Rachael Reeves turned up at Larry Elliott's farewell drinks at the Guardian last night.
I did not have the chance to talk to her, but nor did many people. She looked as frightened of the world as she normally seems to these days, mingled only with those with whom she was obviously already familiar, said her necessary few words to Larry, and moved on.
I'm sure he appreciated it, but numerous other chancellors on whose work he had commented over the last 28 years had also recorded video messages of goodwill on his retirement. As a result, he could not quite resist one last little dig at Reeves in the comments he made.
Meanwhile, I was pondering what I would have said if I had had the opportunity to do so. Discussing the whole 'taxpayers' money' error would have been too big of a task. I might, in that case, have talked about the poverty of her ambition.
Take this as an example. The FT reports this morning that Reeves wants to consolidate the 90 or so local authority pension funds in the UK into eight mega-funds and that she would wish that at least five per cent of their funds be invested locally in the UK.
Five per cent? What is that about?
In the Taxing Wealth Report 2024, I suggest that a quarter of all new pension contributions should be invested in new projects in the UK that deliver for the climate transition and create new employment opportunities in the UK. In other words, our savings should be used to create not just the future prosperity of those on whom we will have to rely to support us in our old age but also to make sure that there is a planet for us and our children to live on. This should be a condition of the £70 billion or so pension tax relief that is provided each year. It seems like the lowest level of bargain that might be expected in exchange for such generous subsidy for those already wealthy enough that they can save.
But Rachel Reeves wants five per cent, maybe.
Why is that? I offer three reasons.
First, like all neoliberal politicians, she cannot believe that the state sector has any good use to make money. That is a problem for us all.
Second, she does not trust pensions to invest locally. Consolidating these funds is the surest indication of that, taking them out of local control as a result and undermining yet another part of local government as a consequence.
Third, what she really wants to do is deliver these megafunds to the City (and its megafund managers) to keep them happy. Blackstone must be rubbing their hands in glee.
The reality is that Rachel Reeves is, yet again, making people more remote from their savings by putting barriers between them and what they could do for us. She is also, quite deliberately, enhancing the voice of those fund managers who make demands on the government that undermine its position and which simultaneously undermine the well-being, choices and prospects of those on whose behalf they claim to invest.
Reeves is, as a result, making the accountability of finance ever harder to achieve. Instead of funds being raised locally by locally identifiable people that might be used for locally identifiable purposes, she is separating funds from those for whom they are supposedly invested. They will be delivered to those who act in their own interests and not those of the people who supposedly save with them. And those funds will then be used to, for example, threaten the government if it dares to do what the City does not want, even if that is good for the country and all who live in it.
I would call that an act of reckless irresponsibility on Rachel Reeves's part, but I did not have the chance to tell her. I hope someone is reading this in the Treasury.
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A superb analysis of the disconnect and loss of potential in these matters.
As a member of the LGPS I deplore the lack of imagination and the bucket loads of money other people will be making off my pension scheme. It makes me laugh that no one has asked for my opinion even though I’m told ‘It’s YOUR pension scheme’.
And higher risk is mentioned – so who will end up holding the bag if it all goes to shite again?
Anyone but Blackstone
“I hope someone is reading this in the Treasury.” probably but their cognitive dissonance sub-routine will be fully up-loaded and functioning.
Even if you had spoken to Reeves I doubt she would have processed your words. She has “formed a view” (Hague, the Somme) and thus is not open to outside input. In any case, as you note, the city/Blackstone will have doubtless had input into the idea of consolidation (Reeves is far to stupid to have thought this one up on her own) and one has to keep ones funders happy. Pathetic person/glove puppet.
Thank you and well said, Mike.
Mike: “In any case, as you note, the city/Blackstone will have doubtless had input into the idea of consolidation (Reeves is far to stupid to have thought this one up on her own) and one has to keep ones funders happy.”
I have been in the room when this idea has been suggested to the then shadow Treasury and Business teams.
Yes, of course, with regard to her next gig.
Neoliberalism has always been an ask that a people surrender their sovereignty to totalitarian rule by wealth.
I didn’t know any better, I’d say that she is engaging in highway robbery. Obviously the great unwashed is incapable of handling their own affairs. They would only miss allocate those resources because they would not find their way into the wallets of people in London where money belongs.
