Mansion House Accord

(Urgent Question): To ask the Chancellor of the Exchequer if she will make a statement on the Mansion House accord.

Mr Speaker, I would like to associate myself with your tribute and those of other Members to Sir Roy Stone, who was a true public servant, and a servant of this House.

Pensions matter. They underpin not just the retirement that we all look forward to, but the investment on which our future prosperity depends. This morning, 17 workplace pension scheme providers, between them managing about 90% of active savers’ defined contribution pensions, signed the Mansion House accord. The accord was proposed and developed by the industry, specifically by the Lord Mayor, the Pensions and Lifetime Savings Association and the Association of British Insurers, and builds on the work of the former Chancellor, the right hon. Member for Godalming and Ash (Sir Jeremy Hunt), who is in his place.

Signatories to the accord have pledged to invest 10% of their main default funds in private assets by 2030. These are productive assets that boost the economy, such as infrastructure. At least 5% will be for UK assets. This investment could support better outcomes for savers and deliver growth finance to Britain’s world-leading science and technology businesses. It could also support clean energy developments across the country, delivering greater energy security and jobs.

The shift towards greater investment in private assets is a journey that the sector is already on, because everyone recognises that UK defined contribution schemes stand out relative to their international peers for how little they invest in those areas. This is right for savers because it is in their interests for pension funds to hold a diverse range of assets, and it is in Britain’s interests. This Government want to see higher investment levels in the UK. We cannot continue with the lowest business investment in the G7, as we managed under the previous Administration. Supply of capital is part of that—and today’s agreement is expected to release £25 billion of additional investment into the UK economy by 2030—but so is the supply of projects to invest in: the pipeline. Our job as a Government is to support the depth and visibility of that pipeline, and that is why we are getting this country building once again.

May I start by associating myself with the very fine tributes made to Sir Roy Stone? My condolences go to his family.

No response from the Chancellor, we see, but I thank the Minister for his statement. The retirement incomes of millions of UK savers rely on the careful management of pension funds. Those pension providers have a fiduciary duty to act in the best financial interests of their members. We on the Conservative Benches support efforts to ensure pension funds are investing in assets that can both increase UK productivity and growth, and deliver stronger, stable returns for investors and savers. Indeed, that was the purpose of the first Mansion House compact, which was brokered by the last Conservative Government.

As we well know, Labour Ministers have a habit of thinking they know best what to do with other people’s money, but it should ultimately be the responsibility of the providers, which have been entrusted by savers with their money, to make investment decisions. Reports that the Government intend to take new powers to mandate pension funds to allocate minimum amounts to specific classes of assets should be a matter of great concern to this House. Can the Minister confirm whether the Government intend to take such legislative powers in the pensions Bill later this year? If he cannot rule out making such a move, can he explain what it would mean for the existing fiduciary duties set out in legislation?

Major players in the industry, including Scottish Widows, have reportedly refused to take part in the latest iteration of the Mansion House compact. Can the hon. Gentleman explain to the House why that is, what discussions he and other Ministers have had with Scottish Widows and others that have chosen not to take part, and what concerns they have raised?

Let me be clear: we on the Conservative Benches want a pensions industry that is investing in growing UK businesses, infrastructure, housing and all those elements that drive a healthier economy, but it also has to be for the benefit of savers. Of course, the risks in this case would be borne entirely by private sector workers, while public sector workers would be protected. Finally, we are clear that pension savings should never be there to dig a Chancellor out of the economic hole that she has made.

I will directly address two questions and then come to the overall tone of the shadow Chancellor’s remarks. There has been a debate across this House and in the wider industry about mandation, including on UK equities. It has been led by Conservative peers in the House of Lords—Baroness Altmann has called for exactly that—and by some Members in this House, including the right hon. Member for Salisbury (John Glen) on the Conservative Benches. What we are setting out a voluntary agreement led by the industry. On the industry consensus behind the accord, 90% of the defined contribution industry, by active savers, have signed up this morning—and all providers, including those that did not sign up today, are committed to the idea of more investment in private assets.

