Back to the UK now and the Chancellor Rachel Reeves has been making her pitch to the financial services industry. In her first Mansion House speech, it included a promise to rethink regulation of the sector and efforts to boost investments. Joining us now to discuss is Nigel Wilson, chair of the Canary Warf Group, former CEO of Legal and General of course and a regular visitor to these Bloombag studio.
So very nice to see you once again, Nigel. You've also shared, of course the recent Capital Markets of Tomorrow report looking at the challenges facing the city. So well placed to review Rachel Reeves and everything we got from Mansion House. How did you read her comments on rethinking regulation, Nigel, because this is part of this is part of a push to perhaps refocus some of the regulatory bodies we have in the city around growth.
Yeah. I think the growth agenda came back. You know, we had a sort of ideological diversion for the budget and then we've gone back to the growth agenda, which is a good thing. And I think the upbeat message around growth has been central again is actually what we should be spending up time on because you know, you know, the economy is muddling through growth dynemic. Everybody's panicking about how they handle the NIX issues and the various other
incremental taxes that have come through the budget. We've got to get back to the bigger picture, which is how we're going to grow. And the fact that they're going to give the regulators the dual objective of delivering growth I think's really positive.
And you think we'll get the balance right there?
Will we?
Because of I'm sure we won't get the balance right. We're going to get the direction of travel right, yeah, which I think is what we haven't had for twenty five years. And whether that's the water industry or the telecoms industry, along the financial services industry, we have not got the growth agenda anywhere embedded in the regulations of those of all those industries. And that has to be part of the long term growth strategy that we have as a country. We definitely don't have it right now.
Will the simple shifting of our addition to those mandates of those regulators, they'll be enough to encourage more risk taking and thus spur the investment that reads is helping that a well?
No, I think the culture of the organizations needs to change dramatically because sometimes the messages the top get diluted when they come to implementation. And I know we used to spend sometimes years trying to get a new asset a class approved by the regulator for investing in the UK, and often as a consequence of that, we ended up investing outside the UK in an asset class which already existed in America. And that's not a good outcome, and
that was because they didn't have a growth agender. They were excessively risk averse, and as a consequence of that, we took action which allowed us to deliver on a global thing, the right outcome, but definitely not the right outcome for the UK.
And that takes us on to the pension activity that we've seen from Rachel Reeves and this idea that you pull these pension assets together to make these mega funds, and maybe that increases some of the investment that we see from pensions into infrastructure projects in the UK, although not necessarily in the UK. So Nigel tell us your response to where we've got to.
On this, Yeah, but not necessarily in the UK, which is because what we've seen is in LGPS for example, Legal and General manage a huge amount of money for LGPS. Thirty eight percent of their investments used to be in UK equities. It's now about nine percent. So the first wave of consolidation which we've seen in LGPS didn't result in more investment in the UK, resulting in entirely the opposite,
which is a big decrease in UK equities. So you give the necessary conditions, but it's not sufficient conditions.
So scale isn't everything.
What else Scale isn't and everything it's actually here. We have to create the planning opportunities which allow us to have these investments, but also the risk appetite to want to do these things. You know, America leads the way in lots of these asset classes, and they have some amazing companies, you know, the Brookfields and Blackstones and Apollos and Kkrs who've been developing these assets in private marketers. Indeed,
you know JP Morgan and the other banks have. We haven't got that capability at the moment in the USE. So if we're not careful the assets, people will invest in those assets, but not necessarily in the UK in those assets, which is what we saw over the previous fifteen years in UK equities for the decline from almost forty percent down to less than ten percent.
But isn't it always going to be the case that you know, comparing yourselves to the US is is an extremely difficult thing to make the case for. How do you what encouragements do? I mean you're talking about the local government pension schemes as the changes that rate res announced, But do pension funds need a mandate? Doesn't need to be very clear that they have to push x amount of assy.
I'm flavor of soft compulsion, which is as that look like, which is a bit like auto enrollment. You know, people are encouraged to invest in things and if they don't want to, they opt out. But we certainly should be setting targets or frameworks which allow them to invest more in the UK so that over a long period ten twenty thirty years we see more of these moneys being flawed into risk assets in the UK as are paused to too much of the assets in cash and guilts to be frank.
Why do you think they've stopped short of doing that? Because this was a criticism of the last administration as well, that they didn't mandate that the money had to stay in the UK, and it might be because well, if you want best execution for future pensioners, you need to be able to invest abroad. But you could attach it to text benefits and say okay, put it in the UK and then you get these tax.
Breaks absolutely, and cash isis are probably the best example of that, where we give everybody a tax brik for investing in cash with the only country in the world that does. Add that's a three hundred billion pound asset class and imagine if we fiers that out over time and got people to invest in other assets which are of greater strategic value to the UK and deliver better returns over the long term, that would be a good outcome.
