Politics

Coverage of the Government’s ‘productive finance’ agenda,  heralded at the 2023 Mansion House speech, has naturally focused on the reforms proposed to pension schemes: beefing up UK pension schemes to allow a smaller number of bigger schemes to deploy economies of scale, thereby increasing flows of investment into UK companies. 

But the supply side of the Government’s programme is equally interesting. What has emerged in recent years, in fits and starts, is a constellation of ‘productive finance’ Institutions, such as the UK Infrastructure Bank, the British Business Bank and the Long-Term Investment for Technology Science initiative (LIFTS). The UK state increasingly resembles in content – if perhaps not yet in substance – the post-war modernisation states of Western Europe rather than the small-state vision more closely associated with the original Brexit vision. 

After the devastation of the Second World War, the centre-right parties governing in most European countries followed a common template to rebuild their economies. They set up state investment banks to direct investments into promising sectors and they forced consolidation on small scale national players so they would be more competitive on export markets. They also provided detailed regularly updated guidance on future scheduled public investment in infrastructure to ‘crowd in’ private sector investors.

A paradox of Brexit is that the UK state is modernising in ways that make it look far more like other European states. Countries such as France, Germany and Italy continue to deploy the kind of tools which the UK is now developing – although often on a more substantial scale, since the institutions are far more embedded in the state structure and have acquired significant resources over time.

Inside the EU’s single market, the UK specialised as a more liberal market, which attracted investment capital that originated in other, more statist member states. International financial centres compete on scale and the City of London benefited from a European ‘Hinterland.’ But Brexit has reduced those flows into the City. The UK, therefore, needs to build up other specialisms whilst also defending its position as a global financial centre. In order to achieve this, new domestic capital investment is needed. This is what encourages the British Government to adopt the interventionist tools mentioned above. 

The UK occupational pensions system is large in absolute terms, but has, historically, long been a cottage industry – one defined by fragmentation. Now, the Government wants to consolidate the market into a handful of players. This should benefit pension savers, but the Government also has its eye on another prize: larger pools of capital with the scale that makes investing significant sums across a wider range of UK projects a natural consequence of prudent asset allocation. The hope is for a win-win for investees and also for savers.

 Encouraging consolidation of occupational pension providers is good international practice. But is encouragement enough? To deliver the win-win situation on any reasonable timescale likely demands bolder action. The Government’s own analysis shows that, to deliver good returns to pension funds, the cost of investment must come down sharply. The most feasible way to achieve this is – again – through economies of scale. To complete its reform, the government should therefore ask workplace pension schemes to set up a collective investment vehicle to invest in private markets. It would have the scale to negotiate lower fees with existing private equity providers or conduct the investment programme itself in conjunction with the state development banks which have already been set up.

In Australia, the industry pension schemes created a collective vehicle – IFM Investors – to invest on their joint behalf in infrastructure and more recently in private equity. It is now one of the world’s largest infrastructure investors. With Australia increasingly seen as a pension model for the UK to follow, this is perhaps the cardinal lesson: pension funds, by pooling their resources together, can make the ambition of the Mansion House speech a reality.

Gregg McClymont is the Executive Director of Public Affairs, Policy & Strategy at IFM Investors and Former Shadow Pensions Minister.

Views expressed in this article are those of the author, and not necessarily those of Bright Blue. 

The last few years have been undeniably challenging for the country and the world, with a pandemic, a major land war in Europe and an economic crisis. For charities, it has also been a time of challenge – but it has also demonstrated the importance of voluntary action.

When the pandemic hit, charities kept delivering services, they provided support to both Afghan and Ukrainian refugees and helped address the fallout of global instability – often having to adapt quickly and innovate to find a new way of doing things. 

And alongside this, many were worrying about their own futures – particularly those reliant on event fundraising and trading activity. The cancellation of the London Marathon alone represented an estimated £70 million loss to the sector, whilst the Charity Retail Association estimated that charity shops lost over £285 million in sales over COVID-19.

Arguably the biggest challenge of all has been adapting to soaring inflation, leaving many charities with spiralling costs at a time when they are also helping more people in financial crises. The adaptability and resilience that charities have shown throughout has been nothing short of remarkable.

Indeed, charities have had some help. The generosity of the British public has remained steadfast throughout. However, rather  worryingly, the Charities Aid Foundation’s UK Giving Report from this year revealed that a quarter of people had changed their giving activity or were considering doing so in response to the cost-of-living crisis. Even where people have been able to continue to give the same rates, they will have seen the value of that donation significantly eroded by inflation.

Government has also been supportive, providing a £750 million package for the sector in response to the pandemic, while charities benefited from many of the wider measures to support business; particularly the furlough scheme. And it has also responded to the financial challenges facing charities, with the Energy Bill Relief Scheme helping non-domestic energy users, including charities, and a £100 million scheme announced in the 2023 Spring Budget to support organisations facing additional demand because of inflationary pressures.

This level of support is very welcome, but it should make us think about why this sort of support exists. Ultimately, both during the pandemic and over the last year, the Government has been prepared to invest money in charities because it knows it will get a good return. Voluntary organisations are committed to delivering the maximum possible impact even in the most trying of times.

But while people are only too aware of how charities have stepped up in times of crisis, there remains a lack of understanding of the crucial role they play, underpinning social bonds and promoting opportunity.

When we talk to politicians, they may know that a charity is supporting their local community, but they do not always make the link to the way charities support both the local and national economy.

