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• The Chancellor should use the Autumn Statement to incentivise tax-favoured pension and ISA funds to back Britain. 
• British taxpayers are spending around £70 billion a year in tax and National Insurance reliefs but most is invested overseas instead of boosting British productivity and long-term growth.
  
• At least 25% of each pension fund originates from taxpayers – so Government has justification to ensure a minimum proportion of pension contributions supports our own markets.
  
• Introducing a Great British ISA for 2024, to invest in UK markets, in addition to more pension fund investment in exchange for generous tax incentives can be a win-win, boosting growth and returns. 

Revolution, not evolution is needed in the Autumn Statement, to ensure more domestic long-term investment will boost British growth and pave the way for a thriving future economy.

Official statistics confirm nearly £70billion a year is put into UK pension funds by British taxpayers: Table 4.1 in Government pension statistics https://www.gov.uk/government/statistics/personal-and-stakeholder-pensions-statistics/private-pension-statistics-commentary-september-2022 reveals that gross pension Income Tax and National Insurance relief was £68.8 billion in 2021-2022, up from £67.3 billion in 2020-2021. Around £23billion of this is NI relief. The amounts will have increased since then, due to salary inflation. Most of this Government spending is helping other countries, not our own. It seems difficult to justify so much British taxpayer money being used to boost overseas markets, especially when the UK desperately needs more investment to improve productivity and long-term growth.

Government should consider removing reliefs from future pension contributions which do not invest a minimum proportion in UK markets. More than 25% of all pension funds effectively come from British taxpayers (with workers or private savers having at least this sum added to their own contributions each year, and at least 25% tax-free cash being available in later life). Therefore, it is reasonable to suggest significant amounts – even up to 25% – of new contributions each year should be invested into domestic markets or assets, in exchange for Government subsidies. Investors wanting the freedom to invest more abroad, because they believe they will earn better returns, would be free to do so, but without extra money from other taxpayers. Those pension providers or trustees who believe they should not have to put any specific amount into UK markets, would then have to be confident that non-UK investments, without taxpayer subsidy, will still outperform UK markets. This does not mandate them to alter their past asset allocations, but would ensure future flows are more directed to the UK.

A 2024 ‘Great British ISA’. It also makes sense to consider requiring next year’s tax-free ISA allowances to be invested exclusively in UK markets. This was the original remit of ‘Personal Equity Plans’ (the forerunner to ISAs). The Chancellor could launch an overarching ISA investment product to replace the current range of different ISAs (merging the Stocks and Shares ISA, Innovative Finance ISA and Cash ISA). This could be called the ‘Great British ISA’ that invests in British markets in coming years, to revive domestic support for our economy.

Global UK financial leadership was built on domestic institutional investment. It used to be axiomatic that UK pension funds and ISAs would support Britain. This traditionally facilitated the UK’s success as a global financial hub. However, in recent years, the once-robust domestic institutional asset base has been eroded, threatening our financial sector’s leading position and jeopardising its substantial input to national income.

This is a potential for a win-win situation, boosting the prospects for British businesses, UK financial markets, the domestic economy, and society – while also delivering better risk-adjusted long-term returns for pension holders.

LGPS assets should do more to boost national and local growth. Local Government Pension Schemes (LGPS) are fully underwritten by taxpayers. They are administered and run by around a hundred local authority pensions departments and local pensions boards in each area. Although national politicians set policy, if investments go wrong, taxpayers – not the Pension Protection Fund – have to make up any shortfall to meet pension promises in the long-term. Therefore, these schemes have a direct interest in driving a strong domestic growth, helping taxpayers more easily afford to underwrite the schemes.

Mansion House reforms not ambitious enough. The Chancellor said his Mansion House reforms aim to unlock £25billion of LGPS assets to invest in unlisted growth companies by 2030, but with hundreds of billions of pounds of assets in these schemes, there is so much more domestic investment that could be funded. I believe local authority pension funds could be harnessed to boost local housing projects across the country, to improve business conditions and infrastructure across the regions and can still deliver good returns over time from a carefully constructed portfolio of assets spread across sectors and regions. These assets could also form part of a larger national investment fund (sovereign wealth fund) that invests in infrastructure, housing, environmental protection, road-building, medical facilities and so on. This would be a direct stimulus, funded by long-term assets which would reduce the need for Government borrowing.

British Business Bank should launch pooled products for pension investors to facilitate diversification: The Chancellor is already exploring the case for a Government role in establishing dedicated pension products. The £250m long-term investment fund for technology and science could form part of this, but again there is far more that could be spent from pension assets on such initiatives, if only the caution of regulators and trustees were replaced by ambitious long-term investment in a broadly diversified range of assets that can benefit all.