I'm curious to know more about your view of this idea of setting targets. What should what's the idea level for a target for investment in the UK assets? What's going to do enough to spur the growth that then creates the business case behind us.
Well, I feel look at DC Pensions, which was kind of where richual was talking talking about, and I think much of you know it, it's quite a good It was a good speech by Richual. I thought, and I've now read it twice and listened to it last night as well. The challenge in DC it's growing very quickly. Most people invest in the default fund. It's the it's the middle one on the first page, in the middle box, and people tick that and they very rarely change from that.
So the default fund can be used as a vehicle for nudging in the right direction. And I would say, let's give UK infrastructure a five percent allocation within the default fund. And that's an easy.
Need to be huge what it doesn't need to be a huge It doesn't need.
To be huge, and it doesn't you know, you know, everybody being very weird about it being non competitive and all the rest of it. We've got a huge infrastructure deficit. How we're be going to fill it is actually get people to be nudged in the right direction, in the same way that young people should be investing in young companies, you know, their friends and setting up these new companies, and maybe have a two percent allocation for that. Again not massive allocations.
And why are those things not there already? Then, Nigel just remind us, since long we've spent a long time getting at this place.
I've failed miserably is one of the reasons they're not there. I've tried very hard for fifteen years to get this to happen in the in the UK, and there's always been a reluctance to doing it. But now we can see there's no growth, the tiny amount of growth, and it's been.
About risk aversion. Has it that those things weren't there?
Well, it's sort of an ideological objection to actually some soft compulsion, and that I think is the wrong approach when there's such an urgent need in the UK for this real, real money to make a difference to everybody's lives, and everybody thinks it's a good idea, but you've got to give a bigger nudge than we've been giving so far, and we're not saying go wild and reckless and do all things. That's why the growth objective is so important.
Then the regulator can approve these asset classes much quicker and we can see much greater growth in these businesses in the UK.
I want to kind of put to ask you, for a want of better word about the vibes right because I'm sensing you're quite positive about what you heard from Rachel Reeves last night, good ideas, you know, moving us in the right direction. That's contrary to the narrative that we've had since the budget, particularly from business groups. Weren't happy about employers' national insurance contributions going up as well. Do these things cancel each other out?
I'm not sure they cancel them out From a business point of view. I think people are still very grumpy about the budget and that's going to mess up a lot of business plans and a lot of change.
And are you seeing that, you know, people looking at Canary War for example.
And not really looking at Canary Wolf. But I think as I travel across the country and meet lots of people, you know, I think that's definitely the case. The direction of travel was good last night. And talking to the Treasury as well, which I did, was they think the speed of travel has been going to be real queer. But but are we doing enough fast enough? I think the answer to that is not. But the direction of travel is better than definitely better than what we saw in the budget.
And on the big picture questions, Nigel, let me ask you, we're coming towards the end of this year. We know that next year is going to be to some degree of our own making, but here in the UK, but to some degree dictated by others. And we have a return to the White House in the United States that will have a big impact on so many people's lives and finance in many places. Do you think that the growth plans in the UK are sort of trump proofed? Are you watching with anxiety what might happen?
Yeah? I think everybody's got to watch you with a bit of anxiety as to what might happens, because you know, there's a lot of contrarian approaches to solving problems that are going to happen, and there's some very addish appointments that have been made already, which you guys have been talking about. And yes, we'll see some compromise on tariffs, but they're still tariffs, and we know that there's there's all sorts of negative consequences as a part of that.
The whole defense and defense spending in the role of NATO is going to have a big impact on Europe. I hope personally that again, and kiss Sarmus said that, and Rachel said that. Indeed, Governor Bank of England said this, let's get together and be closer to Europe. You know, Brexit was a mistake, but actually, let's move forward and figure out how we can develop better partnerships with the
rest of Europe. And Trump may prove to be the catalyst that makes that happen, and so that may be the positive outcome of all of this, is that we'll all be treated in a certain way and that actually, as a consequence of that, we may all get together. Because you know, the German economies is in a mess. The French economy, I think, is in a mess. The Italian economy has got no growth whatsoever. Some of the smaller countries are doing reasonably well, but net net, it's
a pretty miserable show. And the Europe's going to muddle through as well. Next year, the UK has going to muddle through. We've got to work together in partnership and figure out how we can grow together and how we can invest so much more because we've got the capital. It's all sitting around. We've had regulators been overly risk averse, which has ended up with companies being overally risk averse.
Our politician's been risk averse, and the outcome of this excessive risk aversion is low growth, and that's been a terrible outcome for US as a society,