The head of Lloyds Banking Group has cautioned that Labour’s flagship agreement with pension funds could make the UK economy resemble China’s, following the decision by its subsidiary Scottish Widows not to participate in the deal.
Chancellor Rachel Reeves secured the backing of 17 pension funds which agreed to invest a minimum of five per cent of assets in the UK by 2030 under the Mansion House Accord, granting the government the authority to compel investment in domestic assets, as reported by City AM.
However, Charlie Nunn, the CEO of Lloyd Banking Group, which owns the significant pension fund Scottish Widows, argued that the government’s threat of mandation could compromise fiduciary legal obligations to secure the best returns for savers.
Scottish Widows had previously signed up to an earlier version of the Mansion House Accord established under former Chancellor Jeremy Hunt but opted to reject Reeves’ deal in May, before announcing plans to reduce exposure to UK equities in its highest growth portfolio to three per cent.
“Mandating allocations of pension funds is a form of capital control, ” Nunn told the Financial Times.
“I have spent 10 years of my working life in China and many jurisdictions where there are capital controls. That is a different model and that is a difficult slope for an economy that believes it is an open economy.”
Nunn, highlighting that Lloyds has £35bn earmarked for investment in British assets, suggested the government should concentrate on housing to stimulate growth in the UK economy, arguing that too much emphasis is placed on savings adjustments rather than real issues.
Pension reforms on the horizon
“Everyone gets tied up in the cash ISA debate ,” he commented, with Rachel Reeves anticipated to reduce limits from £20,000 in an effort to encourage Brits to invest in stocks and shares.
“That’s not where the problem is. That’s not the way to turn around the economy.”
“[Housing] will drive growth in communities [and] productivity. It’s very important as a foundation for the UK.”
Last month’s Spending Review allocated £39bn towards building affordable housing in the UK over the next decade.
Housebuilders have defied trends in the construction sector, with more firms optimistic about production as planning reforms take effect.
However, City investors are concerned that the government is poised to target businesses with a slew of new taxes due to the erosion of the Treasury’s fiscal buffer.
A memo revealed deputy prime minister Angela Rayner called for a corporation tax surcharge on bank profits to be raised from three per cent, allowing the government to spend on winter fuel payments and welfare after reforms failed to pass.
Nunn warned that additional taxes on banks’ profits would reduce lending, thereby stifling growth ambitions as spending slows down.
However, his optimistic outlook implied that growth might surpass expectations.
“The economy is healthier.”
“The issue is we don’t have the confidence and the vision to invest and we are not getting businesses investing in that next stage of growth.”
Rachel Reeves is poised to deliver her Mansion House speech next week, with anticipated widespread inclusion of pension reforms and investment strategies in a policy paper to be released concurrently with the address.
