06-05-2025
Once again, the Government is being reckless with people's money
The Government's financial illiteracy is glaring, almost breathtaking in its scope. It is, sadly, the hallmark of socialist administrations – an undisciplined, reflexive habit of spending without any real understanding of where the money will come from. These governments are often blind to the fact that real wealth creation, the kind that drives a flourishing economy, depends on a thriving private sector.
Instead, when the economy starts to stutter, they scramble to plug the gaps. What follows is a grotesque mix of ignorance, panic and, eventually, a full-on retreat into the only playbook they know: state-sponsored kleptocracy. The one consolation in the UK is that our kleptocrats are housed in Whitehall, not in the pockets of oligarchs with private armies.
This current administration has gleaned a few lessons from the mistakes of its predecessors – chiefly that a strong economy is a non-negotiable necessity. As Paul Krugman, the Nobel Prize-winning economist, put it: 'Productivity isn't everything, but in the long run, it is almost everything.' And yet, for all its fine words about a strong economy, the Government seems woefully short on the means to achieve the very productivity gains they know are critical.
Then, there are the regulators – an ever-present feature of any socialist government. Armed with the powers bestowed upon them by misguided, over-elaborate, ill thought-out Acts of Parliament, it feels as though they make rules not to solve problems, but simply to appear as if they are doing something. And in their zeal to regulate, they wreak havoc on the private sector, ignoring the real-world consequences of their actions. The saga of the FSA and FCA since the Financial Services and Markets Act of 2000 is a case in point. When regulators run riot, the results are nothing short of disastrous as they have been for the London Stock Market in terms of shrinking capitalisation since 1997.
Consider the downfall of Woodford Investment Management. The FCA, in its infinite wisdom, accused Neil Woodford of failing to manage liquidity in his fund – a claim that ultimately led to the fund's collapse. The story is a classic case of regulatory overreach. Initially, Woodford's fund held around 10 per cent in private long term investments. But as large withdrawals drained the fund, it was forced to sell off its more liquid assets, leaving the illiquid ones behind.
This skewed the fund's liquidity balance, but it was the FCA's interpretation of the FSMA 2000 rules hand in glove with the fund's administrator, Link Fund Solutions, that triggered the suspension. Investors saw their losses crystallised and money disappear, and Woodford, furious, described Link Fund Solutions' decision to liquidate as one that 'I cannot accept, nor believe is in the long-term interests of investors.' The real victims here, of course, were the investors, who saw their capital evaporate thanks to the regulatory juggernaut that couldn't see beyond its own rules.
Now, in an ironic twist, this Government – so quick to legislate with little thought for the consequences – is pushing through plans that would force pension funds to allocate 10 per cent of their portfolios to private, illiquid investments under the so-called Mansion House reforms. These funds, remember, are not government money – they belong to individual savers. Pension companies are legally obligated to act in the best interests of those savers, not to prop up a failing economy. This is not theft, but investors should certainly be cautious. If pension fund managers are no longer prioritising their clients' interests, that's a red flag.
The Government, it seems, is in direct conflict with the principles laid out by previous administrations – principles that were designed to protect investors. FCA Principle 6, for example, states that firms must pay 'due regard to the interests of their customers and treat them fairly.' It's a simple, yet vital rule: businesses must act in the best interests of their clients.
The real question is, when will they learn that real prosperity comes not from the state's intervention, but from a flourishing, free market? Communism's failure to deliver through flawed central planning and a disregard for the power of individual entrepreneurs should be a recent example of the failure of statist diktat. History is littered with them.
Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
