Speaker 0:
joining me here in the studio, we have Simon French, chief economist at El Gordon. Simon, as always. Thanks for being here. My pleasure, Rory. Now, when we caught up before, um, we spoke about a wider malaise in in British British pensions and in how growth companies are funded. But in your article that you wrote recently for the times, you you address this. What prompted you to write this?

Speaker 1:
Well, partly conversations like the one we had, which, um, your writers set the scene by saying there is a malaise in

Speaker 1:
UK public equity markets. And to be fair, and I acknowledge this in the piece the government, the regulator, um, has acknowledged that, and it is undergoing a consultation on what it is dubbed the Edinburgh reforms, which are largely to aim to streamline regulation, find out parts of financial services regulation that are not fit for purpose. But there was another element that I felt was important to explore, which is the incentives to

Speaker 1:
own UK assets. And there've been a lot of suggestions out there on trying to strong arm private defined contribution or private defined benefit schemes into trying to invest in UK assets I felt Mand was not fit for purpose. So I proposed three, if you like

Speaker 1:
relatively easy to understand changes that just change the investing landscape for what I think we can all agree is something that has a negative blow back into the UK economy. If it isn't addressed

Speaker 0:
and the first of which was I a relief for UK investments, how would that work? How would that? How would that look?

Speaker 1:
Well, when the predecessor to the ISA the the tests A or the P P back in the mid eighties was was unveiled.

Speaker 1:
Actually, it had only qualifying investments as UK listed assets, and that has broadened over time. So actually, to some extent you're going back to its original intent. I think it is acknowledging that there are with UK listed instruments spillovers into the wider economy, which it seems curious to me

Speaker 1:
that we're providing the same tax incentive, in effect, to provide equity capital to the likes of Amazon or, uh, you know, Chinese uh, a A shares, which are ultimately providing capital into those economies as we are to UK listed instruments.

Speaker 0:
And again the second point was around pensions, and when we talked about this before. It was very much on

Speaker 0:
of leaving out private pensions, but it's public pensions where you need to address the

Speaker 1:
issue. I think that's right. So, um, there has been some pushback from the industry, the likes of Schroeders. Aviva saying actually, the suggestion. I think it was from the Tony Blair Institute that some sort of Superfund consolidation of, uh of schemes with some sense that those will over index to UK assets.

Speaker 1:
Those returns are yielded to private, uh, individuals, their private schemes. They hold some of the investment risk and therefore you potentially replace a market failure with a government failure in the DB scheme or the public DB scheme defined benefit scheme. It's different. Ultimately, all the liability, all the investment risk is backs stopped by the taxpayer.

Speaker 1:
And therefore, if you think that there is a market failure in terms of under investment and spillovers to the UK economy, if positive we all stand to benefit from then I think there is a strong case for putting a Demi in there in terms of UK

Speaker 1:
assets that they should

Speaker 0:
have. And third, and you say this in the piece quite or most controversially, it would be a tax on passive investments. So they do little to contribute to how financial markets really work. That's

Speaker 1:
right, and this is a controversial point, and I get completely.

Speaker 1:
And I've got feedback today, which is, um, undoubtedly been very valid from the savers perspective saying Look, past investments are a cheap access point to, um to to investment instruments. And anything that seemed to dilute that or make it more expensive, is is is seen with through that lens of simply the SARS.

Speaker 1:
I have no qualms with that, but there are other If you like agents in this, uh, in any economic decision, you have an economic rent which can be shared in this case between the savers, the advisory group, the financial service industry but also, crucially, those companies that are seeking seeking equity capital Now.

Speaker 1:
Passive investment provides no real price discovery, uh, function. It doesn't it rewards based on a particular company's membership of an index. So it's piggybacking on an active investments price discovery, uh, action to get them into the index in the first place.

Speaker 1:
And while we can debate what the optimal share of passive versus active is, I think, some acknowledgement that the passive, uh, marketplace is not doing much for allocated efficiency in the economy and getting

Speaker 1:
the the what is scarce capital to the most productive, the most efficient, Uh, companies, that is the thing which a passive tax would lean in against. Well, look,

Speaker 0:
it was certainly a good read this morning. Thanks, Simon, as always.

Speaker 1:
My pleasure, Rory.