London Stock Exchange: Decline in UK Funds

Lord Howell of Guildford Excerpts

Thursday 13th February 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question, and she knows I agree with her analysis of the effects of Brexit. Firms may, of course, choose to list in other countries for a variety of reasons, and the Government appreciate that there is a perception that firms, especially tech firms, will have larger valuations in the US. We are determined to change that perception, which is why the Government are taking forward an ambitious programme of reforms to boost the attractiveness of UK markets and to support firms to start, scale, list and, importantly, stay here. As she knows, through the Government’s work on the EU reset, we will absolutely strengthen our relationship with the European Union.

[Lord Howell of Guildford (Con)]

Does the Minister know that Australian pension funds invest 80% in Australia? Thirty years ago in this country, it was 40%, and in earlier years it was 60% and 70%. It seems to me that the situation is rather more serious than just “looking at further ways”. Does the Minister agree that if we really are to attract more FDI and sovereign wealth funds and create an attractive centre for high-innovation investment in this country, we need something a little beefier than what he has indicated so far?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question, and I agree with every word he said. We have been very guided by the Australian experience. We have been clear that UK pension funds are investing a lot less in the domestic economy than overseas counterparts. Australia and Canada are two that have been spoken about. He talks about beefier measures, but the pensions review is the most fundamental review of pensions for a generation, and it is actively considering what further interventions may be needed by the Government to ensure that our reforms to the UK pension system benefit UK growth.

US Steel Import Tariffs

Lord Howell of Guildford Excerpts

Thursday 13th February 2025 Lords Chamber

[Baroness Gustafsson (Lab)]

Forgive me. I cannot comment further on the specifics of the Windsor arrangement in absence of the facts, but on the relationship with the EU, this Government were elected with a strong mandate to reset that and make sure that we build on the relationship we have, both with Europe and the US—I do not think this is necessarily a binary choice between the two. I suspect that when we think about the strategy particular to the steel industry, understanding what those relationships look like with the EU but also with the US, and the specifics of any tariff arrangements in place, will be a key factor of those considerations and the strategy at large. We will not be afraid to make sure that we are representing UK industries in supporting the steel industry to the best of our ability.

[Lord Howell of Guildford (Con)]

My Lords, the steel industry is paying much the highest electricity costs in the world, and unless we can get around that problem, we are not going to be selling steel anywhere. The Minister did not mention that. Could she say what is being done to address that part of the problem, which would not solve all the difficulties but would certainly make things less difficult than they are now?

[Baroness Gustafsson (Lab)]

I acknowledge that electricity and power costs within the UK are higher. In my role, as I think about investment, that is something that we need to make sure we understand and grapple with as we support stronger investment in the UK overall. With regard to the steel industry specifically, there are initiatives and schemes for high-intensity energy consumers within the UK that are valuable assets, such as the steel industry, to support them with those energy costs. However, while I acknowledge that that support is specific to the steel industry, wider UK industry as a whole really needs to understand what we can do to grapple with energy costs. On that, significant investment is under way to increase the supply of energy within the UK and the transition into cleaner energy environments. A lot of work and investment have gone into that as part of the green energy transition.

Pension Fund Reliefs

Lord Howell of Guildford Excerpts

Tuesday 4th February 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to my noble friend for his question. He is correct that the Government spend around £70 billion annually on pension tax reliefs, because we want to encourage pension savings. That is why, for the vast majority of savers, pension contributions made from income during working life are tax free, and it is why, like many other countries, the UK exempts from tax the returns pension funds receive on the investments they make. Tax is not within the scope of the pensions review.

[Lord Howell of Guildford (Con)]

My Lords, one way of making pension funds better able to support British industry would be to amalgamate many of the smaller ones and increase their efficiency. I think this idea has already been mooted and discussed. Is there not a further thought that the large area of public service pensions, which are unfunded—not local government, which is funded—should be considered being made into funded pensions? Would that not also help to reinforce pensions’ contribution to our nation?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. He is absolutely right that consolidation and scale are key to the strategy behind the pensions review. I will certainly pass his ideas back to my honourable friend, the Pensions Minister.

