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This article was first published in POLITICO's Financial Services Pro newsletter.
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INVESTMENT
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NCC PUSHES BURNHAM TO STOP CAPITAL FLIGHT: The New Capital Consensus think tank today called on Prime Minister Andy Burnham to stop pension funds “giving the US all our money.”
What they want: In a new report this morning, NCC suggested two new taxes to push investment in U.K. productive assets, including an exit tax of around 10 percent on accumulated gains in defined contribution funds unless the fund held at least 30 percent in U.K. productive assets. That would be paired with dividend tax relief for funds that hold at least 10 percent in U.K. regional productive assets, which would be designed to be revenue neutral.
Why why why: The think tank argued that “concentration of our pensioners’ assets in 6 or 7 US tech stocks creates a systemic risk in and of itself, exacerbated by the SpaceX IPO,” while pumping money into U.S. tech firms has allowed them to leverage their high valuations to buy up British fledging businesses.
Get out of trading: The report noted that as recently as 2005, high-frequency trading accounted for less than a fifth of U.S. equity-market turnover by volume, whereas today it accounts for between two-thirds and three-quarters. It argued that pension fund cash shouldn’t back market-making trading and should be flowing into productive assets instead.
Along with tax: The report also suggested creating a disclosure regime on productive investment in funds, so savers know how much of their cash is going into the sector, and asked the Treasury to create a clear definition of productive assets. However, it said tax reform was the only way the problem would be solved, with other policies being “necessary but individually insufficient.”
Bring in the grandees: Rather than using consultations, the think tank argued for an institutional vehicle, which it said would cost £3 million and include a taxonomy, working groups and terms of reference, a legislative-levers table, and a list of financial services grandees who would serve on the board.