The UK government’s commitment to putting economic growth and competitiveness at the centre of its policy platform is encouraging for businesses operating in the country. Positive steps have already been taken with the convening of the International Investment Summit, which gathers together global investors. This highlights the UK’s strong standing as a leading global financial services centre that is at the forefront of innovation and growth.
As a provider of investment servicing and investment management services to UK-based institutional investors, including UK pension funds, insurers and other asset owners, we are particularly aware of challenges and opportunities in the investment and financial services sector. I’d therefore like to focus on policy initiatives most relevant for our business and clients.
Institutional investors, including our clients, are keen to deploy capital in the UK and support the economy, whether by financing UK businesses or building infrastructure to deliver strong, sustainable returns for savers. To do this, they need to work in tandem with a government that will support them with a complementary regulatory and policy environment. To this end, there are some areas that we believe the government should prioritise including continuing to work to induce investment in infrastructure and new technologies, and consolidating the pensions sector via the Pensions Review to grow the pools of institutional capital ready to deploy in the UK.
The government can also work towards ensuring the UK remains at the forefront of areas of innovation such as distributed ledger technologies. This will improve the financial services infrastructure that underpins how investors allocate and grow their capital.
Stimulating private investment to get the UK growing
We agree with the government on the urgent need for more capital to be invested in the UK’s productive assets and its pursuit of initiatives that will facilitate this investment. We’re particularly encouraged by the creation of a taskforce to set up a National Wealth Fund (NWF) and the support provided to investment products such as UK Long-term Asset Funds (LTAFs) for this purpose.
At State Street we are working with clients to use investment products including LTAFs and are keenly watching for developments around the NWF as Structures like this promise huge upside. How they are structured will be critical to their success.
As well as guiding the UK’s existing private capital base, the government must remain focused on enabling the pensions sector to unlock bigger pools of capital that can be used to invest in UK-based assets and provide better returns for members e.g. consolidating the Defined Contribution sector as an outcome of the Pensions Review. Tangibly, this means looking at pooling smaller schemes and building their investment expertise. It also means changing how the industry views risk and cost, focusing more on long-term outcomes and returns. One way to do this is by improving the advice given by pension consultants to trustees.
We also hope that the Pensions Review considers increasing minimum auto-enrolment contributions (potentially through auto-escalation), once the first stage of the review is complete. Ultimately, investment returns cannot compensate for contribution rates that are still too low.
More broadly, the government’s push to ensure the UK’s supervisory authorities provide a supportive regulatory environment for growth via the secondary statutory objective on competitiveness is also welcome.
Technological innovation: don’t forget tokenisation
Technological change will dramatically reshape the UK economy over the coming years. While AI grabs all the headlines, we feel that tokenisation is an underappreciated area for the government to prioritise and make the UK an industry leader. We see enormous potential here with significant benefits in boosting the resilience of the financial system. One example could involve tokenising Money Market Fund units for collateral management, which can bring promising benefits to financial stability. To enable this, a clear regulatory framework for the industry to scale up use of tokenisation is key.
We appreciate this is one example among many (including innumerable competing policy priorities), alongside encouraging greater investment, innovation and technological change all central to ensuring that the UK remains an attractive economy with high growth potential.
The new government has an exciting opportunity ahead: there are considerable pools of international and domestic capital ready to invest in the UK and rapidly developing technologies where the UK has a competitive advantage. With a partner in government, there’s no reason why the UK can’t regain its place as a fast growing and cutting-edge economy, and at State Street we look forward to engaging with ministers where we can to help them seize the mantle.
