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Investors that manage £1.7tn of assets have urged UK chancellor Rachel Reeves to revamp Britain’s fiscal rules to unlock billions of pounds of more funding for infrastructure projects.
The group of pension investors including Australia’s IFM and the UK’s Universities Superannuation Scheme called on Reeves to redefine the key debt measure in her Budget rules.
They said the UK’s “public sector net debt” measure should be changed to recognise the financial value of assets created by government spending on infrastructure and green energy projects.
The move would give an incentive to the government to spend more on infrastructure, and potentially unlock billions in extra future spending from pension groups, which prefer investing alongside states to reduce their risk.
“The UK state is actively discouraged by its own debt rules from co-investing with pension funds . . . in infrastructure projects,” said Gregg McClymont, executive director at IFM, whose UK investments include Manchester Airport Group and Anglian Water.
The UK’s current public sector net debt measure does not account for the value of assets the government invests in.
“Public sector net debt actively discourages co-investments on the government side of the table since it treats a pound spent on acquiring productive assets the same as a pound lost down the back of the proverbial sofa,” McClymont said.
The intervention adds to a growing chorus of voices calling for a change to the rules, including former cabinet secretary Lord Gus O’Donnell.
Reeves has said she will stick to the constraining rule that the ratio of debt to GDP must be forecast to be falling in five years, but hinted at the Labour party conference last month that she was open to reforming the definition of debt if it would help encourage investment.
The group will meet Treasury officials on Wednesday to pitch a new blueprint for how the UK can achieve its net zero climate ambitions, with a change of the fiscal rules its key priority to stimulate investment. The Treasury was approached for comment.
“We’re delighted to be involved with this important blueprint . . . the policy options offer the opportunity of better aligning pension scheme interests and capital with the government’s net zero ambitions,” said Carol Young, chief executive at USS, which has invested in Heathrow and motorway service area operator Moto.
The government has said it wants the taxpayer to profit from the success of new green technologies by taking stakes alongside private capital in Great British Energy projects, a new state-owned energy investment company.
But as the rules stand, government money spent on GBE would only be treated as a liability on the government’s balance sheet, pushing up public net debt.
Infrastructure and clean energy projects are particularly attractive for pension funds because they provide a steady stream of income.
Other countries, such as those in the EU, have avoided making the cost of big infrastructure projects a drag on fiscal rules by using a narrower definition of debt, McClymont said.
“The capital investment levels that these economies have enjoyed versus [the] UK over a long period of time is likely not unrelated to [the] fact that their national finance institutions . . . are incentivised to make long-term investments in the economy,” he added.
The government will host an international investment summit in London next week, at which Reeves and Prime Minister Sir Keir Starmer will promise to invest alongside the private sector on projects to boost the UK’s sluggish growth rate.
