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November 15, 2024 - 11:40am
Britain’s farmers haven’t got much to thank Rachel Reeves for, but at least she didn’t collectivise them. Britain’s pension funds might not be so lucky. In her Mansion House speech last night, the Chancellor set out her intention to consolidate 86 local government pension schemes into eight “megafunds”.
The aim is to create financial institutions with the heft to make major strategic investments in the British economy. Instead of limiting themselves to bog-standard money management, the hope is that they’ll develop the capacity to finance high-potential start-ups and ambitious infrastructure projects.
This megafund model is already established in Canada and Australia — and Reeves’s Tory predecessor, Jeremy Hunt, wanted the same for the UK. Yesterday, he not only welcomed the Reeves scheme, but basically claimed the credit. There is, however, a big difference between his policy and hers. Hunt’s scheme was voluntary; Reeves’s is not. So with the pension pots of 6.5 million people at stake, should we be worried?
In a word: yes. Reeves claims that her pension reforms could free up £80 billion of investment for the British economy. But for that to be true, there needs to be £80 billion of projects waiting for the pension funds to invest in. Through the City of London, the UK is already wide open to investment. What, then, is stopping the global money markets from funding every shovel-ready infrastructure scheme this country has to offer?
Nothing — apart from high taxes, a dysfunctional planning regime and terrible transport networks. All this and much more has crushed British enterprise, which explains why UK growth and productivity are down in the dumps with continental Europe, not soaring to American heights.
So how does Reeves propose to fix an economic model which has been broken since the Global Financial Crisis? She does claim that “supply-side reform is a central part of our work” — but when it comes to specifics, the Government’s programme is unconvincing. Objectives such as “delivering a world-beating sustainable finance framework” and “empowering female entrepreneurs” sound nice, but they won’t shift us from EU to US levels of dynamism.
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SubscribeFor her policies to ‘backfire’ one has to have a settled notion of what she conceives success as looking like.
As with destroying small farms and eviscerating private education – neither of which appears to have a defensible economic justification with a Foreign Aid of 7 Billion and the international climate finance budget set at £11.6billion. – the obvious conclusion is that the goal is not economic but rather more abstract. Priorities have been agreed in advance and the money must be found for them, whatever the consequences.
We have arguably reached the point, which Mrs Thatcher envisioned, when the Left (of both parties) has simply run out of other peoples money.
And once again those on he right have simply been naive about what would happen next. Rather than being compelled to reign in their grandiloquent schemes they are going to set about eating the seed corn.
From the ability to feed ourselves and defend ourselves to the capacity to educate our children and fund the care of our elderly.
All are fit to be mortgaged to expediency when the agenda is sufficiently ‘transformational’.
“And worse it may be yet: the worst is not so long as we can say, ‘This is the worst.’”
I hope to god that I’m reading this wrong, but is she actually saying the govt will seize the funds and invest them in projects the govt deems profitable?
The simple truth is the 86 varieties of local government pension schemes have a diverse set of trustees. That variety of schemes and diversity of management has kept all trustees honest, diligent, and focused on legal duties to members. Members meanwhile can easily organise to hold trustees to account.
In short, the 86 schemes have proved very difficult to institutionally capture. Reducing the numbers to eight will reduce accountability to members and make it easier to rig elections to get politicised activists elected. Hey presto, having reached the limits of taxation to raise more revenue, the Treasury has a new non-tax source of capital funding.
I have no sympathy. The public sector votes almost as a block for ever more “investment” in public “services”. Now they can use their pensions to “invest” in themselves. How can they quibble?
They are not a bad idea in principle, but in what will Rachel Reeves’s pension megafunds be investing?
How about Thames Water, which has just had to secure the approval of its Class A bondholders, the likes of Silver Point and Elliott Partners, for an emergency loan of three billion pounds? Why not? It paid a dividend of £158 million only in July.
If, as indubitably applies to the water companies, something would have to be nationalised rather than ever be allowed to go bust, then it does not belong in the private sector at all.
That’s an interesting heuristic.
£158m is a tiny dividend whether measured by capitalisation, asset base, or return on investment. Even if it was paid only on new loans, it represents only 5% interest on £3bn.
Now, I appreciate Thames Water has been “Glazered” by several different owners. It’s debt pile is the wreckage of a ponzi scheme by successive owners extracting value by debt issuance and sale. But let us not be blind to why this was encouraged. The Treasury’s patsies at the Regulator dictated bills be kept low and dictated a large capital investment programme and the only way to solve this contradiction was ever greater financialisation of the assets, which also helped inflate “inward investment” and keep the City busy.
The Conservatives, most especially seem to have forgotten that, in the days of yore, and is so often the case in the ” horseshoe” link between the top and bottom of society ( as in the military and farming) in Britain, The City and The Trade Unions had the fraternity of the then biggest equity shareholders and gilt buyers. The Coal Board, Merchant Navy, Miners, and other pension funds were the biggest single shareholders in the largest UK public companies… the rise of lower middle class rule of everything in nu britn, with the clerks and Pooters, devoid of leadership, duty, responsibility, decision making ability and respect now at the helm of what has become a giant ” in tray to out tray” in digital form, is responsible for the implosion of our country.