Yesterday [n.b. 14/11/2024] the Chancellor, Rachel Reeves, delivered her first Mansion House speech which set out the government’s ambitions for growth. This comes as the latest economic data suggests that the UK economy slowed between July and September, growing by just 0.1%.
The focus for the speech was the UK’s pension funds and how these can be orientated toward long-term investments in new start-ups, scale-ups and infrastructure. The UK’s pensions market is one of the largest in the world. As the Chancellor stated, there will be £800bn of assets in workplace Defined Contribution schemes and £500bn of assets in the local government pension scheme by the end of this decade. But for too long pensions capital in the UK has been under-utilised.
The Chancellor's proposal is to create pension ‘megafunds’ modelled on the Canadian and Australian systems. Australian pension schemes invest around 3 times more in infrastructure investment compared to the UK and 10 times more in private equity, including in high growth businesses.
“One of the key reasons for this is the much larger size of their funds…while our pensions landscape remains highly fragmented. That means many of our pension funds do not have the capacity to invest at the scale required.”
By consolidating pension funds into fewer, larger pots the Chancellor estimates that this could unlock £80 billion for infrastructure, energy, and growth businesses. Certainly, extra capital investments could significantly benefit the East of England. Invest 2035 (The UK’s new industrial strategy) highlights the countries key industries (advanced manufacturing, clean energy industries, creative industries, digital and technologies, life sciences) many of which sit in the region. With the right level of investment, the East could become a cornerstone of the UK’s economic transformation, directly advancing the government’s top priority, and defining mission, to drive growth and enhancing the UK’s global competitiveness.
The East has already benefited from the mobilisation of significant private capital through last month’s International Investment Summit, including £4bn for the East Anglia 2 wind farm and £2bn to build new solar farms including Essex. The go ahead for East-West rail confirmed in the recent budget is also welcome.
However, the proposed pension reforms could provide much-needed additional capital to address the region's critical infrastructure challenges including the Lower Thames crossing and desperately needed upgrades to the Ely Area Capacity Enhancement, key road improvements like the dualling of the A47 and A12 and full fibre broadband across the region. These projects would not only enhance connectivity but also help unlock growth for the region’s businesses and communities, bolstering productivity and innovation.
Cambridge, as a global hub for science and technology firms, is key to this ambition. The Chancellor’s pledge of £10 million for the Cambridge Growth Company is a promising start, but it falls short of the transformative investment needed to address the housing and transport blockages that threaten to stall growth. Central to the growth of Cambridge is water use and the urgent need for new reservoirs.
The Chancellor's focus on drumming up investments aligns with the needs of the region. In closing her address, Rachel Reeves called for a collaborative approach, emphasising the need for partnerships between government, industry, and regulators. Partners in the East would welcome a shared focus on how strategic investments in vital infrastructure can ensure the region becomes a powerhouse of growth and sustainability.
If you have any views on the Mansion House speech we would love to hear from you.