The pension savings of British people should be invested by default in UK shares and the government should rethink tax relief where savings are invested internationally, said Andy Haldane, ​the president of the British Chambers of Commerce, on Thursday, Reuters reported.

Haldane served ‌as the UK central bank’s chief economist from 2014 to 2021 and more recently is reported to have been advising former Greater Manchester Mayor Andy Burnham, who is a candidate to succeed Keir Starmer as UK prime ​minister next month.

Haldane said: “The UK has lost over 100 listed companies with a market cap over £100 million since 2024. So far this year alone, there have been overseas bids for a further 20 large, listed UK companies, including 4 within the FTSE-100 – almost double last year’s level and the highest since the GFC.

“The UK should of course remain open to FDI. But we simply cannot afford to allow the continuation of overseas stripping of our greatest growth asset – innovative businesses – on this scale. Doing so is tantamount to willingly sacrificing the growth and jobs of tomorrow.

“Competing in the world means winning your winners. At present, too many of the UK’s are being lost.

“If the key barrier to germinating and growing this seed-corn of brilliant businesses is a shortage of patient, domestic capital, what can be done to lower this barrier …?

“UK households hold gross financial assets of around £9 trillion, three times annual GDP. Of this, more than £2 trillion sits in bank accounts and around £6 trillion in pension fund and other investments, such as ISAs.

“So how much of this vast pool of household capital is re-cycled to support British businesses, both the pipeline of fast-growing and innovative scale-ups and larger established public companies? The short answer is far too little, in my estimation probably less than 5% …

“In 2000, over half of UK pension assets went into UK equities. Today, it is less than 5%. In money terms, that is a divestment from UK companies of more than £2.5 trillion – roughly the market cap of every UK-headquartered listed company.

“The reasons for this seismic portfolio shift by institutional investors are well-known: a flight to safety, in particular into increased holdings of Government bonds; and a flight to passivity through index-tracking of global market indices, where the weight of UK companies is modest.

“We see these same patterns in households’ ISA investments. These total around £0.8 trillion – multiples of the UK venture capital market. But most ISA investments are either into cash (around a third) or global index trackers (a third or more), leaving a minority invested in UK companies.

“Adding up across different sources, then, this leaves only around 5% of the total pool of household financial assets invested in British companies. The vast majority is financing overseas companies or domestic and foreign Governments. That was not the case in the UK’s relatively recent past.

“And nor is it the case in other countries. Pension funds in Canada, Australia, Japan and across Europe invest between 20-40% of their assets in domestic companies. This is many multiples of their global market share – what is sometimes called a “home bias”.

“The most striking thing about the UK’s large and mature pension system is that it is only system in the world without a home bias. It is the ultimate irony that Canadian, Dutch and Australian pension funds today invest more in brilliant British businesses than do UK pension funds …

“The unfettered free(ish) market is not working for UK companies. And Government mandating allocation into UK assets is, rightly for most people, a step too far in the other direction. Is there a happy medium?

“I think there is. This involves shifting the balance of investment incentives towards UK companies, while leaving those choices in the hands of asset managers and pension fund trustees. And, as luck would have it, our taxation system provides just the vehicle for achieving that incentives shift.

“The Government extends over £50 billion in pension tax relief, and more than £10 billion in ISA tax relief, each year. As a country we spend more on savings tax relief than on defence. Yet these benefits are conferred without any accompanying commitment to support UK growth. Most are implicitly supporting US companies and governments.

“This means these tax reliefs deliver a very low return on investment for the UK government. Shifting them towards investment in UK companies would leave investment choices in owners’ hands, while boosting significantly the returns on these investments in terms of UK business growth, jobs and productivity.

“This is hardly a radical departure from the past. Prior to 1997, the UK’s dividend tax credit regime favoured pension fund investment in UK companies. The predecessor to ISAs, Personal Equity Plans (PEPs), had an explicit bias towards investment in domestic companies. Calls for a ‘British ISA’ are in a similar spirit.

“This is not about overly constraining investment choices. It is about correcting the (absence of) ‘home bias’ that, at present, distinguishes the UK pension system from all others around the world. And, as best we can tell, no-one more would be more supportive of such a shift than those whose money it is – households.

“When asked, more than 70% of British investors say they would prefer a pensions system favouring UK companies. Indeed, many mistakenly believe more than 40% of their pension is already invested in UK companies. Given these preferences, there would be a strong case for the default under pensions auto-enrolment being allocation into UK assets.

“If the Government wishes to act, at speed and scale, to take advantage of the UK’s brilliant seed-corn businesses, before they perish on the vine or are plucked off by overseas foreign raiders, then greater boldness of this type is what will be required.”