London ‘left behind’ by rival cities, warns Britain’s biggest asset manager
London is falling behind rival financial centres as a result of over-regulation and misguided political interventions dating back to Gordon Brown's tax raid on pensions, the chief executive of Britain's biggest investment company has warned.
Sir Nigel Wilson, the head of Legal & General, says that Britain largely missed out on the technology boom of the early 2000s and is now at risk of being left behind once again.
He says that the entrepreneurship in British universities is “off the scale” but that we are no longer competing on a “global level” to back fledgling businesses wishing to raise money or float on the stock market.
Sir Nigel says that pension funds are increasingly pulling back from stocks and investing instead in safer but less lucrative assets such as bonds, in a growing problem known as de-equitisation.
Figures released earlier this year by the think tank New Financial showed that 53pc of pension funds' total assets were invested in UK stocks in 1997, but this had plunged to just 6pc in 2021 as money was shifted elsewhere.
As a result, British pension funds and insurance companies now own just 4pc of the stock market, down from 39pc in 2000. The trend risks undermining the economy while also leading to lower returns for workers saving into pension funds.
The Chancellor, Jeremy Hunt, has said he is concerned “pensioners and future pensioners are not getting the returns that they could expect”, and is planning to set out reforms later this year.
Sir Nigel, whose company manages £1.2 trillion of savers' money, says: "We have so many start-ups [in the UK] – the degree of entrepreneurship in our universities is off the scale.
“However, we haven’t got a capital system that is set up for these people to become successful in the way that the US has.
“Being better than Europe should not be the benchmark. There isn’t a European capital market equivalent to New York or London or Hong Kong, so we've got to make [the system] function much better.
“We have to compete on a global level and the UK and London are falling behind.”
In the coming days, the Telegraph will detail further concerns about the pensions market – from the damage that low levels of investment are doing to economic growth, to the risk that poor returns will condemn a generation to poverty in retirement.
Other countries, such as Canada and Australia, have taken a less conservative approach to investing and performed strongly as a result.
For example, the Ontario Teachers’ Pension Plan last year made a 4pc gain on its investment despite turmoil in global markets.
Sir Nigel warns that pension funds are pulling out of the stock market as a result of tighter accounting standards introduced after a scandal at Robert Maxwell's newspaper empire, as well as the decision by Gordon Brown to increase tax on funds' dividends at the turn of the century.
He says: “De-equitisation is a massive concern for the UK economy. The history of it starts with Maxwell and the change of the accounting standards in 2000 and ends with Gordon Brown taxing dividends.
“Those events collectively really reduced the risk appetite and increased the regulatory oversight on the UK pension industry industry in a fairly profound way.”
Sir Nigel says that the UK could flourish with the right support in place. He says: "In one sense, we are a science superpower because we win tons of Nobel Prizes. There’s no doubt about the intellectual capability. But it's very hard to see the commercial outcomes of that great intellectual capability.
“We missed the technology bubble in 2000 when a lot of the great companies of today were formed and have scaled up. America has ended up with a huge amount of scaled up businesses and we haven't had any.”
Separately, Labour on Monday night backed calls to set up a £50bn “growth fund” that pension funds would be told to invest 5pc of their assets in.
Rachel Reeves, the shadow chancellor, who is on a visit to New York, told the Financial Times that her party was prepared to force schemes to invest if they would not do so willingly.
Mr Hunt is understood to be weighing a raft of proposals to reform pension investing. These could include ordering some of the country’s 28,000 defined contribution pension funds to consolidate, as well as forcing retirement schemes to invest a fixed proportion of their capital into UK infrastructure and early-stage companies.
A Treasury source said: “The Chancellor is doing a lot of work on [pension reforms] and is still working through a lot of different options. He is looking at ways to unlock capital from UK defined-contribution pension schemes into UK assets.”
Mr Hunt is expected to announce the reforms by the autumn and could provide an update at his Mansion House speech in July.
Sir Nigel's warning comes as fears grow that the City is losing its position as a leading global financial centre.
The financial watchdog has pledged in recent weeks to water down rules to make it easier for companies to float on the London Stock Exchange after UK tech darling Arm snubbed the City in favour of New York.
A flood of other companies have also chosen to list in the US in recent months, including the building materials business CRH and gambling titan Flutter.
Arm’s decision to snub London earlier this year was a blow to the Government after intensive lobbying, and added to growing concerns about the City’s competitiveness.
Fears were heightened when the competition regulator blocked a $69bn (£55bn) video game takeover by Microsoft, leading executives at the software company to claim that the European Union was now a better place to do business.
The Chancellor is also battling an inflation crisis which is sapping workers' savings and will today meet with food manufacturers to discuss how to bring down their soaring prices.
Mr Hunt is considering measures to make it easier for shoppers to compare the prices of different food products, both in stores and online. He said: “High food prices are proving stubborn so we need to understand what’s driving that.
“That’s why I’m asking industry to work with us as we halve inflation, to help ease the pressure on household budgets.”