Public Finances: Borrowing Costs

Lord Howell of Guildford Excerpts

Thursday 9th January 2025 Lords Chamber

[Lord Livermore (Lab)]

I absolutely agree with my noble friend. Growth was one of the biggest failures of the previous Government and we are determined to turn that around. The OECD recently upgraded our growth forecast, which means that the UK’s economy is now growing faster than those of Germany, France, Italy and Japan over the next three years. Following the Budget, the OBR increased its forecast for GDP for 2024 and 2025 and, for the first time, it has looked at the growth impact across a decade. It is particularly clear that capital investment, which the party opposite opposes, will lead to a significant increase in growth over the longer term.

[Lord Howell of Guildford (Con)]

My Lords, the Minister will be aware—at least, I hope he is—that global Governments’ debt at present is running at about $95 trillion. That is expected to rise to $130 trillion in three years’ time. He is right that there are some countries where the debt is higher than ours at present, but does he accept that it is about not only the size of the borrowing but the bond markets’ and world opinion about the commitment of a Government to enterprise and growth and to dynamic economic policies, particularly affecting small and medium-sized business, which of course is 99% of all business? Will he therefore have a word with the Chancellor to ensure that she recognises that in her next Budget, as she did not seem to in her last Budget, because it would greatly improve our standing and may save us a few tens of billions in interest on our present enormous debt?

[Lord Livermore (Lab)]

I am happy to say to the noble Lord that the Government are absolutely committed to working in partnership with business to grow the economy and to doing what is required to do so. As he knows, the Government are committed to economic and fiscal stability. We have put in place those robust fiscal rules, and there is a significant fiscal consolidation during the course of this Parliament, taking borrowing as a share of GDP from 4.5% to 2.1%. If achieved, this would be the biggest current budget surplus in over 20 years.

Economic Productivity

Lord Howell of Guildford Excerpts

Thursday 5th December 2024 Lords Chamber

[Lord Livermore (Lab)]

I completely agree with my noble friend on that point. Measuring public sector productivity is very difficult and contradictory measures are involved. My noble friend is right that, obviously, our priority is improving those public services and we will continue to do so.

[Lord Howell of Guildford (Con)]

My Lords, in the 1970s, we attracted enormous increases in productivity by also attracting vast quantities of Japanese inward investment, which saved our motor industry. Now, unfortunately, our motor industry needs saving again. Could we concentrate on attracting FDI by having the kind of Budget that really makes international investors keen to invest here on a scale much larger than anything that has come before?

[Lord Livermore (Lab)]

The noble Lord is absolutely correct to say that investment is one of the key drivers in raising productivity. Obviously, it was a matter of regret that, under the previous Government, the UK was the only G7 country with levels of private sector investment below 20% of GDP. We are absolutely determined to raise that: the recent international investment summit saw £64 billion of investment come into the UK, creating some 40,000 jobs. We are determined to continue that trend.

Autumn Budget 2024

Lord Howell of Guildford Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, like others, I welcome the maiden speech of my noble friend Lord Booth-Smith. It had the additional quality of supreme brevity, which is always welcome in these debates. I had hoped for a moment that we were going to get some extra titbits of life in Downing Street and his role as strategic director, but all we got was common sense. I recommend that he continues with common sense and leaves Downing Street out of it as far as possible.

You would not really sense from this relatively civilised debate that in fact this is a time of enormous danger, for the whole world and for us here. I do not mean danger just of an economic kind but of a physical kind. There is a real threat hanging over the world, vastly amplified by the silicon chip, which has altered and recreated almost every aspect of the modern world. Indeed, some would say that it is the chip and hyperconnectivity that are the major cause of the current tensions, instabilities, violence and evident collapse of the international rule of law.

