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Britain’s annual Mansion House speech is an opportunity for chancellors to set out their ambitions for the UK economy. Thanks to the chopping and changing of Conservative cabinets, three Treasury chiefs have had the chance to do so since 2019, leaving the country with numerous visions — and no coherent strategy. Chancellor Jeremy Hunt delivered worthwhile, if not particularly visionary, proposals to boost Britain’s pension and capital markets in his speech on Monday — an area long in need of reform. But Britain is still short of a joined-up plan to overturn its low-growth malaise.
Trying to mobilise more long-term capital for Britain’s growth is an admirable goal. With over £2.5tn in assets, the UK has the largest pension market in Europe. Yet over the past 25 years UK pension funds have reduced their allocation to British equities from 53 per cent to around 6 per cent; much less goes to unlisted equities. Hunt’s “Mansion House Reforms” take some sensible steps towards unlocking more capital for these high-potential businesses.
A voluntary commitment covering two-thirds of the UK’s defined contribution workplace market to invest at least 5 per cent of default funds to unlisted equities by 2030 is promising. DC funds deliver retirement incomes based on individuals’ investments, while defined benefit funds provide a set income. That Hunt did not mandate investments in UK firms, which would conflict with fiduciary duties and also potentially scare off international investors, is welcome. Broader proposals to consider consolidation of the country’s fragmented DC and DB funds and to explore alternative funding structures could help incentivise inefficient funds to consider higher yielding investments.
The chancellor’s ambition to turn London into the “global capital for capital”, is also a positive signal for the City. While it has retained its place as a global financial hub post-Brexit, competition is mounting from other global cities. Plans to simplify companies’ prospectuses will reduce some burdens of listing. A potential dilution of the EU’s Mifid II directive, which requires brokers to charge a separate fee for research, could also boost research coverage on Britain’s fast-growing enterprises. The EU is already mulling over this. Proposals to create the world’s first stock market for private companies are also encouraging.
At this stage, however, many of Hunt’s reforms remain simply proposals — with a series of consultations ahead of potential policy measures in the Autumn Statement. It is a shame the country’s plans are still so incipient. Numerous reviews on how to unlock Britain’s patient capital have been undertaken under the Conservatives. Encouraging pension funds to invest in the UK economy and the London Stock Exchange’s demise have been longstanding problems.
The chancellor’s claim that his plans could raise £75bn for high-growth businesses is also optimistic. There is no guarantee the reforms will free up capital that will be invested in Britain, since a variety of other factors also hold back investor interest in UK plc. Policy uncertainty has been a major brake on business investment, and will continue to be so with an election looming next year. Boosting growth of UK businesses will also require investment in skills and infrastructure, alongside a long-term plan for tax reform.
There is a limit to how much Britain’s pension market alone can deliver the economic growth the country needs. Pension funds’ primary purpose is to deliver for savers, and they are also a significant buyer of the government’s debt. Channelling pensions towards supporting Britain’s economic growth is not straightforward. Hunt has proposed pragmatic steps, given the constraints. But Britain needs a much broader and bolder economic strategy — which would also help pension funds make the case for investing in the country. Unfortunately, that may now have to wait for the next government.
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