UK companies are facing a £50 billion funding gap, according to a stark assessment by Andy Haldane, President of the British Chambers of Commerce (BCC). Speaking at the BCC's annual conference in London, Mr Haldane proposed redirecting the equivalent of pension tax relief towards investment in domestic firms. This 'home bias' within the UK's pension system could address the critical funding shortfall hindering growth across small and medium-sized enterprises (SMEs), he argued.
The global financial system is awash with cash, yet British businesses struggle to access capital. Mr Haldane attributed this disparity to the failure of 'unfettered free markets' over the past three decades, necessitating a more proactive approach from government. While welcoming ministerial efforts, such as the National Wealth Fund, he described their impact as modest and called for radical tax system reforms to unlock 'trillions of pounds available for investment'.
The current pension tax relief system tops up personal and occupational retirement fund contributions at an individual's marginal tax rate. Higher-rate (40%) and additional-rate (45%) taxpayers primarily benefit from this scheme, while those on lower incomes are often excluded due to the inability to save into a pension. Mr Haldane's plan would attach an obligation to tax relief, compelling retirement schemes to channel funds into UK companies as a condition for receiving benefits.
Notably, attaching a 'home bias' to tax relief would not unduly constrain choices for asset managers but rather shift incentives towards British businesses. This is in line with survey data indicating 70% of households prefer their savings to be invested domestically. While the proposal faces potential hurdles, including securing agreement from the complex pensions industry, Mr Haldane believes it has merit.
Implementing these new tax regulations would likely take years, and developing specific mechanisms for redirecting pension funds remains a challenge. Nevertheless, his comments underscore a growing debate about connecting domestic capital with the UK economy's needs. Should this proposal gain traction, the implications could be substantial – unlocking expansion opportunities, job creation, and innovation for businesses struggling to secure growth capital.