Pension Investment in UK Equities

Debate between John Glen and Kit Malthouse

Tuesday 25th November 2025 Westminster Hall

[John Glen (Salisbury) (Con)]

I beg to move,

That this House has considered pension investment in UK equities.

It is a pleasure to serve under your chairship, Mr Stringer. I think all hon. Members would agree that UK pension funds are hugely important, primarily to the millions of future pensioners, but also to the many scale-up businesses that are seeking additional investment and need extra capital for growth. They are also an important part of the UK’s capital markets more broadly.

The UK has the second largest pool of pension capital in the world, but only 4% of it is allocated to UK assets. UK defined contribution pension scheme assets are set to grow from around £500 billion in 2021 to £1 trillion by 2030, an increase of 100% over nine years, and that growth will accelerate faster beyond that date. The key issue I wish to focus on is how we are to regulate, manage and enable the future form of that pool of capital, and the appropriate oversight of regulators or Government—if any—of the way it is managed.

As I think all Members want, the Government have stressed the growth imperative and its prioritisation, but under-investment in the UK economy will be a significant dampener on growth. Over the past 25 years, allocation to UK equities by UK pension funds has fallen from more than 50% to 4.4%. Since the global financial crisis, the UK has under-invested, both in absolute terms and compared with our G7 peers. Our investment-to-GDP ratio is around 17% to 18%, compared with our peers’ 20% to 25%. That investment gap accounts for around £100 billion.

The Government have introduced meaningful reforms. The closure of defined benefit schemes has resulted in large amounts of capital being moved from equities to bonds. Although that was a rational response to match the profile of obligations of those schemes, it is questionable whether it is optimal for the wider economy. That eagerness to match payouts to known obligations of a defined population has perhaps encouraged a lack of ambition in investment in the wider economy.

What has happened progressively with DC scheme regulation is passive tracking rather than active investment. We have prioritised the minimisation of costs over returns. That has incentivised more and more funds to invest in cheap asset classes, almost alternating their investments, with fixed income, property and indexed funds being used. That is very frustrating, because over the past decade we reached consensus on auto-enrolment, and there was an emphasis on saying, “Oh, we mustn’t have any fat-cat fund managers taking too-big fees”. There was an anxiety about that, which drove an oversimplification of automated fund management. It allowed everyone to say, “The fees are very low”, but we did not have the right focus on performance and whether we were investing in the right things in the economy. It is obviously cheapest for a fund to go to passive, as it does not require active management and the skills that come with it.

There have been previous fundamental reforms, such as the removal of dividend tax credits. Before 1997, when a UK company paid a dividend, it was accompanied by a tax credit, and pension funds could reclaim that credit in cash from His Majesty’s Revenue and Customs. That meant that pension funds effectively received dividends gross of tax, boosting their investment returns. That reduced the effective yield on UK equities held by pension funds by around 20%, which was then the tax credit rate. There have been changes, with ISAs introduced in 1999 and self-invested personal pensions being widened in 2006, but this has removed the focus on UK investment.

[Kit Malthouse (North West Hampshire) (Con)]

My right hon. Friend makes an interesting point about the change from defined benefit to defined contribution and the impact of the taxation changes that brought that about. Would he care to comment on whether he sees that as part of an unwitting repricing of the return on risk, which has impacted not only on pension funds, but more widely? He said that pension fund investment in the market is down, but retail investment in the market overall is also down very significantly. It feels like the British people as a whole have lost their appetite for risk, and that might be because the return on risk is now too highly taxed.

[John Glen]

Perhaps unsurprisingly, my right hon. Friend anticipates an argument that I am going to move on to about the wider culture of awareness of where investments are happening in our pensions, how important that is, and how we need to be cognisant of the gap that exists.

Stamp Duty Land Tax

Debate between John Glen and Kit Malthouse

Tuesday 28th October 2025 Commons Chamber

[Kit Malthouse]

I understand the hon. Gentleman’s hope for the next generation, and I completely agree with him. As somebody with three children, I hope they get the same housing opportunities and economic opportunities as I did. Sadly, given how the housing market has gone and is going, it does not look as if that will be the case, but he neatly makes the point that I made in opening my speech. To get young people on the housing ladder, a subsidy scheme would see us come full circle. Instead, we should think again about how we can have a deregulated free market that functions for them and allows the houses to be built that can accommodate them. Taking tax off young people and then giving it back in the form of housing subsidy is nonsensical.

To return to my point on the supply chain, thousands of small builders around the country are desperate for this kind of work and are seeing the housing market stagnating and their work reducing. Worse than that, in areas of high property value, those who do have capital decide, instead of moving, to build down, up or out. We therefore get densification, particularly in areas such as central London, which often causes significant problems.

Moving on, this tax does not work very well for Government either. First, as Members will know, it is pro-cyclical and crashes when the Government need it most. During the 2007-08 crash, stamp duty receipts fell by 60%. We saw a surge in stamp duty receipts during the window a year or so ago, but since then, they have been falling significantly. The Chancellor, who is facing significant fiscal problems, will see that fall even further, so the tax does not work for Government on that basis.

Secondly, stamp duty is a bad tax because of its salience. Economists have this idea that taxes have a salience, which is how much people notice they are being taken. VAT has low salience, because we do not really notice it. It is in the prices that we pay. Income tax and pay-as-you-earn have low salience. Stamp duty is enormously noticeable at a moment when people are making a huge decision about their lives. They are trying to progress their families and wham, here come the Government saying, “We are going to have a slice of your wealth.”

[John Glen (Salisbury) (Con)]

My right hon. Friend is making a brilliant speech. On salience, does he acknowledge that stamp duty has had a particularly pronounced effect in the capital, particularly for those who come to this country to invest here and create jobs? One of the prime reasons we have seen such a significant number—perhaps 16,000 people—leave this country is the incidence of that tax in the capital.

[Kit Malthouse]

My right hon. Friend is completely right, and he makes a powerful point. Anybody, whether overseas or here, who comes anywhere in the country, but particularly to London and the south-east, and wants to make a significant purchase is immediately presented with a massive bill that cannot be borrowed. It comes out of any equity that they may have spare lying around or that they may have saved up for years to build towards their housing decision. For the Government to show up and take it at that moment of significance in anybody’s life is extremely damaging. It is the same when the Government show up on the death of a relative and say, “We will take our slice.” Such taxes have enormous salience. As a result, stamp duty and inheritance tax are easily the two most unpopular taxes in the country.