Chancellor’s pension review offers dilemma for Welsh Government

Jonathan Edwards

The first of Labour’s five missions in entering government at UK level is a commitment to “secure the highest sustained [economic] growth in the G7” coupled with a promise to spread prosperity evenly on an individual and geographical basis across the state.

Many commentators and this column have expressed concerns that this laudable ambition is hindered by two key decisions: sticking to Tory fiscal rules and not reintegrating with European economic frameworks.

This leaves little room for manoeuvre in terms of economic policy. If I were Chancellor with responsibility for growing the economy and therefore increasing revenues for public investment, those would be the first two areas I would look at.

Consolidation

The Chancellor however seems to have zeroed into recommendations by serious commentators such as Will Hutton who have argued for the consolidation of pension funds to maximise their potential for investment in productive assets to boost economic growth.

Hutton argues in his book This Time No Mistakes that less than 2% of the £2.5 trillion held by thousands of UK pension funds is invested in UK based companies. Hutton believes that consolidation into funds no smaller than £100bn could lead to the release of £1 trillion in productive investment as well as boosting resilience and returns for savers. That’s a lot of money in anybody’s sterling. He views this policy area as potentially as important as Bank of England Independence in terms of economic significance.

No wonder one of the first acts of the Chancellor has been to launch a Review into Pension Investment. Not shy on hyperbole, the review has been labelled by the Treasury as the “Big Bang on Growth” to boost investment and savings.

Local Government Pension Funds

A key focus for the Treasury is the £360bn held by Local Government Pension Funds in England and Wales. Scotland and Northern Ireland are exempt from the review due to their stronger devolution settlements.

The previous Conservative UK government began consolidating local government pension funds in the second half of the last decade. Eventually eight investment pools were created. The initial plan was to merge the Welsh Local Government funds with the Midlands of England into one partnership entity. I lobbied with industry insiders in Wales successfully to create a Wales specific pool to ensure that investment remained under Welsh control.

The Wales Pension Partnership (WPP) created in 2017 today has assets of £23bn made up of the eight Welsh Local Government Pension funds. The WPP, being a Welsh specific entity, inevitably has a Wales focus when it comes to the majority of its private market investments, eg infrastructure and real estate.

The Chancellor wants to encourage further consolidation and will legislate next year unless sufficient progress is made. I am not privy to Treasury thinking, but the key question is what exactly do they have planned for the funds currently under the management of the Wales Pension Partnership and the eight current England and Wales investment pools?

Fair share

Is the UK Government looking at one Local Government Consolidated pool for England and Wales? If you take Hutton’s £100bn benchmark, then the WPP falls short. If the WPP was to be consolidated into a larger fund how will the UK and Welsh Government, ensure that Wales gets its fair share of investment?

A brief look at the Senedd Record and Hansard (I admit I have never been good at navigating either search engine) indicates that not a single politician based in Wales is asking questions on this issue as of yet. Neither has there been any comment in the media by our political leaders. Considering the sums of money at stake you would think there would be political uproar.

This should be a no brainer for Plaid Cymru in particular, who should be arguing for the preservation of the WPP. I suspect they won’t be AWOL on this issue for long.

Tricky

For the Welsh Government the issue is a bit trickier considering the proposals are coming from a Labour UK Chancellor. They have two options from what I can see: protect the Welsh pool and stand up to the Chancellor or secure water tight safeguards that Wales will receive a fair proportion of investments from any future consolidated funds. Their approach to this issue will tell us a lot about how we expect the relationship between both governments to develop.

Pooling and sharing in principle is all well and good. Alas under the UK state the sharing of the pooling tends to concentrate on the south east of England. You would need blind faith in the Westminster system to think that a Consolidated England and Wales pool will work in the interests of Wales.

Will the Welsh political class wake up before it’s too late?

Jonathan Edwards was the MP for Carmarthen East and Dinefwr 2010-2024