We know how austerity feels, says Andy Haldane in his piece in the FT
Rachel Reeves is stuck between two insufferable abstract nouns: profligacy and austerity. The chancellor stands accused by those to her right of overborrowing, imperilling the nation’s creditworthiness. She simultaneously stands accused by the left of underspending and imperilling the nation’s citizens. Such is a politician’s lot.
We have had to bear austerity, we did between 2009 and Truss and we saw what happens when you go for growth without listening to those around you telling you the facts of the economy. Rachel Reeves cannot bring on a Liz Truss or Kwasi Kwarteng disaster, she has to take a long-term view and I was pleased by the recent announcements that Britain would invest for many years hence. I don’t think we as a country want more Truss.
And here is where I , as a pension professional , see what the Government is doing as central not just to pensions (which has had enough of austerity – witness the stagnation of investment in bonds and gilts), but to the economy that pays the contributions for decades to come.
We are not renewing austerity , it doesn’t feel the same in pensions and it does not feel like it if you are an economist. As Andy Haldane confirms (he was the Economist for the Bank of England and might well be Governor one day).
Economists agreed. Mirroring the technical definition of recession, austerity is typically defined as any sustained contraction in government spending. During the austerity era of George Osborne’s chancellorship, real departmental spending fell by over 2 per cent per year. But this month’s Spending Review foresees spending increases of over 2 per cent per year across this parliament. Austerity, The Sequel this is not.
I know that many readers object to the Government inserting a backstop into its proposals for pensions in the Pension Schemes Bill. The backstop is a reminder of the Accord between pension schemes and the country to invest more in the nation’s infrastructure, smaller companies and in unlisted private businesses. More importantly, it commits pension companies who have signed up to it to a growth mentality. There are some who have not signed up to it, presumably seeing a “de-risking” policy as better, they include Lloyds Bank who trade in pensions as Scottish Widows.
This week, tomorrow infact, I will be interviewing a former fund manager and economist and pension minister – Ros Altmann. I’m pleased that we will be talking about serious matters around the investment of our DB and DC schemes .
I hope that we will be able to discuss the change in political situation. She was Pension Minister under Cameron and I think Theresa May, these were years of depressed gilt yields making pensions appear in deficit. As we tried to show with the FABI index, pensions weren’t in deficit under a best endeavour method of valuation and now mark to market valuations – led by gilt yields- is probably over-valuing pensions.
Nonetheless , the current improvement in pension valuations is giving the Government the opportunity to drive through an agenda of consolidation so that in years to come we have just large and healthy pension schemes investing for growth (I made that bit up – it is what I’d say if I was Torsten Bell).
Ros Altmann is a Tory, I am not, but I think we have the same view on the nation’s economy which is that it has underperformed and needs pension funds money to grow again. You can join us to take this matter by the horns on Tuesday morning at 10.30 am