It became clear yesterday that Rachel Reeves' mad trip to China, accompanied by Andrew Bailey, who is Governor of the Bank of England, will raise no more than £600 million worth of new investment into the UK, spread over five years. I strongly suspect that much of this would inevitably have happened anyway, whether she had bothered to make this journey or not. The rate of return on her effort was, then, by the standards of such trips, staggeringly low and exactly what we should have expected. China has absolutely no reason to invest in the UK at present.
In truth, few other people in the world have any strong incentive to invest in the UK either. We have alienated ourselves from Europe. Trump is moving the USA onto another planet. China has made clear where it stands. No one else is either likely to be interested in investing here or have any significant means to do so. In that case, if Rachel Reeves is looking for a source of investment, she really should be looking at the people who live in the UK. As a result, she should give up the pretence that, somehow or other, she and Keir Starmer are going to make the UK open to business, which sounds very much like a phrase first coined by George Osborne and David Cameron, who it appears they wish to emulate. Instead, as I explained in chapter 14 of the Taxing Wealth Report, it is entirely possible to make changes to the tax relief rules associated with both ISA and pension saving in the UK so that new investment of the type that Rachel Reeves is desperate to secure might be encouraged, from the people most likely to benefit from it, who are those living in the UK.
The vast majority of the £6 trillion or more of funds that are saved in UK pension funds, and the £700 billion or so of funds saved in ISAs, are deposited in socially useless activities. By this, I mean they are used to acquire shares that are not newly issued by the companies that give their names to them, meaning that no new investment in productive capacity or in employment arises as a result.
Alternatively, they are used for the purpose of property speculation, which has as its primary goal the extraction of ever-increasing amounts of rent from the UK economy, which only suppresses productive economic activity.
They can also be saved in corporate bonds, most of which are issued to fund merger and acquisition activity, the primary purpose of which is to boost the bonuses of directors of quoted companies.
Finally, they might be saved in cash, which we know does not give rise to any increased lending by banks, or in government bonds, which could fund socially useful investment, but only if the government was willing to hypothecate funds for that purpose, which it has not been to date in any significant amount.
I have proposed that all new ISA savings should now be required to be saved in ways that promote new investment in productive capacity, employment and sustainable growth in the UK, using a strict taxonomy to ensure that these conditions are met.
I have similarly suggested that one-quarter of all new pension fund contributions should be saved in this way.
If the government is to subsidise annual savings in these two arrangements by more than £70 billion a year, as it does, it is entirely reasonable to expect such investment take place in return as a condition of the tax relief that the saver enjoys. Otherwise, our tax system should not operate as a benefit system for the very wealthy, which is what it does at present.
Why won't Reeves deliver this simple, straightforward and guaranteed to be effective change? The only explanation must be that she does want to provide a benefits system for the wealthy, support for the socially useless activities of much of the City, and would rather that the UK have paper wealth now rather than real investment in those things that might make life for people in this country better both now and in the future.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Your final paragraph can only be the answer; Reeves is a ‘trickle downer’ for sure.
Given that both Wightlink and The Southampton, Isle of Wight and South of England Royal Mail Steam Packet Company (Longest name of any UK Company) AKA Red Funnel both want to replace their existing Isle of Wight Ferries with new electric ones but cant because they cant get a suitable grid connection theres something to spend the money on when your proposal takes effect . (Red No Funnel?)
Plus of course countless other improvements to The National Grid, Hospitals, Schools, Housing Etc Etc…….
Looking at it though from a MMT perspective effectively what will happen is that the Government is ‘Taxing Back’ or in this case ‘Borrowing Back’ savings, cancelling them and then creating money for investment. What it DOES do though is to stop the situation we have at the moment with ‘savings’ chasing the highest return and causing no end of economic chaos in the process most obviously in the Property Market.
May I add my own idea to yours which is some sort of ‘National Savings Private Pension scheme’ that cuts out the middle man and offers some financial security to those who dont have access to a defined benefit pension?
I like that pension idea
Thank you, both.
There are many of us in the City who would like to bank with a nationally owned bank.
It is weird that North Dakota can do it, and we can’t
Not weird – it’s by design. A public sector operator setting a benchmark for decent, basic service would be a nightmare for private operators. It can’t be allowed!
I think the idea of a State run competitor is a good idea in many areas; it would keep private operators “honest” rather than just profit maximising rent extractors.
It is a good intermediate step between full nationalisation (for say, Water and rail) and completely private things (most activity) for areas like banking, phone/internet connections etc.
Much to agree with
You can buy certain NS&I products through pension schemes today. These can be SIPP or SSAS arrangements. Broadly, investments held in SIPPs need to be “readily realisable” within 30 days (due to FCA rules), this means that NS&I Income Bonds can be held in a private pension. The monthly interest is then paid gross back into the segregated bank account held by the SIPP. NS&I Income Bonds held by a pension do not count towards one’s own “allowances”.
A “Deposit Only” SIPP might cost a few hundred pounds a year in admin fees, and we have several clients who do this.
