The headline is important, not just because Will Hutton is one of the brightest economists in the UK , but because he is central to Labour’s economic thinking.
He uses his column in the Guardian to bang the drum for the Mansion House reforms, a Conservative policy that seeks to reignite the economy by re-risking pensions.
It is very hard to think of anyone who is currently endorsing what was till the autumn of 2022 , pension orthodoxy.
Let’s take a couple of Hatton’s comments to see how far the agenda has changed
The British corporate sector is dying in front of our eyes.
This is the language of the 1970s, t could have been said by Margaret Thatcher
Britain is rich in the research and intellectual knowledge on which successful 21st-century economies will be founded: the opportunity is being squandered.
This is the language of a frustrated Blairite – the author of Stakeholder Economics.
Britain has organised its savings system not to support British company formation and growth. In essence our pension funds, the single most important way we save collectively and a source of finance for business, have been set up so that increasingly the “risk” of investing in British companies has been avoided or not undertaken at all.
These sentences could as easily have been written by Ros Altmann, Jeremy Hunt or Rishi Sunack.
But let’s not forget that the foundations of what Frank Field in 1998 called Britain’s economic miracle, our corporate pensions, were undermined by an over-confident Chancellor who abolished the right of pension funds to reclaim withholding tax on UK equities.
The Goode report and what followed switched the funding of pensions from a best endeavours basis to the tyranny of the gilts discount rate – happened on Blair and Brown’s watch. Our economic miracle has been led to the “quietest graveyard”. The Pension Commission did nothing to stop the rot that had set into our corporate DB system, ultimately we are reaping the rewards of the economic policies of the first Blair administration and Will Hutton would do well to remember that.
When Hutton writes
It is a de facto investment strike – a wrong-headed attempt to make pension funds so safe they are killing our economy and paradoxically themselves.
He should not follow with
Hunt is hamstrung by fear that the Tory right will claim the government is interfering “socialistically” in the private sector, playing politics with future pensions – with parts of the insurance industry protesting along these lines
The problems he speaks of are a result of regulatory capture of the Bank of England and the Prudential Regulatory Authority by the ABI. This is not a political issue but a power struggle for control of the DB assets between a risk averse , debt centric insurance sector and a risk-hungry equity markets.
The promotion of “buy-out” as the “gold-standard” is endemic in regulation. It is within the civil service and not Westminster that risk aversion is rife. The ABI is as pernicious a force in the UK today, as the Unions were in the 1970s,
To my point
Rishi Sunak and Boris Johnson wrote an open letter to the pensions industry demanding a switch to productive finance.
The Chancellor of the Exchequer is the architect of the Mansion House reforms
Laura Trott, the Chief Economic Secretary to the Treasury was till November the author of the Mansion House consultations
Bin Afolami, the Economic Secretary to the Treasury now demands that every regulatory report he receives starts with a statement on progress to deliver growth to the economy.
We need a politician to take on the power of the de-risking triumvirate, the Bank of England, the PRA and the ABI.
Politics and politicians are not the problem
Our “pension system” , as Hutton calls it, has ossified over half a century because it has listened to those who believe you should run a pension as a debt, not as an asset.
As Hutton calls it , trying to abolish risk leads to “self immolation”. Companies find themselves funding risk free pensions to a point where the company has no appetite to invest becoming the mirror of its pension. In the absence of a growth strategy, our companies pay high dividends and buy back shares. It is the same for investment companies as for manufacturing companies
This is cultural , systemic and requires leadership. As I said at the start of the blog, Hutton sounds like Margaret Thatcher, maybe he can reform the ABI as she did the unions.
“In the absence of a growth strategy, our companies pay high dividends and buy back shares. “
So nothing to do with CEOs remuneration designed by a remuneration committee they appointed. It has been suggested that this shortens the focus on share price over the short term followed by a buy back of options funded by shareholder capital. This strategy enriches the CEO at the expense of reinvestment in the company long term growth. A simple transfer of capital from shareholder to executive.
In September 2023 you had Andrew Smithers as a guest who offered solutions which would be worth a revisit.
One problem is that there are many observers pontificating and few doers offering clear understanding of the issues.
It is surprising that this blog makes no mention of the role of DWP and TPR in the ‘de-risking’ of DB schemes. Nor does it make any mention that they are intent on introducing the new DB funding code legislation and guidance. The evidence for this is contained with the government response to Work and Pensions Committee’s recommendations on LDI. That response incidentally delegated response to many of the recommendations of WPSC to TPR with that expected by the end of December past. TPR’s evidence to WPSC relied on the new and as yet unseen code as the solution to issues raised with an alarming frequency.
The final version of the regulations and code would have to be radically different from those previously published for them not to further the demise of UK DB provision. Better just to bin them.
Brilliant article and blog, Henry,
Agreed with your comments, Con. DWP/ TPR must become accountable to someone for something, rather than a self serving echo chamber:
If one feels (as we’re intended to be) baffled by the ‘science’, follow the money?
Who has benefitted these 20 years under UK regulatory capture of our DB pension system? Not members, that’s for sure. No, instead schemes have been systematically overfunded to be handed over, de-risked, to the insurers to reap the rewards of the labours and many years of member and corporate funding (further stripping growth capital from business).
DWP/TPR have become/are enthralled to the de-risking mantra so favoured of the Insurers interested in servicing a product line, not an economy. They failed to recognise the dangers in de-risking for insurer (product line) preference, being akin to arsenic for an economy and to productivity when applied on a systemic basis. De-risking is a cult – and cults look to slogans of pseudo simplicity and promises of false certainty. DWP/TPR took it all in, void of, indeed resistant to, challenge. But real life, real economic is more nuanced, more complicated and full of uncertainty that cannot be wished or modelled away. Risks and uncertainty require investment and endeavour; creative endeavour needs a problem to solve. Without that we can have no surplus with which to pay the pensions promised.