The UK faces a £150 billion funding gap over the next five years and is expected to increase efforts to attract private investors to help close it. The shortfall is highlighted in a new report from the City of London Corporation, the local authority that presides over the country’s financial district.
UK faces £150B gap as city calls for private investment surge
Source Cryptopolitan
The report quotes a 15 billion-pound annual funding gap for the small- and medium-sized enterprises seeking to grow. It also shows a similar infrastructure investment gap from housing, energy, and transport projects to digital networks.
Chris Hayward, policy chairman for the City, warned that the cost of inaction would be great: doing nothing would lead to lost opportunities, decreased productivity, and slower economic growth.
The warning comes as the UK economy grapples to break out of stagnation. While markets worldwide struggle and tax increases are anticipated within the autumn budget, the government is pressured to create new money.
City pushes for pension reform and more defined infrastructure plans
The City calls for reform of pensions and a greater effort to direct savings into UK assets to plug the gap. It cites examples from Canada and Australia, where domestic pension funds are significant investors in infrastructure at home.
The UK government has already taken steps to implement some of these recommendations. In the Mansion House Accord, 17 of the biggest pension funds in the country promised to allocate as much as 10% of their portfolios to private markets by 2030. At least half of that will likely be invested in UK assets, which could unlock a further £50 billion of fresh capital.
But the City says that’s not good enough, as it would like the government to lay out a more transparent pipeline of projects, so investors know what’s coming. Transparency is necessary, it adds, to generate confidence and attract long-term private capital.
Just last month, BlackRock announced it had poured $700m into UK data centres – so clearly there’s still plenty of appetite among international investors to back them if the terms are sweet enough.
The new Labour government, little more than a year in office, is making strenuous efforts to increase investment. Prime Minister Keir Starmer’s government had wanted to steer capital into British infrastructure, green energy, and growth industries.
A reshuffle has brought fresh faces to the forefront of this push. The minister for investment, who used to be Poppy Gustafsson, is businessman Jason Stockwood. Meanwhile, Lucy Rigby became city minister instead of Emma Reynolds, who was made environment secretary.
The government is also establishing a new investment hub to match global funds with projects in the UK. Officials say the goal is to make Britain an easier and more appealing investment place.
Pension capital sparks challenges and debates
These are all advances, but there are still huge hurdles. UK pension funds have been on the decline for domestic stocks for decades. Today, pensions are invested in British stocks to only 4% in those portfolios, compared with about 50% during the 1990s. Many trustees prefer investing offshore, where they can make better returns for less risk.
This trend has sparked debate. Reformers claim that switching pensions back into the UK would fuel growth and finance badly-needed infrastructure. Critics have said it could place savers at risk, or amount to trustees breaching their legal duty to act in members’ best interests.
Some executives have even sounded the alarm. The chief executive of Aviva has also recently cautioned against “coercing” pension schemes to invest in Britain, arguing that it was not always the best way to maximize returns.
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