Noted
Thanks
I dare say I’m not the only one old enough to remember Girobank – a state owned and run bank, and the one me and many others used back in the 1970s and 1980s. But it was successful and so challenged the “private sector good, public sector bad” narrative of Thatcher and co and so couldn’t be allowed to continue, and was thus yet another publicly owned asset sold off for a song (to Alliance and Leicester, who duly got swallowed up by Santander).
I used it, and liked it.
A reminder that Fa***e’s Re***m UK Ltd are also looking at pensions. They want them to own 50% of “utilities & transport infrastructure”. (As stated in policies section of their company website.)
They don’t explain how the pension funds would acquire the assets (a mere detail…?!!).
https://assets.nationbuilder.com/reformuk/pages/253/attachments/original/1718625371/Reform_UK_Our_Contract_with_You.pdf.
p17 “Transport & Utilities Infrastructure”
Yet another opportunity to demolish their incoherent platform AND talk about what CAN be done with pensions, as per this post.
I think I may print out their document for use on the omnibus. It’s amazingly incoherent, bigoted, illogical and full of deafening dogwhistles.
I would definitely want to buy bonds or save in ISAs that were used to improve the UK rather than just my bottom line and some faceless banker.
There is Sterling held abroad though – why couldn’t it be spent into the economy by the holders investing in things here in the UK? After all, it is not much use otherwise is it – Sterling can only be spent in this country.
According to https://data.imf.org/?sk=e6a5f467-c14b-4aa8-9f6d-5a09ec4e62a4 there is almost 600Billion US$ worth of Sterling held in foreign exchanges. Some of that is needed for trade purposes, etc, but surely Reeves is making the observation that those outside the UK holding Sterling could put it to use to earn more Sterling enriching themselves further (albeit in Sterling)?
Sterling is not really held abroad. All sterling eventually has to flow through Bank of England related accounts with banks who deal in sterling i.e. through the UK even if notionally owned abroad. So, for example, tax haven balances are recorded outside the UK, but the sterling is in the UK. Tax havens stop tax on those baances – but there is actually nothing in a tax haven – because there is no use for funds there.
I remember talking with a friend about 30 years ago about the idea of a national bank. I suspect it would be very popular. The existing banks wouldn’t like it though, they and the right wing media would be lobbying against it from the get go.
We need it.
We used to have one. National Girobank. I joined it, but now after Alliance and Leicester it’s Santander. Which I most certainly would never recommend to anyone after the way they mistreated me a few years ago.
Main reason I still stick with them is I’m worried if I changed bank the DWP would haul me in for interview with their excuse of “Change of Circumstances”. After my last debacle with DWP I lost my Motability car for about 2 years while waiting for an Appeal after my failed Mandatory Consideration. (The woman who did my original Assessment actually lied about what I told her in her report)
Investment requires a return, a return on capital.
The assumption is that the investment will generate that return and income will continue to accrue to capital via profits, dividends, rents, interest and royalties.
The extent to which the investment generates returns to Labour in terms of wages and salaries depends upon the nature of the investment.
I can see that investment is key to pension provision (if one has the income to contribute to a scheme or pot) but if the investment does not begin to address the GDP/National Income returns to capital versus labour then it will not solve our basic problem.
This especially so if clever accountants, lawyers and politicians are so skilled at hiding returns to capital from taxation.
I am struggling to work out what you are asking.
Why is a return on investment only in the form you note? Why can’t it be in better living conditions, healthier people, reduced calls on public services and much else?
And pension provision is based on the logic I note here. https://www.taxresearch.org.uk/Blog/2019/08/28/getting-the-fundamental-pension-contract-right/ It is not a financial transaction, at all.
Why is a return on investment only in the form you note?
Because if it’s your pension fund invested in the types of asset that you propose, then when you retire you need money to live on – ‘better living conditions, healthier people, reduced calls on public services’ don’t pay the bills for individuals.
You don’t live on money in retirement
You live on the willingness of others to provide for you.
Sure you use moeny to compensate them, but if they can’t meet their own needs then they certainly won’t provide for yours either.
So it is public services that ensure people can deliver for you that you do live on in retirement.
No one can actually live on their bank balance after all. It is only an entry on a computer screen, after all.
I think you need to get your head around that reality. It’s clear you have not.
Would Starmer look at such a proposal and think: “What a good idea, that’s part of how we could raise the investment to provide AI data centres with the grid connections, small-scale nuclear reactors, reservoirs and cooling towers that will encourage the Tech-Kings to invest in our country.” To which I might add: In order for their AI to finally come on stream and tell us that we should have been investing the money in useful things, like tackling climate change, on protecting valuable land and homes from flooding, food security, public transport, pollution, education, building a circular economy, and fixing the damn pot-holes!
