FTSE giants urge Reeves to unlock more domestic capital for businesses
Over 250 companies across the London Stock Exchange have called on the Chancellor to do more to unlock domestic capital from pension funds for UK businesses to boost economic growth.
In a letter to Rachel Reeves, signatories including asset manager Schroders and fashion giant Mulberry, warned that there is too little capital invested in the UK to achieve the government’s economic ambitions and fuel innovation.
The letter said: “The availability of domestic risk capital is the vital fuel that businesses, both public and private, need to grow.
“Yet we are increasingly concerned by the sharp decline in domestic risk capital, especially from UK pension funds, being invested in companies in the UK.”
The amount of capital invested by pension funds in UK equities has shrunk considerably in recent years, with defined contribution (DC) schemes investing just eight per cent in 2024, according to government data.
This is projected to drop further to 3.5 per cent by 2030, putting UK growth at risk.
Consequences of low investment
The signatories argued the threat of under investment would cause small companies to struggle to attract capital, limiting their ability to expand and leading them to be acquired by oversea buyers, ultimately placing decisions of UK companies in the hands of non-domestic investors.
Listed companies also argued this would cause wealth created by British companies to be exported overseas rather than benefit UK citizens and national prosperity, while also becoming over reliant on overseas capital.
Signatories urged Reeves to “be bold” on pension scheme reforms to prevent this, urging her to go further than recent government efforts, such as the Mansion House Accord which saw 17 pension providers commit 10 per cent of their DC funds to UK private market assets by 2030.
It said: “Now is the time to back ourselves, ensuring British companies have the capital they need and that British savers benefit from the growth they help create.”
Designate UK funds
The FTSE companies called on Reeves to default 25 per cent of UK DC pension scheme funds into UK investments, through a requirement dubbed a “UK weighted” fund.
The policy would increase the default level of UK domestic pension investment by approximately £76bn by 2030 according to analysis by New Financial, providing businesses with access to deeper sources of UK capital.
Analysis also showed public support of increased DC investment, with 72 per cent saying they would support government action to encourage more domestic investment through their pension schemes.
The letter concluded: “We urge you to act decisively, securing prosperity for generations to come.”