The Guardian view on Labour's pension reforms: building on flawed foundations
When Otto von Bismarck introduced the world's first pension system in 1889, he could hardly have imagined the colossal wealth that people would one day save towards retirement. Britain's pension funds look after a collective £2tn, almost as much as the country's annual economic output. Rachel Reeves wants them to invest this money in regenerating decrepit infrastructure. The rationale for the chancellor's proposition is clear. So too are its flaws.
Ms Reeves will announce the full details of her plans this week. Her austere fiscal rules have given them a new urgency. Investment in Britain lags behind other G7 countries, and the government has been attempting to use other people's money as a substitute for more generous public spending. She hopes that retirement savings could provide a source. She has praised Canada and Australia's pension funds, which plough money into infrastructure at home and abroad, and wants Britain's smaller, sleepier funds to emulate this model.
Her instincts are understandable. Only 20% of the assets held in Britain's defined contribution pension funds are now invested in the UK. Many funds have instead gravitated towards the US market to take advantage of rising tech stocks. This is a missed opportunity. British pension funds should be investing in Britain for the simple reason that most of their beneficiaries live here. Doing so could also help protect people's retirement savings from currency fluctuations, and may become increasingly necessary if Donald Trump continues detonating the American stock market.
Even so, Ms Reeves's plan for a more national pension system rests on flawed foundations. She hopes that funds will invest more money into private markets that are dominated by asset managers. Many of these specialise in infrastructure, but they also charge steep fees, and there is growing evidence that their performance doesn't justify their huge expense. Even the World Economic Forum – hardly known for its radicalism – has observed that the private capital industry is organised so fund managers capture most of the profits. Britain's pensions system is already highly unequal, and many people, particularly women and minorities, have very poor cover. Pressuring funds to invest with financial middlemen who transfer a growing share of pensioners' money to themselves would be a mistake.
True, Ms Reeves has already proposed a partial solution: merge some funds so they're large enough to hire their own in-house professionals and skip these fees, as many Canadian and American funds already do. But there's still a bigger question about whether the Canadian approach is the right one to emulate. One only needs to witness the disastrous example of Thames Water, whose largest investor was the Ontario Municipal Employees' Retirement System, to see how this model of infrastructure investing can result in rent-seeking that degrades the public realm, even if some retirees benefit.
A better option would be allowing Labour's national wealth fund to issue its own bonds. These would sate pension funds' existing appetite for gilts and give the government greater control over investment. Most pension funds are extremely risk averse, and many don't want to invest in infrastructure until it's already built. Where this is the case, the government should be borrowing to fund such projects itself. It is worth remembering, after all, that an aversion to public investment was to blame for the ailing state of Britain's infrastructure in the first place.
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Times
16 minutes ago
- Times
Fact check: how accurate are Rachel Reeves's spending figures?
'The chancellor's speech was full of numbers, few of them useful,' said Paul Johnson, the head of the Institute for Fiscal Studies. Reeves's speech was political to the core — and that extended to her use of statistics. The chancellor appears to have used whichever numbers best suited her position, predominantly to inflate the scale of the government's spending plans. She used bigger, cumulative figures to highlight the scale of investments, rather than annual numbers, and cash increases stripped of their context. She also used Tory spending plans from before the election, which never came to pass, as the baseline for the biggest numbers in her speech. When it did not suit her she ignored the Tory spending plans. While none of the figures are technically inaccurate, economists argue that they are a statistical sleight of hand and that Reeves would be better off being consistent in her use of numbers. Spending going up The claim: The first number in Reeves's speech — bar her obligatory reference to the £22 billion 'black hole' she claims to have been left by the Tories — was the boast that 'in this spending review, total departmental budgets will grow by 2.3 per cent per year in real terms'. The reality: This figure includes spending announced at the budget