Chancellor John Healey kicked off the week talking about “Growth Britain”, pushing for “more investment, more innovation and more jobs”. Unfortunately, the City of London has not got the message, with new research finding that investors have pulled £15 billion out of stock market funds over the past year, including over £600 million from the UK.

Despite market concerns about rising levels of government debt across the world, investors are putting more money into purchasing bonds and gilts. Where the media sees panic, investors see profit, as bonds and gilts are now providing both security and high returns. British 10-year gilt yields, for example, have risen by 11% since the start of the year and do not show signs of going down anytime soon.

Some will argue that high demand for government debt is a good thing, particularly for a country like Britain which is on course to borrow over £100 billion this year. If the economy were recording strong levels of growth, they might be right. However, in the context of two decades of sluggish growth, stagnant living standards and persistently above-average inflation, Britain cannot afford to be sanguine.

Chancellors love to talk about growth, and they love to talk about investment. The implicit assumption is that investors are interested in the same thing, when in fact they are often talking at cross-purposes with the Government. Investors want to grow their profits and investment. Chancellors want to grow the overall economy and increase Britain’s productive capacity. These are not the same thing.

Pulling out money from equities into bonds is perfectly rational for individual investors, as it will help to grow their portfolios. Unfortunately, it is the opposite of what the economy needs, as British firms are facing crippling capital shortages that are forcing firms to move overseas and becoming easy pickings for takeovers.

Capital-starved businesses will lead to slower growth. Stagnation will further reduce opportunities for private investment. This, in turn, will force the Government to borrow more to make up for the lack of investment. More borrowing will drive up the price of Government debt, and so the cycle will continue.

The understanding that the goals of markets and governments could be misaligned used to be accepted wisdom. In recent decades, however, this wisdom has been forgotten, replaced with endless platitudes about government and business working in partnership. Investors and entrepreneurs are good at spotting individual opportunities, but they often cannot spot the wood for trees. It is also not their job to think about the wider health of the British economy. Putting faith in finance to act altruistically to invest in the country is not a credible plan.

Governments need to be more interventionist. This does not mean forcing investors to put money into specific ventures but instead ensuring that there is an appropriate balance between different types of investment, particularly UK equities. Research by the Investment Association found that UK investor funds under management have dropped their share allocated to UK equities from 30% in 2008 to just 10% in 2025. If the Government is going to provide billions of pounds of tax relief for ISAs and private pensions, we need to ensure that this relief is tied to the funds investing back into the UK.

Growth Britain is a nice slogan. But to turn it into reality, chancellors must get their hands dirty. This will mean picking a fight with the City of London, which guards its freedom of action jealously. The alternative is more warm words and long speeches about partnership, while money continues to fly out of the country.

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Andrew O’Brien is the former Director of Policy at the think tank Demos and currently Head of Secretariat of the Independent Commission on Neighbourhoods. He writes in a personal capacity.

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