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The annual Mansion House speech in Britain provides chancellors with an opportunity to outline their economic goals for the country. However, due to frequent changes in the Conservative cabinets, three different Treasury chiefs have delivered their visions since 2019, leaving the UK without a cohesive strategy. Chancellor Jeremy Hunt’s recent speech touched on important proposals to improve the pension and capital markets, areas that are in need of reform. Yet, the country still lacks an integrated plan to address its low-growth issues.
Efforts to generate more long-term capital for growth in Britain are commendable. The UK boasts the largest pension market in Europe, with over £2.5tn in assets. Despite this, UK pension funds have significantly reduced their investments in British equities over the past 25 years, allocating only about 6% to this asset class. Hunt’s “Mansion House Reforms” are a step in the right direction to unlock additional capital for high-potential businesses.
One promising aspect of these reforms is a voluntary commitment from two-thirds of the UK’s defined contribution workplace market to invest at least 5% of default funds in unlisted equities by 2030. While these funds deliver retirement incomes based on individual investments, defined benefit funds provide a set income. It’s encouraging that Hunt did not mandate investments in UK firms, which could conflict with fiduciary duties and deter international investors. Broader proposals, such as exploring alternative funding structures and consolidating fragmented pension funds, could incentivize inefficient funds to consider higher-yielding investments.
Hunt’s ambition to position London as the global capital for capital is also positive for the City. Although it has maintained its status as a global financial hub post-Brexit, it faces increasing competition from other global cities. Simplifying companies’ prospectuses and potential changes to the EU’s Mifid II directive, which requires segregated research fees, could enhance research coverage of Britain’s fast-growing enterprises. Proposals to establish the world’s first stock market for private companies are also encouraging.
However, it’s important to note that most of Hunt’s reforms are still in the proposal stage, with consultations and potential policy measures planned for the Autumn Statement. It is unfortunate that the country’s plans are still at an early stage. The Conservatives have conducted numerous reviews on unlocking Britain’s patient capital, and addressing pension funds’ investment in the UK economy and the London Stock Exchange’s decline have long been ongoing challenges.
Moreover, Hunt’s claim that his plans could raise £75bn for high-growth businesses is optimistic. The reforms alone may not guarantee an influx of capital into Britain, as there are various other factors affecting investor interest in the country. Policy uncertainty, in particular, has hindered business investment and will likely continue to do so with an upcoming election. Achieving growth for UK businesses also necessitates investments in skills, infrastructure, and a comprehensive long-term tax reform plan.
Relying solely on Britain’s pension market to drive economic growth has its limits. Pension funds primarily serve savers and are also significant purchasers of the government’s debt. Funneling pensions towards supporting economic growth in Britain presents challenges. Hunt’s proposals take pragmatic steps within the current constraints. However, a broader and more ambitious economic strategy is needed to encourage pension funds to invest in the country. Unfortunately, that may have to wait for the next government.
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