Boosting UK productive finance: Policy certainty, structural reforms and incentives required

Posted on March 25th, 2025

Reforms that provide policy certainty, remove structural blockers to investment, and incentivise growth-driving capital allocation are amongst the changes the Government should make to enable increased pensions investment into UK productive assets. 

A report published today by Border to Coast Pensions Partnership collects views of its investment team, its Partner Funds, and senior executives at nearly a dozen leading asset managers. It suggests several areas ripe for reform and attention.  

According to the report, there is significant appetite for institutional investment in the UK. This is demonstrated by the fact that large pension schemes, including the LGPS, are already significant investors into the UK.  

Border to Coast, for example, has already invested more than £12bn (23% of total pooled investments) on behalf of its Partner Funds into UK public and private markets to date. This includes nearly £1.3bn directly into UK private markets, making up 17% of its Partner Fund’s pooled global private markets investment programme.  

However, a number of barriers persist that are preventing further investment in the private equity funds that back many fast-growing British companies and in UK infrastructure. 

In the case of UK private equity, key barriers include the statutory duty on pension funds to cap fees, which ignores the additional returns that investments with higher fees can deliver, and the underdeveloped UK-focused asset management ecosystem. The report recommends that these weaknesses could be addressed through: 

• Clearer guidance from government and regulators on how pension schemes should assess value for money in their investments – focusing more closely on net returns. 

• A government review of the role and resourcing available to the British Business Bank, British Patient Capital and the National Wealth Fund to create a more effective, joined up system that investors can more easily navigate. 

• Targeted tax and performance incentives to build a stronger UK-focused asset management industry, particularly targeting growth equity to fill the capital gap for scaling UK companies. Potential solutions include prudently addressing ‘safetyism’ in UK regulation and using tax to encourage UK-directed investment. 

Meanwhile in infrastructure, investment is being held back by the uncertainty created by the UK’s complex planning system and historical changes in government policy in areas like the green transition timeline. Insights from managers interviewed revealed that these issues could be addressed by a more stable policy environment, as well as further changes, including: 

• Rapid passage of the Planning and Infrastructure Bill in a form that unblocks the UK’s planning system and decreases development risk by boosting transparency, reducing uncertainty over approval timelines, and tackling renewable grid connection delays head-on.  

• The roll-out of well-designed ‘catalytic’ initiatives managed by the UK National Wealth Fund and GB Energy to develop infrastructure projects to the point where private sector capital can step in – derisking greenfield projects and enabling the ’crowding in’ of private capital. 

• Amendments to the tax regime to incentivise wider infrastructure investment, akin to the Contracts for Difference regime for renewable energy infrastructure. 

The findings of this report add to the debate around how pension schemes should be encouraged to invest in UK growth assets as the Government moves to implement the reforms identified through the Pensions Review to the way in which the UK pensions system operates. 

Read the report in full HERE.

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