LABOUR’S innocuous-sounding Pension Schemes Bill is very far from benign. It potentially heralds one of the greatest attacks on private wealth ever considered by any government, yet given the degree of chaos thrown at us daily in the newswires it has received relatively little attention. Make no mistake, this Act, theoretically at least, will give the Government power over where your pension money is invested and for what purpose.
The House of Lords acts as the last line of defence here, and unless it can force meaningful and cast-iron protections, watch out as Miliband and others will soon be dictating which Green Bank, or other flavour-of-the-month Government scheme it will be invested in, for although the Government says it has no intention to use the power, frankly no one believes it.
In an ever-increasing desire to control and centralise, governments have wrecked the public finances. That is no exaggeration. The highest tax proportionately since 1948 is matched with on balance sheet debt of £3trillion as a millstone to the next generation. Even that is not enough. Now they realise the cupboard is bare so they are looking at the next target, the estimated £3.2billion of UK pension assets.
Reeves & Co have a growth problem, entirely of their own making through their egregious tax, spend and regulate philosophy (admittedly inherited from the disastrous Johnson/Sunak government). No doubt they think how smart it might be if just a bit of that could be directed into UK investments. ‘Just a bit’ at first will quickly morph into a wholehearted raid. Mark my words.
Now a bit of history. When I started my career in the mid-1990s as a young fund manager, around 60 per cent of pension assets were invested in the UK. The UK market was vibrant, balanced across sectors and quite dynamic. Its combined market capitalisation of UK companies was around 10 per cent of global markets combined. It was big.
Fast forward to today. UK equities are at best a niche interest. Pension funds typically park around 6 per cent of their assets in UK shares and the UK’s combined market capitalisation has fallen to around 3 per cent. That decline in a generation is thus precipitous.
Furthermore the UK market is, well, let’s be polite and say ‘old economy’, disproportionately stuffed with financial companies, commodity plays and consumer staples. Good companies for sure, but hardly cutting-edge technology.
The number of new issues is derisory, with far more companies de-listing or being acquired than joining. I challenge any reader to name any manufacturing company of any size that has joined the list in 25 years. Only one British technology company makes the global 100 (Arm Holdings).
What Reeves no doubt has in mind, but is too cautious to say, is ‘Let’s direct these funds to invest a bit in the UK.’ I’ll bet that bit will be directed into Government-backed infrastructure, green energy and the like. Doubtless it will be done on a similar basis to the disastrous PFI contracts where pension funds get a guaranteed return for some inefficient price of capital. What’s the problem, you may say, if the pension funds get this return?
The problem is, notwithstanding it is not Reeves’s money to touch in the first place, that you and the rest of society pay the price with higher energy bills, questionable infrastructure that would never have been built by private capital, and pet political projects usually of little merit. I could even see it used as a rearmament slush fund giving yet more over-expensive and engineered kit to an admittedly hollowed-out military.
The question Reeves should be asking is why are very few new companies listing on the London stock market? And why have pension funds voted with their feet moving assets away from the UK to the extent that from being the major asset class a generation ago very little is invested here?
The answer of course is that smart investors see the opportunity is not here. It used to be, but successive governments have undermined Britain’s competitive advantage to such an extent that investment opportunities are sought elsewhere. Reeves would do well to ponder this. Could it be that the actions of these governments have driven capital away?
Worse, she may well try to puff up growth with useless infrastructure projects that in the short term may add 0.1 or 0.2 per cent to output but in the long term further undermine competitiveness. This really is a most foolish, illiberal and potentially dangerous measure that must be resisted. Future governments should be clear that any attempt to raise private assets like this will be repealed.
Now by sleight of hand, with a sub-clause deep in a complex Bill, it may be written in the law ‘Don’t worry, we won’t use this power.’ Yeah, right, we believe you! It will end in tears. Their direction will destroy returns, distort remaining capital to broadly useless projects and further undermine what is left.
Regardless of the economic stupidity of this idea, as a matter of liberty it is wrong. Government should have no right to dictate where your pension is invested. Their stupidity knows no bounds.
