This year is likely to be momentous in terms of elections. Much of the world will be going to the polls, including the US elections in November and, almost certainly, a UK election expected in the autumn. At Macfarlanes, we are focused on what the UK election might mean for our clients.

Even before we get to the General Election, however, there are a number of public policy issues which should be of interest to you. We set out some of the key matters to watch in 2024, particularly focusing on business taxes, financial services, real estate and ESG. If you would like to discuss any of these issues further, or indeed the wider political context, please do not hesitate to get in contact with us.

Tax

Domestic tax changes will be shaped by forthcoming general election

• The prospect of a change of government means domestic tax reform in the run up to the General Election will be focused on eye-catching policies for the electorate, however stretched public finances may prompt HMRC (emboldened from recent court decisions) to take a more aggressive approach in certain areas.
• If the Labour Party were to win the next General Election, we can expect changes to the non-dom regime and the taxation of carried interest, but given the state of the public finances, a host of undocumented tax policy changes should also be anticipated.

Landmark international tax agreement paves way for global minimum tax on multinationals

• The UK is in the first wave of territories that have implemented the rules, however, we can expect further developments as the OECD model rules evolve and other countries follow suit during 2024.
• The second wave of implementation by offshore jurisdictions should be monitored with detailed rules expected from a number of territories including the Crown Dependencies. Work continues on Pillar 1 (reallocation of profit to market jurisdictions).
• If agreement is reached, the proposals could mitigate the proliferation of Digital Services Taxes, however, widespread adoption appears ambitious at the moment.

EU continues to demonstrate its appetite to mould international tax permeating beyond EU Member States

• The key priorities for 2024 include implementing a simpler and more efficient withholding tax refund system, updating VAT rules, and strengthening cooperation and harmonisation.
• The Unshell directive (tackling entities with no or minimal substance) is likely to evolve but has little chance of reaching agreement in the short-term.

Real estate

Renter and leasehold reform

• The focus on redressing the balance of power in the residential rental market in favour of renters is likely to continue in 2024.
• While rent caps and freezes now seem less likely, other measures, such as the abolition of no-fault evictions, easier and cheaper paths to enfranchisement and lease extension and proposals to abolish ground rents in existing leases are likely to continue.

Energy security and infrastructure

• The acceleration of grid connectivity and improving grid capacity will remain focal points for unlocking delivery of housing and infrastructure projects.
• Measures such as changes to the Electricity Generator Levy announced in the autumn statement, the Government response to the Winser Review of electricity transmission infrastructure and the creation of the solar taskforce will ensure that electricity infrastructure and connectivity continues to be a dominant theme in 2024.

Increased transparency requirements

• Recent legislation (ECTEA 2022, ECCTA 2023 and Levelling up and Regeneration Act 2023) has focused on increasing the transparency of land holding in England and Wales by both overseas and domestic owners.
• Statutory requirements for greater disclosure of beneficial owners, proprietorship and trust arrangements will require landowners to provide greater information to registries in an effort to mitigate against property fraud and money laundering and to reveal suspected practices such as landbanking.
• A consultation into transparency of land ownership was published in December 2023 and this is expected to remain a consistent theme of regulation and legislation in 2024.

ESG

Transition planning

• After COP 26 in 2021, the UK Government announced its intention that the UK would make publication of transition plans mandatory and set up the Transition Plan Taskforce (TPT).
• More recently in October 2023, the TPT launched The Disclosure Framework, which builds upon the ISSB’s standards and the TCFD’s recommendations. 2024 will see a consultation from the FCA on how the mandatory rules will be implemented and many large businesses will work on adapting their transition plans to comply with the TPT’s Disclosure Framework, to ensure best practice is followed, before mandatory rules are introduced.

Scope 3 and supply chain transparency

• The Department for Energy Security & Net Zero issued a consultation which closed in December 2023 on Scope 3 Emissions in the UK Reporting Landscape.
• Scope 3 represents all indirect emissions that occur in the value chain of the reporting company and reporting is not currently mandatory in the UK. Given Scope 3 greenhouse gas emissions can account for between 80-95% of an organisations footprint, policy makers view a lack of Scope 3 reporting as an information gap for investors to fully assess climate-risks and opportunities. Responses will help inform the Government’s decision on whether to endorse IFRS S2, the ISSB’s climate-related standard, which includes Scope 3 reporting.
• In the EU, the Corporate Sustainability Due Diligence Directive and Corporate Sustainability Reporting Directive will make Scope 3 reporting mandatory, when in force.
• Whilst mandatory Scope 3 reporting deadlines will vary between jurisdictions and sectors, 2024 will see companies and investors placing more emphasis on their supply chain, including Scope 3 reporting.

Real estate nature and environmental focus

• Requirements for the delivery of biodiversity net gain on new development sites is expected to become mandatory in January 2024.
• New regulations, in addition to those published in November 2023, are also forthcoming, this follows renewed nature commitments made by the UK Government at COP 28 in December 2023.
• Climate change adaption, green retrofits to existing building stock, the circular economy and increasing “whole life carbon” awareness and sophistication in operational building standards will continue to be dominant themes for the built environment, as funding methods and insurance products continue to evolve to accommodate the changing market.

Regulatory scrutiny of unregulated markets

• 2023 saw letters being sent to Heads of ESG/Sustainable Finance warning banks that they have been monitoring the Sustainability Linked Loans (SLL) market and that they have been made aware of weaknesses in the market and potential conflicts of interests.
• The FCA acknowledged that it does not directly regulate the SLL market (which in itself makes this a noteworthy intervention) but is “keen to ensure that the sustainable finance market works well, and that market integrity is maintained”.
• This is perhaps an indication of further unusual interventions from the regulator during 2024 as it seeks to “improve the trust and transparency of sustainable investment products and minimise greenwashing”.¹

Financial services and finance

The next wave of sustainable finance

• The UK’s Sustainable Disclosure Requirements and the EU’s review of its rules will get underway.
• These reforms will happen in the midst of a wave of new regulations for ESG data, including new company reporting requirements and a new regime for ESG scores and data providers. Greenwashing is likely to drive regulatory enforcement and litigation.

Technological disruption

• Financial services are undergoing a wave of innovation with AI set to transform back and front office, initiatives underway to tokenise funds and assets, and the creation of central bank digital currencies.
• Transformation will be subject to new regulatory regimes and a renewed supervisory focus on operational resilience and treating customers fairly.

Channelling private capital for public aims

• Policymakers are keen to underpin economic growth with more saving for retirement and to increase (both retail and institutional) investment in assets with a wider benefit, from green technology to infrastructure and high-growth companies.
• At a time of constrained public finances, and significant elections in the EU, UK and US, private capital will be an area of political focus.

Systemic risk returns

• Notwithstanding the political reliance on private capital, global regulators are increasingly concerned that nonbanks pose a threat to the economic and financial system.
• There will be a focus on investment in sovereign bonds, private market valuations, on funds with illiquid assets, money funds, non-bank lending to the economy, and the stability of pensions schemes.

Divergence or equivalence

• The UK’s reform of all onshored EU legislation is underway, while the EU continues its process of legislative reviews.
• Policy overload is likely while cross-border firms will increasingly manage two distinct regulatory regimes.
• However, decisions on regulatory equivalence might still be possible in 2024 and will depend partly on political relations.