Thank you, Richard.
That’s one of the City / buy side’s long standing aims achieved.
One wonders what will be left for PM Badenoch to dismantle or privatise after 2029.
I hope Larry got a great send-off. I don’t know him really well but we’ve met several times over the years. I always think he’s pretty underrated as an economist and economic commentator. I also loved the fact that he used to stick 1970s cultural references from when he was a teenager into his Guardian articles. For example, one article featured a discussion of Mott the Hoople.
It was good
He get plaudits from two Givernors of the Bank of England and six past and present Chancellors. His period as editor covered 14 Chancellors. I suspect he knew a lot more than most iof them, the present incumbent included.
And he clearly had fun.
Ah-ha Mott, if only I could have had hair like Ian Hunter – I recall that in the USA they were escorted out of one town by the police – those were the days.
Who was escorted out of town by police during a visit to the USA?
Whilst I think Richard raises important concerns relating to governance I think fund consolidation is necessary in order to increase the capacity for taking higher risk. Small funds are far more conservative in their approach to investment and are severely hamstrung by the requirements of their “fiduciary duty” as they understand them…..which is to act in the “best financial interests of the beneficiaries” and, therefore, to seek maximum returns from investments. I support Richard’s proposals for conditional tax relief but I am not sure whether investment to qualify for tax relief on contributions will reshape how “fiduciary duty” is executed. Would it form part of the fiduciary duty to take account of the conditions applied to tax relief?
If Reeves doesn’t trust local authority pension funds to invest locally then she has good reason for that – they just don’t do it and that is because they don’t see “investable opportunities” in local economies…..the “opportunities” they look for are expected to deliver a high level of investment return, which is what they believe their fiduciary duty requires of them.
Until the concept of fiduciary duty is extended to include a duty to local tax payers who provide money to pay for local authority payroll costs, and therefore are the source of money which pays both employer and employee pension contributions, then I doubt if much is going to change. If a LA pension fund also has a duty to local taxpayers to reinvest some of those pension contributions back into the local economy then gthings might change.
Why do we need more risk?
Why not meet need instead?
I am bemused Jim.
I wasn’t suggesting that we need more risk. I think what the UK government is seeking is to get pension funds to provide more venture capital and more infrastructure investment in the UK, so what I am saying is that there IS more financial risk for pension funds if they provide funds for this kind of investment. For a higher level of risk pension funds will demand higher returns since that is what they understand “fiduciary duty” requires them to do. This is the price for getting pension funds to help with meeting needs. Providing funding for housing and energy projects may well be attractive to them because of the cashflows that will be generated by housing rents or sales and from the sale of energy. However I can’t see them investing in infrastructure such as roads, bridges, railways, schools, hospitals etc unless they are packaged within PFI type deals. Doing that again would be nuts but I suspect that this is on the cards for the Labour government because they think “the government doesn’t have enough money”, which is why they want pension funds to provide it.
I think the basic ambition to get pension funds to invest by providing “productive finance” is a good one but it just doesn’t fit well with the structure, culture and the regulatory/legal framework which shapes the UK pension industry. Reeves has a lot of hurdles to overcome to get anywhere and will probably have to concede far too much to pension funds and the finance industry to get them on side.
PFI deals can be simple lease contracts
They need have no additional services attached
Call them bond arrangements, if you like
To pay pension, pension funds prefer low risk investment. What constituents low-risk is always debatable. Investment in water seemed low-risk but now the entire USS stake in Thames Water is worthless.
If Reeves wants pension funds to invest in infrastructure then the state will have to guarantee security and returns. This is effectively PFI where every £1 investment will result in £6 repayment. If the investment goes belly-up, as in the case of Thames Water, the government will end up bailing our shareholders which currently it does not have to.
But PFI was the worst possible form of guarantee – because it guaranteed private sector profits
The FT has said that if the local government pensions funds were consolidated into one fund it would be the 7th largest pension fund in the world with £354bn of funds.
Just how will local authority pension funds be used to promote growth? Build private roads and recover the costs through tolls? Invest in construction companies like Carillion?
No wonder the City wants a piece of the action. All the money and no risk.
