The Business Secretary, Peter Kyle, has delivered a strong message to UK pension funds, stating they must significantly increase their investment in British businesses or face being compelled to do so by law. Speaking on the sidelines of an event in London, Mr Kyle expressed his frustration with the current level of domestic investment, despite numerous government efforts and regulatory adjustments aimed at encouraging it. He emphasised that the nation's largest asset managers should feel a "patriotic duty" to contribute to the UK's economic prosperity.
Mr Kyle acknowledged that mandatory investment is not an ideal solution, but warned he would resort to it if necessary, citing a sense of urgency. He highlighted his exasperation with the financial sector, which he claims has frequently requested regulatory changes to boost UK investment, only for such reforms to be followed by a persistent lack of engagement. His remarks suggest a growing impatience within government over the perceived reluctance of some pension funds to allocate more capital domestically, despite representing British savers.
This is not the first time a government has sought to encourage greater domestic investment from pension funds. Both the current Chancellor of the Exchequer, Rachel Reeves, and her Conservative predecessor, Jeremy Hunt, have actively pursued initiatives to channel more pension capital into the British economy. Last year, Chancellor Reeves secured a "Mansion House accord" with 17 major pension funds, aiming to voluntarily unlock up to £50 billion in investments, with at least half designated for UK assets, including clean energy projects and start-up companies.
Earlier this year, the government faced significant lobbying from the City and opposition from the Conservative party over a bill seeking powers to mandate investment in UK assets. While the bill was ultimately watered down, ministers did secure back-stop powers, albeit with a caveat: these cannot be deployed before 2028 and will expire if not used by 2032, or by 2035 if they are. The legislation also includes a "saver's interest test," designed to ensure any mandated investments are in the best interests of pension holders.
Mr Kyle's comments emerge as the Labour party navigates a period of leadership transition, with Andy Burnham expected to succeed Keir Starmer as Prime Minister by 20 July. The Business Secretary also used the opportunity to advocate for the continuation of the government's industrial strategy under the new leadership, stressing the importance of "Manchesterism" – Mr Burnham's vision for greater devolution and state involvement in services – to stimulate economic growth beyond London and the South East. He affirmed his desire to remain in his current role to ensure stability during this transition period, while acknowledging potential concerns about business confidence.