More generally, the shadow Chancellor’s tone is disappointing. The truth is that he is a lonely figure. There is a wide consensus about the direction of travel to invest more in private assets, as Canadian and Australian pension funds do, and today’s accord is industry led; it sets benchmarks agreed by the industry, and in fact many industry players want to go further. There should be cross-party consensus. At the event this morning, the Chancellor spelt out that this work builds on the work of her predecessor in supporting the 2023 Mansion House compact. The shadow Chancellor will remember that compact because it was signed under a Conservative Government when he was the Work and Pensions Secretary—he was in the press release, championing it. He was right then, and he is letting himself down now.

I have some news: a response to the accord has just come in from Guy Opperman. Hon. Members will remember him, because he was the Conservative former Member for Hexham and the only Pensions Minister in the last Government to last more than five minutes; he was in post for five years. What did he say about this morning’s accord? He said that it is a “good thing” and “should be welcomed”—he is not wrong.

I call the Chair of the Select Committee.

I draw attention to my entry in the Register of Members’ Financial Interests as a trustee of the parliamentary contributory pension fund. The points about fiduciary duty have been made. Given that fund managers will need time to pool together funds that reflect the Government’s wishes and the voluntary accord, when does the Minister expect it to kick in? At that point, might he consider mandation?

The decision by the industry, reflecting the question that the Chair of the Select Committee raises about pace of change, is that the targets for asset allocation are for 2030.

I call the Liberal Democrat spokesperson.

Liberal Democrats cautiously welcome the response from the Minister. Clearly, ensuring that people have a good return on their investments is essential, but we welcome this step change where we are looking at investment within the United Kingdom within the appropriate parameters. Would the Minister unpick for us what core lessons he has learned from Australia and Canada, which have already embarked on this path? Also, it has long been a long-term investment opportunity for many in the pensions industry to invest in rental opportunities. How can we drive the opportunities in the social rented sector through the accord?

Finally, the Minister rightly talks about a pipeline of opportunity. Our fear is that these might only be large opportunities, such as the redevelopment of an airport, when many of our communities are worried by the collapse of our town centres; there could be buckets of opportunity highlighted there, which could be driven by appropriate investment through sources like this.

It is characteristically bold of the Liberal Democrats to cautiously welcome these measures. However, the hon. Member is right to raise the question of Australia and Canada. We look across at places with similar pension schemes to those in the UK, and the levels of private asset allocation in those schemes is far higher than we see here in the UK, so he is absolutely right on that front.

On the two specific points the hon. Member raises, I agree on investment in the social rented sector. Many of our pension funds are already doing that, and I know that other major ones will be making announcements in that area in the months ahead. He also raises the breadth of investment opportunity. He is absolutely right that there are large, national-level projects, but there are also many more local projects. Where those are financed by the private sector, pension schemes may want to look at them as well.

Will the Minister spell out how this deal provides real change for constituents across the country, and what it means for infrastructure projects, especially housing?

My hon. Friend is absolutely right. There is no way that Britain can return to growth unless it starts investing in its future again, rather than living in its past, which is, if we are honest, what we have been doing in recent years. This is part of a much wider story. I hope that there is cross-party consensus—there is certainly consensus across the pensions industry, and among most economists who look at the UK economy—that we need to move to a higher investment level. The finance for that is one thing; some comes from abroad and some comes in domestically, but it also needs to come from our pension schemes.

Obviously, it is for the public sector to play its part, but we should be careful in distinguishing this. The Government are doing our bit on public investment levels, with £113 billion extra of public investment compared with the plans inherited from the Conservative Government. That is doing a lot of the work to move us to the higher investment equilibrium, but there are lots of projects, and in the end most investment happens in the private sector. That is where I welcome the progress made by the pensions industry today.

I thank the Minister for building on the work of the Mansion House reforms that I introduced two years ago. Westminster works best when Governments do not automatically tear up the work of their predecessors. Who knows, with this constructive attitude, we may see some tax cuts in the autumn Budget.

