Mansion House Speech: Hunt looks to unlock £50bn for businesses

Chancellor Jeremy Hunt delivered his annual Mansion House speech and announced several pension fund reforms, which could unlock billions for UK businesses.

“Mansion House Compact”

Perhaps the most significant of the measures is the “Mansion House Compact”, a voluntary agreement between some of Britain’s biggest pension firms, including Aviva, Legal & General and Phoenix Group, to commit 5% of their investments to private equity and early-stage businesses, potentially unlocking £50bn by 2030.

The Chancellor has also pledged to prioritise a “strong and diversified” gilt market, so pension firms are not forced to favour riskier investments.

As part of the reforms, rules when buying and selling shares are set to be simplified, whilst the Chancellor is expected to announce plans to make share certificates in public companies completely digital. It also reported that proposals to create “superfunds” similar to the giant pension funds in Canada and Australia will also be considered by the Chancellor.

Andrew Megson, CEO of My Pension Expert, comments on the upcoming announcement: “The Chancellor’s desire to unlock pension funds to fuel investment in high-growth areas of the UK economy is understandable. But Hunt is also right to point out that the primary focus must be the outcomes for pension savers – after all, it is their hard-earned money that is being discussed here, and people’s retirements hinge upon the security and performance of their pensions.

“To that end, Hunt ought to recognise that the performance of pension savings is just one issue that requires attention. Constant setbacks to the government’s pension dashboard scheme, long ceding delays and a lack of access to independent financial advice are all pressing challenges that must also be addressed. Let’s hope that the Chancellor does not overlook them in favour of reforms designed to take pension pots and reinvest them in his high-priority areas of the UK economy.”

Rolling back MiFID II rules

During the speech, which Hunt has dubbed the Mansion House Reforms, the Chancellor is expected to announce plans to simplify the prospectus documents listed companies have to publish when raising money from investors were unveiled. Hunt is also expected to back recommendations to partly roll back MiFID II rules.

Haakon Overli, General Partner at Dawn Capital, comments on what effect this could have.

He says: “Rescuing the UK as a place for innovative technology companies to list will be transformed by plans to roll back the MiFID II rules. What many of these brilliant companies do is genuinely extremely complex; one of Dawn’s investments Quantexa is a prime example of this, Vish and the team are building a global AI leader but to list in the UK investors need to have a proper understanding of the technology and what it does.

“As it stands, MiFID II prevents payment for proper research analysts who understand the business models of newly listed firms. The result is that risks are overpriced and valuations fail to compete with those achieved in the US. This clearly does not help the UK as a whole and needs to be reversed. The Chancellor must see these proposals through to drive transformative change and guarantee the UK’s future success.”

Industry Reaction

The Chancellor has now delivered the Mansion House Speech and business leaders around the UK have reacted to the proposals:

Richard Robinson, CEO of Robin AI, commented: “This is a really exciting move. Opening up pensions to invest in high-growth UK startups, VCs and PEs could be a total game-changer. If up to £50bn is unlocked by 2030 as the government promises, our homegrown founders will get the fuel they need to build world-beating companies.

“As the US has shown when pension funds flow into the venture capital industry, it creates a virtuous circle of innovation. This could transform the UK into a major tech powerhouse properly competing on the world stage with the likes of the US and China. Kudos to the Government for taking bold action to back British ingenuity and entrepreneurship.”

Tim Mills, Managing Partner of ACF Investors, said: “By making this crucial announcement, the Chancellor is shining a spotlight on the importance of fast-growth technology companies to the UK’s economic health. Although it is clear that there is a lot of work to do, with the right commitments, the proposals have the potential to stimulate a huge boost in investment that will help to transform the UK economy.

“However, for these reforms to truly work and deliver genuinely long-term capital, they must be ring-fenced from the shifting short-term objectives of investor groups or the ever-changing political landscape.”

Anna Anthony, UK Financial Services Managing Partner at EY, commented: “The UK is a leading global financial services market, renowned for innovation and providing an environment that enables growth. The Chancellor has announced areas of focus which represent a positive step forward, should boost UK attractiveness, and will benefit the economy, but as ever, success can only be measured on actions.

“We know that the UK offers deep capital markets and a highly skilled workforce, which are fundamental advantages in a globally competitive market, but we can’t be complacent – the industry must be actively supported to build upon this strong foundation and find new avenues for growth and innovation.

“If implemented as announced, the measures stand to simplify the listing process and unlock further innovation, which will help attract businesses from across the world to the UK to access the capital and skills they need to grow, while also providing better outcomes for the UK’s pension savers.”

Alisa DiCaprio, Chief Economist at R3 and former Chair of the Fintech Committee at the US Department of Commerce, said: “Based on the discussions at Mansion House, we should see the UK government place next-generation technologies at the heart of its strategy to boost financial services.

“One of the recent provisions the financial and technology industry should be particularly excited about is the creation of an FMI sandbox, as outlined by the Financial Services and Markets Act. This will allow firms to test and experiment with distributed ledger technologies (DLT) in a regulated environment.

“With the EU having already launched its DLT pilot regime earlier this year, this will help the UK remain at the forefront of financial innovation against a backdrop of rising international competition – providing the platform for moving towards a more enduring, digital economy.”

Ed Wilson, Investment Partner at Isio, commented: “While there are many positives to be welcomed from the Chancellor’s speech, an opportunity has been missed to truly define the future of pensions and set out a more transformational vision.

“It was encouraging to see such a focus on growth and value but there was no reference to how pension schemes incorporate ESG or how further incentives for employees to save could be created, and how employers help them to do so. Financial education sits at the heart of this – the Chancellor should make wider employee financial education exempt from tax in the way that pensions advice currently is. He should also raise the limit.

“For the legacy DB schemes, more could also be done to drive the growth in consolidation and the consultation will be helpful in accelerating this. This has to be the way forward for smaller schemes, to facilitate innovation and better outcomes, albeit with a competitive market solution, rather than nationalisation.

“It is positive that the Chancellor’s golden rules confirm that for many of the mature DB schemes, they are right to invest in gilts and other lower-risk investments. Member security is the key as the rules codify. It’s pleasing to see, compared to the early soundings, that the Chancellor agrees that it is the right approach not to interfere with individual DB schemes’ investment strategies.

“Further to this, we welcome that the Government is looking to make consolidation easier for smaller schemes, more concrete plans on how this could be achieved are needed. As we already see through the existing routes to consolidation in the market (operational consolidators, DB master trusts and ultimately insurer buy-outs), this delivers greater certainty to scheme members sooner and more efficiently.”