last year, where there were some of the biggest increases. Over the next three years, total spending — combining day-to-day and investment — will increase by 1.5 per cent. Day-to-day spending will rise by 1.2 per cent a year for the rest of the parliament, about half the rate it rose this year. • More for public services The claim: Reeves promised to add '£190 billion more to the day-to-day running of our public services' as well as an extra £113 billion to public investment. The reality: This is a comparison with previous Conservative plans — dismissed as 'essentially fictitious' by Johnson — drawn up before the election to set a trap for Labour and allow Rishi Sunak to promise tax cuts. The Tory plans envisioned day-to-day spending rising by only about 1 per cent a year, and big cuts in capital spending. Reeves reversed these by changing her fiscal rules to allow more borrowing and is increasing infrastructure spending. But on an annual basis, capital spending will be £151.9 billion in 2029-30, £20.6 billion more in cash terms than it is now. Day-to-day spending will rise by £50.7 billion by 2028-29. More for schools The claim: Reeves said she was providing a 'cash uplift' of more than £4.5 billion for schools by the end of the spending review period. The reality: Context is everything. The Treasury concedes in the small print that the core budget for schools will rise by 0.4 per cent over the next three years. It says that when the cost of expanding free school meals is stripped out of the figures 'you get a real-terms freeze in the budget'. • Rachel Reeves is testing voters' patience … she needs results Backing innovation The claim: Reeves declared that the government was 'backing [Britain's] innovators, researchers and entrepreneurs' with research and development funding rising to a 'record high of £22 billion per year by the end of the spending review'. In a press release the government said that spending on research and development was £86 billion. The reality: Despite the rhetoric, this spending pledge represents a significant scaling back of the government's investment ambitions in research and development. The previous government pledged to hit the £22 billion target by this year and then delayed it until 2027. This target has now been put back even further to 2029. Indeed, the Department for Science, Innovation and Technology's budget will barely rise at all next year — far from the rhetoric of Reeves's statement. The £86 billion referred to in government press releases is a cumulative figure. More for social housing The claim: Reeves boasted of 'the biggest cash injection into social and affordable housing in 50 years', saying this would total £39 billion over ten years. The reality: The figure would represent almost a doubling of the £2.3 billion affordable homes programme. However, this spending ramps up slowly, reaching just £4 billion a year by the end of the parliament, leaving it to future chancellors to find ways of maintaining the spending. The overall capital budget for the housing ministry is actually flat over the spending review, with ministers relying on savings elsewhere — especially a reduction in the capital costs to councils of homes for asylum seekers. If these savings fail to materialise, painful decisions will be needed. NHS spending The claim: With health the big winner, Reeves boasted of 'an extra £29 billion per year for the day-to-day running of the health service' along with a 50 per cent boost in the NHS technology budget. The reality: The £29 billion figure is for NHS England specifically, and its budget will rise by 3 per cent a year in real terms, within a 2.8 per cent per year overall Department of Health rise. Capital budgets were increased last year but will be held flat for the rest of this parliament. Increasing technology spending further will therefore come at the cost of crumbling buildings or modern scanners and other kit. NHS leaders are already saying they will find it harder to shift to more modern, efficient treatments without extra equipment and buildings. Efficiency savings The claim: Reeves said the government had carried out a zero-based review of all government spending that would make public services 'more efficient and more productive' and, according to the Treasury, save £13 billion a year by 2029. The reality: These savings are, to put it charitably, extremely hypothetical and in some cases seem wildly optimistic. The NHS, the government thinks, will save nearly £9 billion from higher productivity — despite the fact that the health service has got less rather than more productive since Covid. And the culture department thinks it will save £9 million from 'digital reform' — despite the fact that the MoD, which is a much larger organisation, only thinks it can save £11 million. Overall the savings appear, at best, to be highly aspirational. But if they are not met, it will have a real-world impact on the amount of money the government has for public services.