Does the Minister agree that there is a circularity in the argument that the reason pension funds do not invest in the UK is because returns are lower here? In Australia and America, the stock markets can depend on more than 40% of pension fund assets investing domestically to create bigger returns, compared with just 4% in the UK. Does he agree that if we are really to make these reforms fly, we will need to involve the 28,000 defined benefit schemes as well as the 4,000 defined contribution schemes?

That is more like it! That is what we want to hear from the Conservatives. The right hon. Gentleman rightly says that progress was made under the previous Administration. I have made that clear, and the Chancellor made that very clear this morning, as I said. I have discussed with many leading members of the pensions industry the fact that we are explicitly building on the progress that the right hon. Gentleman made, rather than throwing any babies out with the bathwater—even after they have had their nappies changed by the previous Lib Dem Chief Whip, the right hon. Member for Orkney and Shetland (Mr Carmichael).

I very grateful to the right hon. Member for Godalming and Ash (Sir Jeremy Hunt) for the tone of his question. He is also right to highlight the lack of UK bias in some of our pension schemes. We see that right across asset classes, and it is not in the interests of the country in the longer term. As he knows, the focus today is on private assets, but we do need to think more broadly. What are we all after? We are after well-functioning capital markets, both public and private, and these reforms will make a big difference in that regard. I am not saying that there is not more to be done; I am sure that there is, and that he will continue to play an active part in those debates.

The Science, Innovation and Technology Committee inquiry into the innovation and growth of the regions has repeatedly heard evidence that the lack of access to investment, particularly outside London and the south-east, is a barrier to scaling up our fantastic science and tech start-ups, so I welcome the commitments to put more of our pensions and savings into the productive economy—and I am rather surprised by the response of the shadow Chancellor. Will the Minister say a little more about how these commitments will support growth through innovation?

My hon. Friend is absolutely right. She has long talked about both the issues that she raises: the regional balance of investment and the ability of growing firms to get hold of growth finance. The latter is a long-standing problem in the UK economy, and today’s accord will help to address it. Although we talk about private assets and investment helping with infrastructure, it is also about providing growth capital to a wider range of firms. Obviously, the onus is on us and private asset managers to provide ways for pension funds to direct capital. Those are often small-ticket items, and pension funds will need them to be aggregated up to a higher level. That is exactly the work of the British Business Bank, which I know she has engaged with through the Select Committee. On both points, she is 100% right.

Undoubtedly, the City of London is not in the best possible place when it comes to where it is investing and the amount invested in UK equities. When I was a Minister, we had the Hill review, the Kent review, the Austin review and the capital markets review. Everything was done to seek to open up the City to more initial public offerings and more momentum. This systemic undervaluing of UK equities, and therefore the lack of investment in them, needs to be set alongside the fact that billions of pounds of taxpayers’ money is used to enrich the size of pension schemes through tax reliefs. I urge the Minister to continue engaging with the City. I welcome the voluntary commitments given, but we must come to the point where the risk-aversion of DB schemes is called out, considering the amount of taxpayers’ money that is effectively going into them. Will the Minister continue to look carefully at the options available, given that the previous Government sought—and his Government will no doubt continue to seek—to meet them wherever possible?

I always enjoy discussing these things with the right hon. Member, as we have done over recent months. He offers a recognition of the challenge facing the country, and in focusing on what we can do to start changing things, he takes a much better position than that adopted by his Front Benchers.

I recognise the right hon. Member’s point about risk-aversion. There is a need for more innovation in our pension landscape more generally—that is one of the areas in which I am glad to see progress. I take a slightly more positive view than he does on the consensus that things need to change. We are seeing that in the pensions industry more generally, partly in relation to investing in a wider range of assets, as well as in embracing the agenda that we are setting out for a smaller number of bigger pension funds that are able to take different kinds of risks.

The right hon. Member asks specifically about public equities. My view is that the accord from the industry today will support that by funding a pipeline of companies that can grow to the level at which they can list publicly. Also, private assets will include private shares, including the alternative investment market and others. I think the picture is slightly more positive than the one he paints, but I am not hiding from the wider question he raises about capital markets. The UK Government, the Chancellor and my colleague the City Minister are focused on that—he will have heard their words on ISA reform and the rest of it. I look forward to further conversations on that.