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Looking ahead: Chancellor Rachel Reeves
Rachel Reeves can’t be too pleased with the hostility towards her sad budget. This week he will attempt to rebalance the narrative when he appears before the city’s big boys at Mansion House.
Unlike one of her illustrious predecessors, Gordon Brown, the first chancellor will be spared the dilemma of having to wear an elitist white tie.
Traditionally, chancellors used the Mansion House to make large monetary announcements. The granting of independence to the Bank of England in 1997 changed that.
And as much as there are arguments for revamping the Bank, where Reeves worked for six years, that doesn’t appear to be high on his 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.
Thursday night’s theme will be growth. The foundations are apparently insured, the bond markets might not agree with this, but the Chancellor presses on.
There’s no secret to Reeves’ growth recipe. Construction of housing and infrastructure; galvanize private investment to sit alongside the Government in Labour’s National Wealth Fund and reform Britain’s moribund £3 trillion pensions sector. Rather than being an engine of growth, as in Canada, Australia and elsewhere, UK retirement funds are a mass of asset management.
The elimination of tax incentives for investing in corporations, intrusive post-Maxwell regulation, and the extreme caution that has favored investment in bonds (gilt) over stocks have greatly hampered the venture.
Jeremy Hunt has started the process of untying the knots but not much has been achieved. Reeves may have aspirations to turn things around but is still awaiting the outcome of the Pension Review by Emma Reynolds. His big idea based on France’s ‘Tibi’ – which has provided around £15bn of capital for growing companies – is on hold.
There are several huge hurdles the Government must overcome if its ambition is to boost investment in London Stock Exchange listings, start-ups, artificial intelligence and other alternatives. The UK lacks the big pension beasts such as ‘Aussie Super’ and Canada’s public sector funds. They have fostered citizen capitalism in both countries and have had an impact in Britain.
There are simply too many small, independently managed funds in Britain and efforts to create a giant from local authority funds are plagued by legal obstacles. Furthermore, British funds have lost their appetite for British shares and breaking the current low of 3 percent will require decades of work.
Progress has been made to make London an easier place for asset managers to invest. An easing of regulation surrounding initial public offerings and a “middle-market” market, designed to help growing companies, should improve matters. The IPO pipeline is strengthening with French media group Canal Plus, Shein and perhaps Waterstones among those preparing for the London floats.
The undervaluation of London shares has failed to make it a lively market. Understanding the causes of the valuation gap will be key to unlocking value. Activist investors such as Elliott, Trian’s Nelson Peltz and Sweden’s Cevian – which manages a £15bn European long fund – are helping. The biggest obstacle is complacency.
BlackRock typically has the largest presence on many stock registries, but rarely forces real change. The greatest enemy of growth is inactivity. If Reeves finds a way to overcome that barrier, then dynamism could become a reality.
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