NBC News
19 minutes ago
- NBC News
Some Los Angeles officials fear Marines' 'rules of force'
WASHINGTON — President Trump's deployment of thousands of troops to Los Angeles to quell protests, including 700 active-duty Marines, is fueling concern that the Marines have not been properly trained for interacting with civilians, including children, during potentially tense law enforcement operations. One of the duties of the Marines and National Guard troops will be to provide security for ICE personnel as they conduct immigration raids in the Los Angeles area, according to officials with knowledge of the operation and court filings. National Guard troops and Marines will transport ICE agents to and from raids and secure neighborhood perimeters while ICE agents conduct operations. California Democrats argue that this violates the Posse Comitatus Act, an 1878 law that bars federal troops from participating in civilian law enforcement efforts. California Attorney General Rob Bonta argued in a court motion on Tuesday that the Trump administration's deployment violates that law. 'The federalized National Guard and active-duty Marines deployed in Los Angeles will engage in quintessential law enforcement activity in violation of the PCA,' the motion said, referring to the Posse Comitatus Act. 'Defendants will create a substantial likelihood that the military will physically confront, detain, or search civilians whom they perceive are posing a security threat, thereby actively executing civil laws.' A military official with knowledge of the operation told NBC News that the Marines would not conduct arrests and would only transport and guard ICE agents. They said that these activities would not violate the Posse Comitatus Act. As with many other political battles since Trump took office, the issue will be decided in court. On Thursday afternoon, U.S. District Judge Charles Breyer will hold a hearing in San Francisco to hear arguments from both sides regarding Trump's use of the National Guard and Marines in L.A. Breyer could accept or reject Bonta's request that he issue a court order blocking the Trump Administration from using National Guard troops and Marines during ICE operations. Some local law enforcement officials and state Democrats say that Trump is stoking tensions rather than calming them. The National Guard is often used to respond to riots or violence on American streets. And active-duty Marines are not typically trained for domestic law enforcement and lack the tools or the training to respond to civil disturbances. Mike Hillman, a law enforcement consultant, military veteran and former Los Angeles Police Department Deputy Chief who served more than 40 years in the department, said there is a big difference between what law enforcement does and what Marines do. 'The Marines are warfighters and they come with rules of engagement and tools and equipment that they would normally use under those circumstances,' Hillman told NBC News. 'This situation has serious consequences. It puts the United States Marine Corps and the warfighters in the position where they are having to deal with domestic incidents on domestic soil.' Concerns about Marine 'rules of force' Some of the Marines deployed to Los Angeles will provide security and transportation for ICE personnel as they conduct operations. This includes driving ICE agents in military vehicles to arrest locations, according to two sources familiar with the plans. The Marines have been issued small cards that list 'rules of force' — terminology used for domestic military operations, the two sources said. The cards describe what Marines are allowed to do during a deployment. Two sources familiar with the planning say that ICE agents, as well as local officials in Los Angeles, have expressed concern about those rules of engagement. The sources said ICE agents worry that the Marines have not been properly trained and could be pulled into law enforcement operations for which local police or the National Guard is better suited. Jim McDonnell, the Los Angeles police chief, said in a statement on Monday that he was not notified of the Marine deployment and urged federal officials to maintain continuous communications with local law enforcement officials. 'The arrival of federal military forces in Los Angeles — absent clear coordination — presents a significant logistical and operational challenge for those of us charged with safeguarding this city,' he said. 'We are urging open and continuous lines of communication between all agencies to prevent confusion, avoid escalation, and ensure a coordinated, lawful, and orderly response during this critical time.' Warning from Rodney King riots An incident in Los Angeles during the 1992 riots following the police beating of Rodney King serves as a cautionary tale. According to the book, 'Fires and Furies,' by Maj. Gen. James Delk, who oversaw National Guard operations in California at the time, Marines caused an incident when they accompanied police officers to a domestic disturbance in the wake of the riots. A police officer asked the Marines to 'cover me' as he tried to enter the residence, according to the book. Instead of simply pointing their weapons at it to deter the people inside, the Marines opened fire on the house. 'The officer had not meant shoot when he yelled 'cover me' to the Marines,' Delk wrote. The officer meant, 'point your weapon and be prepared to respond if necessary. However, the Marines responded instantly in the way they had been trained, where 'cover me' means 'provide me with cover using firepower.'' California legal battle California Attorney General Bonta's motion asked Judge Breyer, the federal judge in San Francisco, to issue a temporary restraining order blocking the Trump Administration from using National Guard troops or Marines during ICE operations. 'Defendants, including President Trump and Secretary of Defense Hegseth have sought to bring military personnel and a 'warrior culture' to the streets of cities and towns where Americans work, go to school and raise their families,' Bonta wrote. On Tuesday, Department of Justice lawyers rebuffed Bonta's motion. 'Plaintiffs' motion is legally meritless,' they wrote in a filing. 'It seeks an extraordinary, unprecedented and dangerous court order.' Bonta's motion argued that the administration's actions, in fact, were dangerous. 'There is no invasion or rebellion in Los Angeles," it said, "only the kind of civil unrest that occurs from time to time that is typically the purview of local law enforcement.'