France does this to a small degree. The various French Livret savings accounts held by most French people at private banks are used by the government to help finance social housing, urban redevelopment, energy transition, social economy,.. . Some are tax free as well as earning interest but have small maximum limits ~22,000 euros (x 50 million account holders) = 1,100,000,000,000 million euros = 1,1 UK billion
Livret A
https://www.economie.gouv.fr/facileco/livret-a-fonds-destination
Livret de développement durable et solidaire (LDDS)
https://www.economie.gouv.fr/particuliers/livret-developpement-durable-et-solidaire-ldds
It’s bizarre that France can and does do this, as we do not.
And note the sums involved – more than €1.1 trillion – not billion, you are suggesting, although I would be very surprised if all accounts had €22k in them.
Livret A has 551,100,000,000€ in 2023 !
The 22,950€ is the maximum you can put in for individuals but it can continue to compound above this amount with yearly interest.
“L’encours total du Livret A en France a atteint 551.1 milliards d’euros en septembre 2023 et est le placement préféré des Français.
https://www.ramify.fr/epargne/livret-a-plafond
There is much said in the press about UK pension schemes not wanting to invest in UK markets but surely, mature DB schemes would love to match their scheme retired members with long term public utility bonds paying a modest rate just sufficient to cover index linked pension rises. Water being a good example.
A vital public service with a guaranteed revenue stream (our bills) but with need for massive up front investment.
A sort of NS&I Premium Bond for DB Pension Schemes. Maximum security in return for modest returns.
Now if only water was public ownership.
Agreed
Be prepared for a half-baked Reform UK Ltd fox shooting exercise with regard to pensions and “trsnsport & Utilities infrastructure” as mentioned here: https://www.taxresearch.org.uk/Blog/2025/01/15/the-only-viable-source-of-funding-for-investment-in-the-uk-is-uk-savers/comment-page-1/#comment-1002198
Always best to pre-empt the opposition!
One issue as Will Hutton pointed out many years ago was that the European Countries were not as rich as the UK & had their ‘Industrial Revolutions’ as a matter of Government Policy not accident.
As a result they built savings banks to invest in industry and infrastructure while we ended up with Building Societies
Meanwhile Douglas Alexander, a living fossil from Labour past; but now a Trade Minister announced a £4Bn investment deal based on Malaysian-owned YTL, which announced around a £2 billion investment in the, “Brabazon Bristol development, which comprises of 6,500 homes, three new schools and a 19,500-capacity arena, conferencing and exhibition space. According to YTL, the development will deliver more than 30,000 jobs, with the remaining £2 billion invested in YTL’s UK businesses over the next five years” (Gov.UK)
What interested me was less the investment than Alexander’s proud reference to “mobile” international finance, captured for Britain. There is the problem; we pitch in the shark infested waters of mobile international finance, to invest in anything of substance. The problem is the single unchanging fact; the funding’s mobility. It has become virtually our only source of funding, and the longer term costs of fishing in these waters so exclusively remains elusive and opaque. There is little evidence that this methodology has served us well.
Agreed
https://www.bristolpost.co.uk/news/bristol-news/fresh-images-revealed-long-awaited-9832990
That has been a v contentious issue in Bristol. Local feeling was that the arena should have been in Temple Quarter, serving S Bristol, with better local transport links & more accessible to poorer part of city.
But it ended up at Filton in old airfield, so it could be bigger, and Temple Quarter is getting student flats.
And the arena is delayed… for some reason the presence of asbestos in v old infrastructure seems to take developers by surprise, or maybe it’s just a convenient excuse.
Hope Malaysia doesn’t have a coup or too much corruption…
I too would like to invest in an Infrastructure ISA but who would actually create these assets? For example, the current record on the management of HS2 railway and nuclear power stations does not inspire confidence in building to budget.
Stop going for big ticket and show case items is the answer
Build houses.
Wind farms.
Much smaller transport projects.
But the investments – if with the state – would also all carry a guarantee for the saver.
If pension money has to go into new shares, then how do investors get their capital back for their retirement?
Please note I said 25% had to do so
I did not say all
What is your proposed retirement strategy, Richard?
You seem to criticise what most people are doing but never actually explain what your approach is.
I am working
Haven’t you noticed?
With luck, I intend to do so for good.
The rest is no business of yours.
And discussing the macroeconomics of pensions does not change that.
@Lucy Chandler
https://www.taxresearch.org.uk/Blog/2025/01/15/the-only-viable-source-of-funding-for-investment-in-the-uk-is-uk-savers/comment-page-1/#comment-1002293
I live in an area severely affected by austerity. I’m retired. I have disposable income. There are quite a lot of things I can’t buy, because my neighbourhood is in poverty.
My money of less use to me. I may need or want something. I can afford it, but there is no one offering it. As an example, refresher driving lessons after a long time out of action, a pub I can walk to for a meal. a gardner, a plumber, someone to do small DIY jobs, an accountant to help with a tax form, a bus service to my optician, dentist and local bank. Our local economy has been borked. It isn’t money that I personally need, it’s decent local services. Even Musk couldn’t get these things round here, we don’t have a runway or spaceport. and his Tesla car wouldn’t survive the potholes. Maybe that’s why he parks his jet in Austin, Texas instead.