UK to encourage more pension investment in start-ups

The UK government wants to encourage more pension funds to make long-term investments in the country’s economy.

Chancellor Philip Hammond, head of the Treasury department, presented his latest national Budget report to parliament today and pledged to “unlock over £20bn” (€22.6bn) for “scale-up businesses” in the UK.

As part of this move, the Treasury’s Budget report stated that the Pensions Regulator “will clarify guidance on investments with long-term investment horizons”.

“With over £2trn in UK pension funds, small changes in investment have the potential to transform the supply of capital to innovative firms,” the chancellor’s report said.

In connection with this policy, the Treasury also published the findings of the Patient Capital Review, set up a year ago to investigate how to improve UK companies’ access to long-term capital.

The recommendations included the launch of a Patient Capital Investment Vehicle aimed at investing £1bn a year in venture capital funds and high-growth businesses.

The review’s panel also recommended the introduction of a lending vehicle for start-up businesses modelled on the US ‘small business investment company’ structure, and an extension to the size restrictions on venture capital funds and enterprise investment schemes, the UK’s two main vehicles for investing in start-ups and small, unlisted companies.

Away from the investment side of the report, the Treasury also unveiled budget cuts for the Department for Work and Pensions (DWP) and the Department for Communities and Local Government, which oversees the UK’s £260bn local government pension scheme (LGPS).

The DWP’s budget will shrink by nearly 13% by the 2019-20 financial year, the Budget report stated, from £6.2bn in the current year to £5.4bn.

The resources available for local government will be slashed from £6.7bn this year to £4.8bn in 2018-19, the report showed – a cut of more than 28% – in the same year that the LGPS asset pools are expected to open for business. However, this budget will be raised in 2019-20 to £5.6bn, the Treasury indicated.