Some of the most serious minds in today’s world—philosophers and others—tell us that we are on the edge of a precipice, that humankind is looking into the abyss, and many other terms of doom and gloom. This has duly fed through, via a cacophony of populist influences, to the forming of a vast new nexus in world finance, trade and investment, and spending and taxation, which completely changes the axis of political debate and economic policy priorities. That is what we are discussing now: whether this Budget and the thinking behind it responds to and picks up these new, rather frightening realities.

At the centre of it all is the need for a truly enormous increase in investment—both public and private—around the world, and certainly here, while remembering that when it comes to Governments trying to boost investment one needs to recall, as I fear some Ministers do not seem to, that the British economy, like a lot of advanced democratic economies, overwhelmingly, at some 99.2%, consists of small and medium enterprises. If you try to kill them off then the whole economic evolutionary process comes to a sickening halt and withers away. It may be said that small businesses rely on big business, but it is the other way round as well. The big businesses of tomorrow are somewhere in that smaller and medium-sized pattern and its source of innovation. If they are poisoned then the whole of our economic progress is brought to a halt.

This new scene has key components, which I will list not in any order but quickly in my last few minutes. First, the state has most of the infrastructure demands and the private sector has most of the money, so it is perfectly obvious that new ways have to be found for the state and private capital to work together. That is a sort of evolution of what we had at the end of the last century, with the private finance initiative—it failed, but it was the right idea.

Secondly, we need to attract a far bigger flow of foreign direct investment, not least to help with the energy transition which we are embarking on. Thirdly, the sovereign wealth funds long to invest but cannot find the right investment vehicles here in the UK. I declare an interest in that I advise one of them, and I know that that is exactly the position they face at meeting after meeting. Fourthly, there are the pension funds and insurance funds, said to be more than £2.5 trillion, from which the Chancellor says she is seeking to tap surpluses and encourage bolder equity investment. Some 20 years ago, 53% of those enormous funds used to go into the UK and now it is 6%; obviously, that has got to change.

Fifthly, we must greatly widen our own domestic sources of share capital and asset ownership in a way that, crucially, spreads the benefits of capital growth far more than at present to millions of households to enhance their dignity and security. I think that is the next stage in the development of popular liberal capitalism, which we do not seem to be addressing as vigorously as we should. There is certainly not much in the Budget for it.

Finally, there is the overdominance of our national investment allocation and strategy, which must be shifted away from the Treasury. This would not be very popular, certainly not with the Treasury, but it was recommended in the report by the noble Lord, Lord Maude—an excellent document—and in the Harrington report, and by some of us for the last 50 years. Until there is a key shift at the very centre of the government machine, nothing will go quite right on the investment front.

I see all this as common ground for the future. The party to realise that these are the new priorities will be the winner if it gets there first.

Spring Budget 2024

Lord Howell of Guildford Excerpts

Monday 18th March 2024 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I am delighted to have the chance to follow that excellent maiden speech by my noble friend Lord Kempsell. He is absolutely right about the secret—I think he called it the lacuna—at the heart of government, which many commentators overlook. Promoting grand new programmes and promising this, that and the other is pretty easy; you can get very imaginative about future spending, particularly in the speech- writing department. But the harsh implementation—the actual details of getting these programmes through and evaluating whether they are getting anywhere near achieving the objectives one starts out with with such high hopes—is quite another thing.

I cannot remember whether it was von Moltke or von Clausewitz who said that the best-laid strategy never survives the first encounter with the enemy. There is so much talk about long-term strategy, but events, as Mr Macmillan long ago reminded us, tend to intervene, especially in a populist age when the Government are pressed every day, in this Chamber and the other place, to do more and more, yet have less and less control to be able to do so. These are the dilemmas of our times and I greatly look forward to hearing my noble friend’s counsels, based on his experience, on these numerous problems.