What could possibly go wrong!
Thames Water Company?????
Tampa: Thames Water is one of the companies that emerged after the water industry was privatised (others are Severn Trent, Anglian, South West Water, etc – see the map on this web site: https://www.ofwat.gov.uk/households/your-water-company/contact-companies/). Each company covers a geographical area of the UK. Basically privatisation has led to the profits from the various companies being syphoned off into dividends for shareholders rather than being used for investing in infrastructure, etc. Thames, which covers a wealthy chunk of the English home counties, is basically bust, hence the debate about its future.
Thank you and well said, John.
The City has long coveted these mandates / funds.
Since Brexit and, arguably, since 2008, the City has been in relative decline. Any form of reversal of Brexit is unlikely to bring the “good times” back. This is a final bit of juice.
As I read about this and Streeting’s plan, I felt that the big finance looters and their Labour stooges know there’s not much time and family silver left to loot. It has added to my thoughts of jumping ship, work and country.
Richard and readers may be interested in the mismanagement and, by Wall Street, looting of the California public sector employee fund: https://www.nakedcapitalism.com/?s=Calpers.
That is a grim tale
Interestingly enough my own LGPS fund which is at least I think half a dozen County funds invested together seems to be making direct investments in renewable energy which clearly cut out the stock market.
Merging them to form one fund could be a huge success – or failure, take your pick
Thank you, John.
I worked for the Investment (Management) Association from 2012 – 14 and noted how Canadian provincial funds, the Norwegian and Arab sovereign wealth funds, and French institutions like the CDC and Credit Agricole (farmer cooperative) snapped up assets in the UK and elsewhere and cut out City and Wall Street intermediaries.
They are able to recruit stock pickers, risk managers, admin staff etc. and reduce reliance on the City and Wall Street. There was some justifiable wariness of the City and Wall Street, one reason for joining the IA, formerly IMA, and reduce reliance on City intermediaries for information, regulatory engagement etc.
I could not understand why UK government employee schemes could not replicate.
I remember a panicky call from a Universities Superannuation Scheme manager about what we were / I was doing to head off a crack down on hedge funds and was puzzled why the USS was bothered.
I think I have made this suggestion before, but perhaps it is worth repeating.
The Government currently issues bonds that pay interest.
It could instead issue bonds that pay pensions.
A £10,000 bond would be index-linked and would pay a future index-linked pension. The amount it would pay would be actuarially calculated, depending on the age of the recipient.
A pension fund could offset all or part of its liabilities by purchasing these bonds. Its risk would be concentrated in the assets it held separately.
If a scheme’s pension benefits were less generous, it could transfer all its assets into these bonds. If the benefits were more generous, it would have to fund these separately.
An individual could also buy these bonds, rather than a SIPP
I guess the city would hate them. It would end the the treadmill of the actuary declaring a deficit – increased contributions – stock market rises – so actuary devalues assets – more increased contributions – more devaluation.
My pet peeve – USS. Assets £75bn, income £4.1bn outgoings 2.4bn. The actuary shakes his head, but If I could buy shares in a company with those figures….
I am not wholly convinced
But I will muse on it
When was the last time (if ever…) we heard of UK politicians talking about a long-term industrial strategy, er… for the UK…?
FIVE PER CENT of their funds to be invested in the UK…??
Generational planning this is not.
Long-term industrial strategy this is not.
Just to quote Richard the other day on Trump – which echoes my wider concern about current politicians’ (regardless of nation state, political bias, race or creed) inability to deliver.
The following comment on delivery could apply to multiple Administrations of recent years:
“Labour won the UK General Election in early July and are now behind the Tories in the polls.
Labour’s popularity has collapsed since it won a significant majority.
And it’s collapsed because it doesn’t know how to deliver.”
Rachel Reeves’s mega fund strategy – QED…
Agreed
As a retired teacher , as is my husband, with our teachers pensions, should we be worried?
I think you are in a different fund, but I am not sure.
In actual fact it’s Reeves’ place to offer explanations of her behaviour to the electorate – but is it in fact, personally counter-productive for her to be so open under the watchful eyes of those she really serves – which too accounts for why she doesn’t trouble to tell us anything