Pension funds call for changes to UK financial rules to encourage investment

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Investors who manage $1.7 trillion in assets have urged British Prime Minister Rachel Reeves to reform Britain's financial rules to provide billions of pounds of additional funding for infrastructure projects.

A group of pension investors, including Australia's IFM and the UK's Universities Pension Scheme, urged Reeves to redefine key debt measures in budget rules.

They said the UK's public sector net debt measure should be changed to recognize the financial value of assets created by government spending on infrastructure and green energy projects.

The move could incentivize governments to spend more on infrastructure and potentially unlock billions of dollars in additional spending in the future from pension groups that prefer to invest alongside states to reduce risk.

Gregg McClymont, managing director of IFM, which has investments in the UK including Manchester Airport Group and Anglian Water, said the UK government was committed to co-investing with pension funds in infrastructure projects. He said debt rules were actively hindering him.

The UK's current measure of public sector net debt does not reflect the value of the assets in which the government invests.

McClymont said public sector net debt actively discourages joint investment on the part of government because it treats every pound spent on acquiring productive assets the same as a pound lost on the back of the sofa.

The intervention has led to growing calls for the rules to be changed, including from former cabinet secretary Gus O'Donnell.

Reeves said he would stick to the restrictive rule that debt-to-GDP ratios must be expected to fall within five years, but hinted at last month's Labor conference that he would be willing to reform the definition of debt if it helped. Encourage investment.

The group is expected to meet Treasury officials on Wednesday to set out a new blueprint for how the UK can achieve its net zero climate ambitions, with changes to fiscal rules to make boosting investment a top priority. The Treasury has been approached for comment.

We were delighted to participate in this important blueprint. The policy options provide an opportunity to better align pension system profits and capital with the government's net zero ambitions, said Carol Young, CEO of USS, which has invested in Heathrow and motorway services. Local operator Moto.

The government has said it wants taxpayers to benefit from the success of new green technologies by investing equity alongside private capital in projects by the new state-owned energy investment company, Great British Energy.

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However, the rules state that government funds spent on GBE are treated only as liabilities on the government balance sheet, increasing public net debt.

Infrastructure and clean energy projects are particularly attractive to pension funds because they provide a steady stream of income.

Other countries, such as the EU, have used narrower definitions of debt to avoid making the costs of large infrastructure projects a stumbling block to their fiscal rules, McClymont said.

The level of capital investment these economies are enjoying [the] The UK is unlikely to be irrelevant in the long term. [the] He added that the country's financial institutions are encouraged to make long-term investments in the economy.

The government will host an international investment summit in London next week, where Reeves and Prime Minister Keir Starmer will pledge to invest alongside the private sector in projects to boost Britain's sluggish growth rate.

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