Rachel Reeves to 'unlock billons' through major pension reforms

Chancellor to use her first Mansion House speech to 'spell out the next phase' of Labour’s plan in government

UK Chancellor Rachel Reeves is thought to favour pooling local authority pension money, creating a £400 billion pot to invest in projects. EPA

Britain's Chancellor, Rachel Reeves, will this week set out reforms to pension funds intended to funnel investment into the UK's infrastructure and private businesses, according to Treasury sources.

On Thursday, Ms Reeves will deliver a speech to leading figures in the City of London financial district, in which she is predicted to “spell out the next phase” of the Labour government's plan, following her promise in October's budget to “fix the foundations” of the country's economy.

She is expected to pitch “growth brought by unlocking private sector investment, including in our financial services industry, and growth brought about by reform – both of our economy and of our public services”.

The Chancellor is also expected to highlight “the untapped potential we have here in Britain, the opportunities available that can be realised, the partnerships that can be forged, the wealth that can be created” as “the prize on offer”.

This could include partnerships with economies in the Middle East, Europe, Asia and the US.

It's thought Ms Reeves will also use her first Mansion House speech to announce measures that would get those currently economically inactive back into work and plans to strengthen the government’s new industrial strategy.

The Chancellor visited Canada in August and is thought to favour the pension fund system there, which includes the pooling of local authority pension money together to create “super pension funds” capable of making large-scale, long term investments in areas such as infrastructure. Amalgamating Britain's local authority pension funds would create a pot worth in the region of £400 billion.

Some in the City of London favour freeing up the £225 billion of surpluses held by old-style company final-salary, or defined-benefit, schemes which could be put to use in the economy, albeit with regulations to mitigate risk.

Experts at the Pension Insurance Corporation, a specialist insurer, have suggested that merging local government pension schemes, currently controlled by 86 small funds, could release £200 billion to boost the UK economy by reducing excessive spending on fund managers and advisers.

National insurance criticism

Ms Reeves's Mansion House speech will come just weeks after an increase to employers' national insurance contributions were announced the budget. The hike in the payroll tax was criticised by several company bosses, particularly in the hospitality sector, warning of potential job losses, while the Treasury estimated it could raise more than £25 billion.

Employers' NICs are rising from 13.8 per cent to 15 per cent, and the threshold at which employers start paying the tax will come down from £9,100 per year to £5,000.

In an open letter to the Chancellor on Sunday, 14 board members of the industry body UK Hospitality, as well 209 businesses in the sector, including JD Wetherspoon, IHG Hotels and Resorts and restaurant chain Tortilla, warned that “changes to the NICs threshold are not just unsustainable for our businesses, they are regressive in their impact on lower earners and will impact flexible working practices which many older workers and parents rely upon”.

“We know you are determined to ensure that growth is available to all,” the letter said, “yet this change to NICs does the opposite, balancing the books on the backs of the businesses which provide jobs to all in society, nationwide, while sparing businesses that used technology to shed jobs.”

Meanwhile, Britain's Sunday Times newspaper claimed the rise in NICs will cost the supermarket chain Tesco, which is the UK's largest private sector employer, an extra £1 billion over the next five years. Last week, the chief executives of Sainsbury's, Asda and Morrisons detailed the added NIC costs they face, which combined will be around £1.3 billion over the next five years.