'Labour faces a big dilemma as they eye up pension funds as tax revenue opportunity' - John Redwood
John Redwood says the Chancellor's first statement on the budget outlook was a "bad start for investment-led growth"
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The government with a politically contrived black hole in its finances and an insatiable wish to spend is considering who to raid next to pay the bills.
Pensioners seem to be an easy target as they are not covered by Labour's carefully worded tax promises for working people in the election.
We have already been told pensioners will lose their Winter Fuel Payment if they are not on benefits. Should they make people and their employers pay more for their future pensions? Should they change the tax-free sum people can take out when they retire?
The government faces a big dilemma. Looking at the large sums in aggregate in pension funds, they see an opportunity for more tax revenue.
They also see huge amounts of investment money that they think could do more to boost UK growth.
If only the managers of those funds would see the opportunities in UK-based utility and private equity investment instead of buying foreign shares and piles of UK government bonds, the UK could build more homes and wind farms.
Let us suppose Plan A, going for faster growth, has, in the Chancellor's mind at least, survived the first month's encounter with the realities.
The big idea is to speed up growth so more tax revenue will pour in naturally as more people in more jobs pay more income tax, National Insurance and VAT.
Labour can then afford more state investment and better wages for public sector workers.
That, she argues, needs a big surge in investment in everything from more power stations and grid to many new and bigger water pipes, more digital success stories, more trains and many more houses.
The Chancellor needs to ask herself why more of this has not already been happening.
She seems to think doubling down on Treasury disciplines will create stability which will lead private investors to rush to invest their monies here.
There is no evidence that will happen.
The grim record of Treasury orthodoxy is more austerity.
The UK in the last month has not projected an image of stability, with riots highlighted by the government in every news broadcast.
The Chancellor herself has allowed rumours to run of coming tax rises on capital gains and maybe some profits deemed excessive, higher contributions by employers to pensions, more regulation of online businesses, a further toughening of rules on letting out homes and more tax and intervention in our dear energy markets.
None of this will help a foreign investor rush to buy UK investments or persuade a UK pension manager to sell the bonds and co-invest with the government in carbon capture and storage or a hydrogen plant.
So the government turns as well to see if it can amalgamate pension funds prior to influencing if not directing them.
It wants them to take more risks by buying all these new UK assets the government wants to promote.
They argue that if funds were bigger, covering more people, they could take more risk with a portion of the money.
The problem is these riskier investments cost a lot more money to manage contrary to continuous regulatory pressure on managers to keep fees down.
The Government also runs into the brick wall of Trustee responsibility who need to control risks and make sure funds are liquid enough to pay out the pensions on time whatever the level of markets.
It might need contentious legislation to take power to direct investment in the way it wishes.
The government will discover a simple truth about investing.
People and pension funds invest when they see an opportunity for profit.
If they think a government will tax excess profits leaving them with the losses, that makes it less attractive.
If the new assets on offer are highly regulated, with plenty of upfront costs and a long time to await positive returns, why would people freely invest without government incentives and guarantees?
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New nuclear power stations, large pipe networks under all our roads, and new markets like hydrogen and carbon capture all require great regulatory clarity and the development of tradable investments with realistic return opportunities.
The government has not thought through how you do any of this. It is all too likely the growth take-off in investment will not materialise and the Chancellor will be dragged more into tax decisions that put more off investing in the UK.
Her first statement on the budget outlook did the opposite of the growth plan. It cut some public sector investment to pay higher wages unmatched by productivity improvements.
That was a bad start for investment-led growth.