Looking ahead: Chancellor Rachel Reeves
Rachel Reeves cannot be greatly pleased with the hostility to her joyless Budget. This week she will attempt to rebalance the narrative when she appears before City grandees at the Mansion House.
Unlike one of her illustrious predecessors Gordon Brown, the first female Chancellor will be spared wrestling with the dilemma of having to wear an elitist white tie.
Traditionally the Mansion House was used by Chancellors to make great monetary announcements. The granting of independence to the Bank of England in 1997 changed that.
And as much as there may be a case for reshaping the Bank, where Reeves worked for six years, that doesn’t seem to be high on her agenda. The former junior official, who worked on the international section of the Inflation Report, appears to have a thoughtful working relationship with governor Andrew Bailey.
The theme on Thursday evening will be growth. Foundations apparently secured, the bond markets might disagree with that, but the Chancellor is moving on.
There is no secret to the Reeves growth recipe. Housebuilding and infrastructure; galvanising private investment so it sits alongside the Government in Labour’s National Wealth Fund and reforming Britain’s moribund £3 trillion pensions sector. Instead of being an engine of growth, as in Canada, Australia and elsewhere, UK retirement funds are an asset management blob.
The removal of tax incentives to invest in corporations, intrusive post-Maxwell era regulation and the extreme caution which has favoured bond (gilt) investment over equities has heavily weighed down on adventure.
Jeremy Hunt began the process of untying the knots but not much has been achieved. Reeves may have aspirations to change matters but is still awaiting the outcome of the Pensions Review conducted by Emma Reynolds. Her big idea based on France’s ‘Tibi’ – which has provided some £15billion of capital for growth companies – is in abeyance.
There are several enormous obstacles for the Government to overcome if its ambition is to drive investment in listings on the London Stock Exchange, start-ups, AI and other alternatives. The UK lacks the big pension beasts such as the ‘Aussie Super’ and Canada’s public sector funds. They have encouraged citizen capitalism in both countries and made an impact in Britain.
There are simply too many small, independently run funds in Britain and efforts to create a behemoth from local authority funds are beset with legal obstacles. Moreover, British funds have lost their appetite for UK equity and building from the current low of 3 per cent will be decades of work.
Progress has been made in making London a simpler place for asset managers to invest. An easing of the regulation surrounding initial public offerings and an ‘intermediate’ market, designed to help growth companies, should improve matters. The IPO pipeline is strengthening with the French media group Canal Plus, Shein and perhaps Waterstones among those limbering up for London floats.
Undervaluation of shares in London have failed to make it a lively market. Understanding the causes of the valuation gap will be a key to unlocking value. Activist investors such as Elliott, Nelson Peltz at Trian and Sweden’s Cevian – which runs a £15billion European long fund – are helping. The biggest obstacle is complacency.
BlackRock is often the biggest presence on many share registers but rarely forces real change. The biggest enemy of growth is inactivity. If Reeves finds a way to overcome that barrier then dynamism could become a reality.
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