Labour “will change rules on insurance, which are currently taken directly from EU regulations, to allow British pension savers to own and build British infrastructure.” A #Brexit benefit?

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“… we estimate that roughly £500bn is probably missing somewhere. And this isn’t a paper loss. This is a real loss because pension funds were selling assets …”

Pensions experts ‘shocked’ at hidden borrowing across UK schemes

“Now we’re no longer a member we can change our domestic legislation as much as we want and sell new (financial) products to a market of 67 million rather than the 450 million in the EU.”

“Being able to change rules for our domestic market is very small beer and not a great Brexit benefit.”

Charlotte Moore, Twitter, 11th February 2022

The Labour Party has an especial obsession with buying, making and selling more in Britain and now investing our money in Britain.

This economic philosophy, if one may call it that, borders on autarky with a dash of mercantilism.

Labour’s obsession with buying, making and selling more in Britain is not unique to them. It is one they share with the Conservative Party.

The pledge set out in the title of this blog post was made by Sir Keir Starmer QC on Monday 4th July 2022.

“We will not seek regulatory equivalence for financial services as that could constrain our ability to make our rules and system work better.”

“Labour will use flexibility outside of the EU to ensure British regulation is adapted to suit British needs. 

As an example, we will change rules on insurance, which are currently taken directly from EU regulations, to allow British pension savers to own and build British infrastructure.”

Turn “toxic” Brexit around, says TSSA

Rachel Reeves has good friends in the City of London, if not future employment prospects there. Reeves once turned down an exceptionally good job with Goldman Sachs, she says to go into much less financially remunerative public service.

Labour’s proposed policy is actually one currently being pursued by Rishi Sunak, the Chancellor of the Exchequer as I discovered earlier this year on reading this informative and accessible blog by Charlotte Moore, entitled, “The government’s new piggy bank“, although, in December 2021, Reeves told City AM that Labour would “keep the City close to the EU post-Brexit”.

“Hot on the heels of Ian Duncan Smith’s suggestion that pension schemes should invest in unicorn technology companies came last week’s challenge from the Prime Minister and the Chancellor for institutional investors to participate in an investment big bang.”

“While the pensions industry made polite noises in response to …” a joint letter sent to them by Boris Johnson and Rishi Sunak “… it wasn’t hard to discern the frustration with the government’s latest wheeze to use pension schemes as its new piggy bank.”

“The letter says: “For example, over eighty per cent of UK defined contribution pension funds’ investments are in mostly listed securities, which represent only twenty percent of the UK’s assets.”

In other words, the government would like pension schemes to provide capital to those UK businesses which are not listed on an exchange. That would mean allocating assets to private equity and infrastructure funds.

It’s not clear why private equity companies would need a significant cash injection from UK pension schemes. These strategies are popular with other investors and often suffer from a dearth of investable companies.

The government’s new piggy bank

……………

“The letter also makes clear the government sees pension schemes as their new source of capital to fund the infrastructure projects needed to convince their Red Wall voters it can deliver on its promises of levelling up.

“It’s time we recognised the quality that other countries see in the UK, and back ourselves by investing more money into the companies and infrastructure that will drive growth and prosperity across our country,” says the letter.

This is not the first time the government has seen pension funds as a way to fund infrastructure projects.

In 2015, George Osborne announced the pooling of the local government pension scheme’s 89 separate funds in England and Wales to add efficiency and make infrastructure investing easier.

That pooling has now been completed with the 89 funds grouped into eight pools. This scale has enabled pools to negotiate better rates with investment managers and made them more professional.

But there has not been a material improvement in infrastructure investing. That’s because it is not a lack of capital which is holding this back.

Pension schemes around the world are thirsty for these projects – they have just the right kind of long-term income streams which match their liabilities. This is why, as the letter acknowledges, pension schemes from Australia and Canada, have invested in the UK.

The hold-up in infrastructure investment is lack of supply. These are highly complex undertakings which take years to implement and are frequently held up by planning headaches.

(Editor: Rachel Reeves wants to make procurement processes for major projects like HS2 more complicated to aid buying, making and selling more in Britain …)

It is also a question of risk management. While pension schemes like infrastructure as an investment, they want projects which have a guaranteed income stream.

They will not fund speculative developments. Often schemes want governments to take the initial risks and become involved later on. And that’s because a pension scheme’s primary purpose is its fiduciary duty to its members not a government’s economic agenda.”

The purpose of a pension scheme is to provide the best possible retirement income for its members. This fiduciary duty is the guiding principle of its investment policy.”

And even if a pension scheme were to decide to allocate to either private equity or infrastructure, it would not only be invested in the UK.

The government’s new piggy bank

Is it perhaps not insignificant that both Rachel Reeves and Rishi Sunak are graduates of Oxford University’s (in)famous PPE course and have strong links with Goldman Sachs?

Sir Keir Starmer QC freely admits he does not understand much, if anything at all about trade, industry and economics so he leaves all that to Rachel Reeves, “by far the best economics brain in the Labour party.”

Sir Keir Starmer QC just reads out what he is given to say, like Make (Hard) Brexit Work

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