No growth without a return to risk
Welcome to the new government. Whatever one's politics, a change at the top is a chance to reset the terms of the argument, and the argument I want to make is a simple one. Everyone is talking about growth. But there is no growth without risk-taking, and risk-taking means accepting risk.
That sounds glib, so let me be precise. For the better part of two decades we have been quietly trying to build what I have come to think of as a risk-free society. Not by design, and not by any single decision. Brick by brick.
Each brick was understandable. Maxwell looted his pension funds, so we made pension funds safe. The banks nearly took the economy down in 2008, so we made them hold more capital against almost everything. Carillion failed, so we tightened audit. Nobody who wrote these rules was a fool; you can see exactly why each one was implemented. The road to hell is paved with good intentions, and this is roughly where it leads.
Add them up. Banks that cannot lend, pension funds that do not back UK equities, insurers that cannot hold productive assets, regulators who cannot approve the infrastructure we need. A society that has engineered risk out of every corner has engineered out the entrepreneurship that creates the wealth and drives the growth we all depend on. And therefore, a risk-free society turns out to be a growth-free society.
The clearest picture of this is in who owns Britain. In 1997, UK pension and insurance funds owned 45.7% of UK quoted shares. Today they own 4.2%. The money did not disappear. It went where the rules pointed it: into safer bets, gilts, into the safe corner, into clipping government coupons. And you can see the bill in the productivity numbers. British output per person is now around £10,000 a year below where the pre-2007 trend would have put it. That is the cost of the safe corner, paid by everyone, every year.
Here is the part that should cheer up a new government. Little of this needs a place in the King's Speech. It is regulation, accounting convention, capital treatment: choices that could be revisited within months, no bill required, no consultation cycle, no waiting. Stop forcing DC pension schemes to value their liabilities against gilt yields, and the pull towards bonds and away from British business eases at once. Fix the roughly 39% capital charge that makes it punitive for an insurer to hold UK equity. Measure pension trustees on long-term net return rather than lowest cost and lowest volatility. None of these needs a manifesto. They need a decision. And by bringing risk-taking back into the UK economy, we can unlock trillions of institutional capital sitting on the sidelines because of rules we wrote ourselves.
That is the point I would leave with the incoming administration. We built these conditions. Nobody imposed them on us, and nobody else can lift them. If the new Burnham government genuinely wants the growth it has promised us, the price of entry is a return to risk: a deliberate, sector-by-sector decision that a little more volatility is the cost of a good deal more prosperity for all. I hope it is a price they are willing to pay. The UK is a formidable country. Time to once again unleash its full potential.
Authored by Mads Jensen,
Managing Partner, SuperSeed
The opinions expressed in this article are those of the author.