We can quantify some of the direct contributions that charities make to the economy – the former Head of the Levelling Up Taskforce and founder of Pro Bono Economics, Andy Haldane, estimated that the sector’s contribution to social value is as much as £200 billion. Charities are also a significant employer, providing jobs for nearly a million people in the UK.

And when you look beyond those headline numbers, there are many broader ways that the sector plays a crucial role in supporting the economy and driving growth: from making communities better places to live to directly supporting unemployed people into work. Indeed, the Levelling Up White Paper recognised the necessity of social capital alongside more conventional levers for growth, but the Government still has much to do to maximise the potential of the sector in delivering regional economic growth.

The importance of the voluntary sector can perhaps be most clearly recognised in its absence. Research by the Local Trust and Oxford Consultants for Social Inclusion (OCSI) identified that deprived areas that lack places to meet, are missing an active and engaged community and have poor connectivity to the wider community – all services provided by charities – also have higher rates of unemployment, ill health and child poverty than similarly deprived areas.

Charities, of course, are not the only answer. We need businesses to create jobs, innovate and drive investment. But the UK looks like a better investment when we have communities that make the most of our talent and entrepreneurialism, that help people to enter or re-enter the labour market and that make sure all our communities are good places to thrive as a family.

The Government has already shown that it values the work of charities when we are dealing with immediate crises, but a stronger partnership between government and the voluntary sector feels essential to achieving long-term sustainable growth.

Sarah Vibert is the Chief Executive Officer of NCVO.

This article was published in the latest edition of Centre Write. Views expressed in this article are those of the author, and not necessarily those of Bright Blue. 

Read more from our August 2023 Centre Write magazine, ‘Back to business?’ here.

Every new technological revolution brings with it the same existential question about the future of work: is a robot going to take my job? In the past, it was the relatively routine work in agriculture, manufacturing and the service sector that got replaced by physical machines, robots and computers. 

But today, well-paid roles in finance, tech and publishing are at most risk of disruption, and not from physical machines, but digital ones: artificial and remote intelligence.

Advances in artificial intelligence (AI) capabilities are now exponential, and it is not just their pace that we need to be aware of, but also the breadth of their application. 

Many of these developments are to be welcomed. They have the potential to make the world of work more productive. Teachers are using AI to create work plans and personalise learning, lawyers are piloting it to automate and enhance contract analysis, due diligence and regulatory compliance and developers are using it to auto-generate new software code.

But there are concerns too. Millions of professional service jobs could be at risk of automation. GPT4 can learn to trick humans, making online fraud and harassment easier and more widespread, autonomous AI bots can be used to undermine national security, and this is all before we get to the potential for super-intelligent, God-like AI that poses catastrophic risks for humanity.

Fifty years ago, the development of the first silicon microchips transformed computing power and ultimately kickstarted the ICT revolution, leading to rapid deindustrialisation through the 1970s and 1980s. While we were quick to embrace the productivity power of new technologies, we did not do enough to help individuals and their communities adapt to the new realities – that meant manual and clerical jobs were automated or offshored overnight. 

Half a century on, recent developments in AI suggest this wave of technology may be different, as AI systems are capable of automating the non-routine tasks of white-collar workers. The UK’s high-productivity services sector could be threatened by AI, with the potential to push down the global cost of these services by making it easier and quicker to provide them by competitors across the world. But this time, we have the chance to learn from our past mistakes.

Goldman Sachs recently forecast that around 24 million jobs in the UK will be exposed to automation, and that 25% of work tasks could be automated with existing AI technology. Other studies suggest jobs requiring a bachelor’s degree could be most affected, with over 30% of them expected to have at least 50% of their tasks exposed to large language models such as GPT4. 

Indeed, AI is already disrupting the jobs market. It is being used to determine gig workers’ pay and hours, and to hire, monitor and manage office workers. BT and IBM are among the companies that have announced that tens of thousands of employee roles will be replaced by AI, with BT planning to replace 10,000 roles and IBM planning to replace 7,800. Examples of highly exposed jobs include information services, finance, publishing and telecommunications. We are highly dependent on services and creative exports — areas already being disrupted by generative AI and easily automatable under the even more sophisticated artificial general intelligence (AGI).

To ensure AI is a tool to support workers and not a threat to their jobs, the Government must focus on three areas. 

First, it must produce regular reports – potentially powered by AI – forecasting the expected impact of AI on the domestic and global jobs market. 

Second, an AI training fund is needed to incentivise business and support people to learn to use AI as a productivity tool in their daily jobs or help them retrain for new roles. This training should be delivered by AI-enabled personalised learning and a digital learner ID that links formal and informal qualifications. 

Third, the Government ought to introduce a new era of digital workers’ rights that enable businesses and workers to use tech to support their wellbeing and productivity. 

It is easy to dismiss new tech as a passing fad: web3, NFTs and crypto each were the future once. However, AI has the potential to be radically different, affecting everything, everywhere, all at once. The tech revolution is happening to our economy, to our jobs and to our politics, whether we are prepared for it or not. We can benefit from it, but only if we act with intent.

Jeegar Kakkad is the Director of Future of Britain Policy at the Tony Blair Institute for Global Change

This article was published in the latest edition of Centre Write. Views expressed in this article are those of the author, and not necessarily those of Bright Blue. 

Read more from our August 2023 Centre Write magazine, ‘Back to business?’ here.