Daily Mail
22 minutes ago
- Daily Mail
KKR threat to NHS landlord: Don't give the barbarians a foothold in a sacred public service, says ALEX BRUMMER
Freed from the proposed £4billion rescue of Thames Water, private equity barons KKR have come fizzing back with an upgraded offer for NHS and private healthcare landlords Assura. KKR's latest and final bid of £1.7billion is only marginally better than that from listed rival Primary Health Properties (PHP) but is being recommended by Assura's board. The battle isn't necessarily over, with PHP still looking at options and claiming Chancellor Rachel Reeves's bonanza spending on the NHS as an ally. As has become customary when listed companies seek to vanish from the London stock market, there is extensive waffle from Assura about careful evaluation and fiduciary duty. The latter is investment banker-speak for running up the white flag. In cash terms, the KKR offer, at 52.1p a share, is barely better than the 51.7p bid from PHP. A 39 per cent premium may seem wonderful but given the depressed state of share valuations in London and a recent tech offer with a 96 per cent premium, the KKR deal is hardly effervescent. There is no obligation for Assura to accept either deal. A braver board would have told the private equity plunderers to get lost. Instead, it chose to disparage the alternative 'merger' with PHP, claiming financial and execution risk. The board also argues that the PHP offer would diminish Assura's efforts to support investment in the NHS estate. Who is Assura kidding? KKR fears too much exposure to regulated British assets and the political risk which comes with it as we learned when it pulled out of the near-complete Thames Water deal. Assura also needs to remind itself of how private equity works. Load up target companies with debt, squeeze costs, do some clever financial engineering with the leverage, raise prices or rents and head for the hills. A Government which better understood how highly indebted deals work might be cautious. A reading of the Competition & Markets Authority's work on veterinary services, revealing how the cost to pet owners and farmers has escalated, illustrates the dangers. More market-based private medicine in the UK eases pressure on the NHS. But allowing the barbarians a foothold in a sacred service is unacceptable even if it's wrapped up with tinsel and a bow. Sign of the Zodiac This week's pandemic of bids for Britain's tech crown jewels and skin care specialists rightly has been accompanied by much handwringing. How is it that companies born and bred in UK science and tech struggle to develop into national champions? After all, the City is second only to New York as a financial centre and is home to one of the world's biggest collection of banks and a strong venture capital industry. There ought to be no bars to start-ups or smaller listed firms accessing capital. Freeing up pension funds, allowing them to be more adventurous, ought to help. But swift market access to funding and liquidity is the key. That is why the launch of Pisces, the London Stock Exchange's platform for 'intermittent' capital, a place to come to raise funding and then vanish behind a privacy wall, is an important innovation. Stock exchange group boss David Schwimmer has been promoting the concept for years but freeing it from the weeds of regulatory bureaucracy is not easy. The insistence on broad-based disclosure rules threatened to sideline it. So it is good to learn that the Financial Conduct Authority, in keeping with the growth agenda, has dropped onerous transparency requirements on the environment, shareholder transactions and director pay. These threatened to strangle Pisces at birth. Let the fundraising begin before the rush to the door of UK tech and AI becomes a stampede. Peer pressure It has become something of a thing for Chancellors to name-check colleagues when delivering grand financial statements to the Commons. Rachel Reeves set a record with her pledges to spend, spend, spend in Labour constituencies in the North, Midlands, Scotland and Wales. Lonely Weymouth was the only southern town to receive much of a mention. Unlike Southport, it already has a serviceable pier.
