Monday, May 27, 2024
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Blair’s pension fantasy is mad, bad and dangerous


THIS week takes the biscuit. Proposals by Sunak on price fixing and Blair on raiding pensions are mad, bad and dangerous. Our masters are economically illiterate and if they continue like this they will ruin us all. Literally. For the safety of the nation it is essential that this economic insanity is stopped, and stopped immediately.

First Sunak, who attempts to build his brand on being ‘Mr Sensible and Competent’, floats the insane idea of food price caps. I am not sure what they taught him at Goldman Sachs but I would doubt it was that.

Does he not realise the law of unintended consequences? Cap the price of basic food and (a) there will be hoarding and shortages; (b) supermarkets, to protect their margins, will put up the price of the non-capped items, and (c) small independents will be crushed further.

It’s so basic and so counter-productive that I hardly know where to start. Food today, energy tomorrow (oh, sorry, I almost forgot they’ve screwed that market already) and the quota for blue denims on Friday. Has he learned nothing from Stalingrad?

But since this is from the man who brought the country furlough at a cost of £70billion set at an absurdly high level, for an absurdly long time, breaking the habit and desire to work, perhaps we should not be surprised.

Then I read about Tony Blair’s plan in effect to nationalise private pension pots by merging the 5,200 smallest funds into six mega funds of £300-400billion apiece with the explicit aim of using these funds to revitalise state infrastructure and other Government-promoted schemes.

This, if enacted, would perhaps be the most dangerous and insidious purge of private property by the State ever attempted in this country, for while these new funds will still be private, the intention is to control, regulate and direct what they can invest in, with potentially catastrophic consequences.

Blair’s stated reason is the abandonment of pension investment in the UK stock market. This is true. Blair in 1997 inherited a situation where 50-60 per cent of pension assets were generally invested in UK equities.  Today the figure is 4 per cent while the proportion held in Government bonds has risen from 15 per cent to 60 per cent. That is a staggering shift, but Mr Blair should ask himself why that has happened. There are three primary factors and all can be traced to policy decisions on his and his Chancellor Gordon Brown’s watch.

Firstly QE. The Labour response to the Global Financial Crisis (and copied by the Conservatives) was to print money to fund a massive public spending deficit. The supply of UK Government bonds doubled between 2005-10 and since 2010 has almost tripled again. Excess public spending and massive deficits crowded out the productive private sector leading to ‘de-equalisation’ into bonds.

Second, regulation. Pension funds increasingly are required by regulation to de-risk portfolios, which effectively encourages bond investment over equities. This so-called ‘risk free trade’ is nothing of the sort, as many bond holders will now be painfully aware. I would say Government bonds are very risky. While there will be no default, as they can always print more, the conventional bonds’ inflation hedge has, over the last decade, been spectacularly poor.  More importantly however, the recent ‘blow back’ in yields from near zero, directly caused by the  of Bank of England intervention, to typically 4.3 per cent today has also resulted in very large book losses on these so called ‘risk free’ assets. The risk-free trade does not look so clever now.

Third, UK equities have a problem. There is a lack of growth companies, the more interesting tech stocks are off to New York and there is barely a new manufacturing company in sight. Why are they off to New York? Three reasons: (a) ratings are higher; (b) there are more similar comparatives to price off; (c) UK regulation is through the roof and why would any CEO wish to endure that?

Therefore Blair has some cheek. His policies (which, to be fair, were copied by the foolish Conservative Party) are the primary cause of the fact that pension funds no longer hold UK equities. I doubt he even understands or realises that.

All these issues need addressing and they, in time can be, but Tony Blair’s plan is both exceptionally illiberal and extremely dangerous.

It is illiberal for the clear and obvious reason of forcing and cajoling private assets into some State approved and regulated super entity goes against every private free market instinct of variety and choice that an open society offers.

It is dangerous because Blair’s plan implies a strong element of investment oversight. Blair talks of investing in industry and infrastructure. No doubt it will be Net Zero infrastructure and social justice investment he has in mind. Can you imagine a worse source for long-term investment funds than some heavily subsidised, state-approved, high cost wind farm, or some speculative investment in carbon capture, or perhaps 400,000 new ‘carbon neutral’ hermetically sealed social houses rented out on the cheap on a green field?

Quite apart from the sheer illiberalism of directing private pension assets, it is a recipe for financial disaster. Not content with destroying the public finances they now propose to effectively control private pensions, pressuring them to invest in the state-chosen ’next big thing.’

This plan will end in tears. It will force investment into Government whim projects not based on sane economic considerations but on a range of political, environmental and socially approved criteria. Buyer beware – don’t touch this mad, bad and dangerous plan with a bargepole.

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Ewen Stewart
Ewen Stewart
Ewen Stewart is a City economist who runs the consultancy Walbrook Economics. He is director of the think tank Global Britain and his work is widely published in economics and political journals.

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