The public don’t generally like to think of their pension as risky, so it’s always a surprise when a politician argues that the issue with management of pension funds is that there isn’t enough risk-taking. But this is the view of UK Chancellor Jeremy Hunt, who argued recently that this is one of the ways to unlock investment in potential ‘high growth UK businesses’. 

This week’s New Economy Brief looks at the debate over pension investments, including the growth of overseas ownership of UK businesses and infrastructure, and alternatives to the drive to leverage more private investment.

Pension funds aren’t investing in the UK. UK pension schemes are some of the biggest sources of capital for British companies, but according to the FT funds have been moving away from investing in the UK stock market, and more UK firms are listing overseas. Prominent business figures such as Nicholas Lyons, Lord Mayor of the City of London, have urged Chancellor Jeremy Hunt to compel more capital from UK pension funds into growing domestic companies and infrastructure

  • Who owns our companies? If UK pension funds don’t own UK shares, then who does? Pension fund demand for UK equities has fallen by £400bn since 1997. A report published in 2022 from the TUC, Common Wealth and the High Pay Centre finds that the proportion of UK shares held directly by UK pension funds decreased from almost 1 in 3 in 1990 to less than 1 in 25 in 2018. Most UK shares are now held by overseas investors, with the proportion rising from 12% to 55% during the same period. When accounting for direct and indirect ownership through pooled funds, UK pension funds own less than 6% of UK shares.

Chancellor urges pensions to make ‘riskier’ investments. Pensions funds have been making less ‘risky’ investments since the shift from defined-benefit to defined-contribution schemes, meaning more money has shifted from company equities and into government bonds. The government is due to publish new measures in the Autumn Statement to “unlock productive investment” from defined-contribution pension funds to enable more financing for high-growth companies and make the London Stock Exchange a more attractive place to list businesses. This could include pooling of Britain's ~28,000 fragmented defined-contribution schemes so they are consolidated in larger funds and ‘mandating’ pension funds to make certain investments. 

But is private investment necessarily the solution? British companies and infrastructure certainly need more investment, and both major parties have suggested mobilising private capital from pension funds as a way to revitalise the country’s infrastructure and grow the economy. However, Common Wealth’s Mat Lawrence argues that mobilising private capital can lock in extractive behaviours as investors seek ever higher returns, which could encourage profiteering from UK infrastructure and the green economy.

Neglecting the role of public finance. State-backed investment banks are one route to providing finance where private banks may be reluctant to do so – in disadvantaged regions, new technologies or in sectors where returns are either too low or too risky.

  • Patient capital and innovation. National investment banks are particularly valuable for providing 'patient' capital: long-term finance that is beyond the time horizon of most commercial banking but which is essential for innovation and strategic economic development. Economist Mariana Mazzucato explains why patient capital delivered through state-funded investment or development banks allows investors to take more risk (necessary for green innovation) as they are not required to pay dividends to private stakeholders, can meet more ‘public good’ objectives, and “can set conditions for access to their capital in an effort to maximise economic or social value to their home country.” 
  • National investment banks. The UK is unique among major advanced economies in not having a national investment bank. Advocates argue that such a bank would increase investment in innovation and support major mission-focused industrial transformations, such as building a green economy. UCL's Institute for Innovation and Public Purpose has examined the role which publicly-owned investment banks have played in a variety of countries to provide patient finance for innovation and business development, and proposed the creation of a UK National Investment Bank. The centre-right think tank Onward has also called for the establishment of a national investment bank, arguing that this could unlock £16 billion in capital for investment in small and medium sized businesses, municipal infrastructure and project finance to level up lagging regions. The Scottish Government established the Scottish National Investment Bank in 2020.  
  • Improving the UK Infrastructure Bank (UKIB). The UKIB is an Arm’s Length Body of HM Treasury, but is on track to deliver “barely a fifth of the financial support the European Investment Bank provided before Brexit” and is set to miss its annual investment target according to a recent report by the OBR. The UCL Institute for Innovation and Public Policy’s Thomas Marois analysed how the UKIB compares with other national infrastructure banks in Germany and Canada. The author notes the “remarkably little” investment given to the bank by HMT (£1.5bn annually) and a “fraught public-private partnership strategy that often costs taxpayers more while delivering less.” He concludes that the new bank is “anchored to past ‘market-failure’ approaches rather than a future where public banks, public purpose, and citizen engagement provide credible and innovative solutions to green and just transitions for people and planet.”
  • More resources. Read our resource bank page for more on public finance institutions that can support economic development and another on how to rethink finance for business investment.
Weekly Updates


‘Climateflation’ and the price of food. Commenting on the latest inflation figures showing the price of food and non-alcoholic drinks rising to 19.1% in March, Positive Money have produced a video explaining how the climate crisis is disrupting food supplies and pushing up prices. (Economist James Meadway has also recently explained the drivers of food price inflation: “a grim combo of profiteering & ecological crisis".)

Public services

Universal public services. Economic anthropologist Jason Hickel has written a blog explaining how “universal public services are crucial to a just and effective transition” to a more sustainable economy and they should be “core demands of a united climate and labour movement”. 

Industrial strategy

Tracking job creation in the ‘green arms race’. Researcher Jack Conness has produced a dashboard tracking investments made and total jobs created under the USA's Inflation Reduction Act (IRA) and CHIPS and Science Act (CHIPS). (Read our previous Digest explaining how the UK can catch up in the race for green industrial strategy.)

Housing and inequalities

The impacts of the housing crisis on people of different ethnicities. Since 2001, ethnic minority households have been around a quarter less likely to own their own homes than the national average. New research from Positive Money documents the growing inequalities in the UK’s housing system.

Why class matters in economics. The Working Class Economist Group’s Níall Glynn has explained “why class matters in economics and why it needs to be brought to the front and centre of the discipline” to ensure policymaking reflects everyday experience.

Local economies

New data on core deprivation metrics in cities, towns and regions of England. Autonomy have launched a new Annual deprivation index for neighbourhoods in England, providing policy-making institutions with timely access to more contemporary information on deprivation than the Index of Multiple Deprivation. (You can read their working paper on their methodology here.)