid changes—tariffs being introduced, cancelled, reintroduced, and overruled—building and maintaining a solid financial strategy is no easy task.

But, as ever, taking a long-term view helps cut through the noise of short-term news cycles. Adding to the complexity is the looming risk of stealth tax rises, driven by continued frozen thresholds. That’s why incorporating schemes like EIS and SEIS into a broader financial strategy can offer valuable relief and support for long-term planning.