The UK's pension fund landscape is set for a major overhaul with Andy Haldane, chief economist to Greater Manchester Mayor Andy Burnham and former Bank of England chief economist, advocating for higher taxes on overseas investments. This shift could redirect £50 billion in tax relief from foreign assets back into domestic businesses, according to Mr Haldane's estimates.
Speaking at a British Chambers of Commerce conference, Mr Haldane labelled the current tax system as 'contorted', favouring foreign investments over domestic growth. He cited European and Japanese examples where governments offer tax credits for supporting local business plans, suggesting the UK could emulate these models to reap greater returns on its substantial tax reliefs.
Mr Haldane highlighted that existing personal pension tax relief, including income tax relief up to £60,000 annually and a 25% tax-free lump sum (up to £268,275), amounts to an estimated £50 billion in potential revenue. However, much of this currently finances investments in foreign companies and governments rather than driving UK growth.
The intervention comes amidst government efforts to boost domestic investment, following the Mansion House Accord reforms. Mr Haldane's proposal aims to correct market distortions for pension funds and align the UK's investment strategy with other major economies. By 'tilting the playing field', he believes this change would foster a stronger domestic investment environment and prevent UK businesses from being acquired by foreign entities.
As the government explores ways to capitalise on 'brilliant seed-corn businesses' before they fail or are acquired, Mr Haldane's assessment underscores the need for bolder reforms. The potential implications for the FTSE 100 and broader economy could be substantial if such a policy were implemented, fundamentally altering how pension funds invest in UK businesses.
With an estimated £10 billion in additional revenue from ISA incentives also at stake, Mr Haldane's proposal indicates a desire to rebalance the tax system towards domestic investment. This shift could have far-reaching consequences for the UK economy and investment landscape, warranting closer scrutiny from policymakers and investors alike.