Turning to the Budget, the popular cry—and it is correct—is that we need more investment. What does the Budget do, what is the thinking surrounding it, and what steps are planned in changes in central Government to reinforce long-term public, private and public/private investment in the infrastructure of this nation, which gives it the strength and the momentum to go forward?

What encouragement for UK pension and insurance funds is there in the Budget or in government thinking? The Government may be a bit short of funds; they thought they were short of funds in 2010 and that there was no more money, but outside government there is a great deal of money. Pension and insurance funds have trillions ready to invest, and so do the sovereign wealth funds of other countries. I declare an interest as I advise one of the biggest. Of course, every time it comes to discussing where to invest, the need is to find investible projects. It is no use talking vaguely about long-term investment and social benefits; they are important and cost money, but when it comes to a return, what the private investor wants are investible projects—no white elephants or Sizewell C nuclear power stations, which I am disappointed to see is being planned. What are needed are clever arrangements with government backing on the public sector borrowing side as well as the private sector side. We have been halfway there, with the private finance initiatives of 20 and 30 years ago—they had a bad side but also some very good ones. This is where new creative thinking will be needed, under whatever Government, in the next few years.

Secondly, and following that, there is no hope of getting real momentum in our long-term investment structure, wherever the finance comes from, until the centre-of-government mess we have in this country is cleared up. We need to see the creation of a new office for management of the Budget reinforcing the Prime Minister’s cross-cutting control of major projects, as my noble friend Lord Maude recommended in his excellent report, which has not been evaluated and discussed nearly enough. It reflects very long-standing Conservative thinking; some of us were urging half a century ago that this is a necessary stage to get the whole of government infrastructure investment moving.

My noble friend Lord Maude’s recommendation was that:

“A new Office of Budget and Management (OBM) should be created. This would include HM Treasury’s current responsibilities for the allocation and control of public expenditure, together with the centres of the major cross-cutting functions—financial management, commercial procurement, digital, project delivery, human resources”.


I say “Hear, hear!” to that, as I have for decades. We will not get the infrastructure investment needed and real momentum behind it until that split in the Treasury is made and the Prime Minister’s strategic position is greatly reinforced.

Thirdly, what about the Chancellor’s growing commitments, which I listened to and greatly welcome, to increased retail investment in the financial sector, as well as investment from pensions and so on; for every family in the land to be shareholders; for wider ownership of all kinds; for shared community ownership, as is being developed in many other countries but not fast enough here; and for employee share ownership, which is widespread in the United States? The noble Lord, Lord Macpherson, mentioned the NatWest sale. I hope that is an opportunity for imaginative schemes to be developed. I think we will hear about just one of them later on from the noble Lord, Lord Lee of Trafford, which might help greatly.

Finally, economists all talk about raising productivity and ideas abound on how this should be done. There is one quite simple answer that gets overlooked: to encourage ourselves to be a nation that is highly attractive, even more than we do, for foreign direct investment. It has not been too bad but is not as powerful as it should be. I ask my noble friend: have we learned from the success of 1970 to 1990 in attracting an enormous wave of Japanese inward investment, which had the direct effect of increasing productivity? New machinery came in but, better than that, the old restrictive practices then being pushed much too hard by the trade unions were thrown out. The Japanese refused to work with those. Our car industry was rescued from its poor state, and from the last attentions of Mr Benn and others, and transformed. Our electronic industries were transformed and a lot of new investment was brought to the Welsh valleys.

These are the areas where the new momentum is now required. My noble friend Lord Harrington’s excellent report makes some very useful recommendations on how to do it. They all point in the same direction of a much more powerful push at the centre than we have had in the past.

We need to become a financially literate nation—a nation that understands that investment means savings, which means organising those savings and drawing on them in a way that attracts in a steady stream. If we can get investment up, the benefits of it must be far more widely shared. Politicians mouth the phrase that capitalism must work for everyone; well, it clearly does not. It must be made to work for everyone and it can, in contrast to the distorted state capitalisms of Asia, such as the Chinese state capitalism, or the mafia gangster capitalism of Moscow.

