Britain’s tax system should be reshaped to reward investment in homegrown companies and halt the “overseas stripping” of the country’s most innovative businesses, according to one of the economists advising Andy Burnham as he assembles a policy programme for a possible move to Downing Street.
Andy Haldane, president of the British Chambers of Commerce and a former chief economist at the Bank of England, told the organisation’s annual conference in London that the billions of pounds the Treasury spends each year on pension tax relief represented a “ready made” and “largely fiscal-free way” of giving British growth what he called “a genuine giddy-up”.
Haldane, who Burnham has been consulting as the Greater Manchester mayor prepares his pitch for No 10, framed the idea as a “third way” between “unfettered free markets” and the outright “mandation” of how pension funds allocate their money. For SME owners and the scale-up community, the proposal goes to the heart of a long-running complaint: that British capital too often flows everywhere except British business.
The numbers Haldane set out are striking. “This government, startlingly, extends over £50 billion in pension tax relief and more than £10 billion in tax relief for Isas,” he told delegates. “That means, as a country, we spend more in tax relief on savings than we do on defence. Yet these benefits are conferred without any accompanying commitment to support British businesses, or therefore UK growth. Most are implicitly supporting US corporations and indeed foreign governments.”
Redirecting those incentives, he argued, would “deliver a far larger return while keeping decisions on those investments in the hands of managers”, rather than ministers. The distinction matters. The Treasury has so far stopped short of compelling pension funds to back UK companies, wary of criticism that doing so would cut across the duty to secure the best possible returns for savers. Recent reporting has already shown some savers withdrawing pension cash amid fears of tax changes in the run-up to the Budget, underlining how sensitive any reform of pension incentives will be.
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