We need to hear a lot more from the Conservative Government we have now, although I would hope to hear it from all parties and all Governments in this post-socialist age, about sharing the benefits of asset growth and investment for the people. That is the path we should be on, and I believe we should concentrate on it with much more vigour, whoever is in charge politically at Westminster, than we have in the last 50 years.

Pension Investments

Lord Howell of Guildford Excerpts

Tuesday 23rd January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I am not aware of the detail of the amendment to that Bill tabled by the Labour Party, but we are taking a very measured approach to market intervention. It is clear to me that we need to do this and, as I said previously, it is evolution not revolution. However, there are many ways in which the Government are focusing on UK high-growth companies in particular. I point the noble Lord to LIFTS, or long-term investment for technology and science—investment vehicles tailored to direct contribution schemes. The Government will coinvest in or support those schemes up to £250 million. The bids have already been submitted, and we expect those funds to be operational and investing in UK growth companies by mid-2024.

[Lord Howell of Guildford (Con)]

Does my noble friend agree that, whatever the pension funds invest in—and we certainly need them to get back to the 40% they once put into Britain, rather than today’s 4%—and wherever they put their money, they are not going to be attracted by very long-term, politically high-risk projects which turn out not to be an investment at all? Is that not a reason why we should encourage giving priority, in our nuclear recovery, to smaller, quick-build machines, rather than sinking all our money into very long-term large structures which may not work even when they are built?

[Baroness Vere of Norbiton (Con)]

My noble friend makes the very important point that investment is always about diversification. We need a wide range of projects and vehicles to encourage the UK economy, and some of those may indeed be of the sort he refers to.

Autumn Statement 2023

Lord Howell of Guildford Excerpts

Wednesday 29th November 2023 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I, too, welcome my noble friend’s arrival at the Treasury, in which, a long time ago, I served as an official. I shall try to find something nice to say about the Treasury, although frankly, it is not terribly easy. I told my noble friend before this debate that I hoped to touch on three questions, and she mentioned them in her excellent opening survey of the scene which we all heard a moment ago.

The first is about the overall policy in dealing with the inflation headline, the rate of inflation and the prospects. It is a sort of mantra of the Treasury, the Bank of England and lots of experts that all cuts in taxation are inflationary: you cannot cut taxation at this delicate and fragile time without raising the rate of inflation. I am not so sure about that. I got a very interesting note from the Library—of course, these figures must be treated with caution—which pointed out that about 28% of total public expenditure, which is about £340 billion, is indexed. In other words, it goes up when the inflation rate goes up and then comes down. That is out of a total of £1,222 billion. So presumably if we can get headline inflation down by one point, straightaway we will save £3.7 billion to £4 billion; by two points, £8 billion, and so on. It is a lot of money.

One therefore asks whether there are some areas where retail taxes being reduced can have an impact on headline inflation? If they can, then you are losing revenue, but you are also saving expenditure on a very large scale. I sometimes wonder whether the Treasury has worked out some of these things. The figures are very big indeed.

That is quite distinct from the other indexing point, of course, which is that higher interest rates immediately raise the amount that the Government have to pay in debt payments for their borrowings. These were running at £116 billion a year. I think they have come down a little, but it would be interesting to know, if my noble friend can provide the figures, what a one-point interest rate fall involves in reducing public expenditure. There is a sort of swings-and-roundabout element here that we do not hear very much about. I hope that my noble friend will talk a little more about it.

The cost of debt servicing is 5.2% of total public expenditure, which is a lot. That is 3.8% of GDP, so any increase in interest rates, which the Bank of England firmly says is to cut inflation, has a big inflationary element built into it as well. These things are not straightforward. Does the Bank of England take this into account? We never hear any statement of the kind that recognises that raising interest rates, which is said to be the necessary medicine for curbing inflation, has a huge inflationary punch in it. I have been given a figure that indicates that every 1% on the inflation rate and every 1% on interest rates costs the Treasury £26 billion. That is inflation, not deflation. These are very complex matters that tend to be pushed out of the debate.

Long ago, in the time of Ted Heath, he used to get very annoyed because he felt that the Bank of England and the Treasury were playing a “one-golf club game”. All they had in their golf bag was this one club which said, “Push up interest rates and push down all forms of government expenditure and that will somehow solve the inflation problem”. It does not work out quite that way. These things are not straightforward, so anything more on that would be very helpful.

My second point is that it is rather curious that missing from the Autumn Statement and the Green Book, which we have all been given, is a rather serious item. The Green Book says that the Government are focusing on five important areas, including education, rewarding hard work—we all want that—backing British business, world-class education, building domestic and sustainable energy, and other desirable aims. That is all very nice, but one enormous thing is missing. This is where our history gets a little distorted. In the Thatcher times, it was said that Mrs Thatcher and Geoffrey Howe were very keen on balancing the budget, and certainly Geoffrey Howe—my dear friend and a wonderful man—ran a very tight ship. However, that was not our priority. Our priority was trying to restore the balance in an unbalanced economy, which was grossly overweighted on the state side. Most of our giant industries were nationalised. Half of British industry was in the state sector, and we wished to pull the pendulum back to the middle and get a better balance between the state and the private sector. To that end, we concentrated on enormous efforts that had considerable success. We succeeded in rebalancing the economy in a less socialised way. We still wanted an efficient state sector of course, as the noble Lord, Lord Eatwell, said we must have; but we did not want a greedy public sector. That was the danger right from the start: that we were being sunk again and again by a huge, overexpanded and constantly growing public sector. The mechanism for bringing that down is a very important part of the story and, at the moment, it does not appear to be there.

Thirdly, my noble friend Lord Maude is reported to be advocating that, in order to get a tougher approach on public spending, we should split the Treasury between its various functions of being a bureau of the Budget and the ministry of economics. I would be interested to hear the Government’s view on that proposition, particularly as, if we are talking about public sector capital investment, that is always the orphan. If the investment comes from the public sector, it tends to be a leftover from current pressures and political demands on the budget. That is why a great deal of the infrastructure needed in this country is going to have to come from the private sector.

That was the third matter. I have a fourth one, in my last few seconds. Please can we pay serious attention to more democratic capitalism—that is, wider share ownership and wider involvement by everybody, rather than just the few, in the growth of assets? This is not a good advertisement for capitalism. Capitalism does work but it works best of all when it is democratised, even socialised. I note that the Chancellor is trying to expand people’s involvement in the stock market and asset ownership; we need a lot more of that. Can I have a comment from the Minister on that as well?

Alternative Investment Fund Managers Regulations 2013

Lord Howell of Guildford Excerpts

Monday 13th November 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, some of the issues that the noble Lord sets out are why it is important to take forward the programme of reform in a measured way that takes into account the interests of all involved in the sector, whether industry or consumers, and makes sure that we have proper consultation in everything that we do.

[Lord Howell of Guildford (Con)]

My Lords, I think the bottom line of this Question is how to get trillions invested in our pension industries back into British enterprise and investment again. At one stage this was considerable, at about 60%, and it is now down to 40%. Is this not a matter of prime urgency in getting the economy really moving again? Can my noble friend outline the key steps she thinks should be taken, or are being taken, to get our pensions trillions back into British industry in a massive way?

[Baroness Penn (Con)]

My noble friend is absolutely right about ensuring that pension funds are invested in the future of British industry. In fact, this was the theme of my right honourable friend the Chancellor’s Mansion House speech this year. He set out a number of reforms that the Government are taking forward to support this. There was rapid consultation on a number of those areas, and we expect further updates at the Autumn Statement.