OMGI calls on new Government
Old Mutual Global Investors calls on new Government to address major headwinds to the UK’s long term investment environment
Old Mutual Global Investors has today called upon the new Government to address a few key social and environmental issues that will have an impact on the long term prospects for investors.
The three areas the business is calling on the government to tackle are:
i) Address the inter-generational financial imbalances
ii) Connected to that, take urgent, radical steps to start the long process of solving a growing crisis in housing
iii) Show greater leadership in preparing for, but ideally in avoiding, damaging climate change
Paul Emerton, Head of UK Stewardship & Governance at Old Mutual Global Investors comments on the key issues affecting current and future generations of investors:
“We would like to encourage the new government to think about the unfair treatment of younger generations.
“It doesn’t apply to every member of each generation but as a group, baby-boomers had:
- House price increases over decades. Now, housing costs are at a higher, if not unattainable level for the younger generation. We have a ‘generation rent’, a generation living to middle age with parents and/or relying on the Bank of Mum and Dad.
- Student grants and fees paid. Now, students have to get loans for fees and living expenses.
- Defined benefit pensions, paying broadly a 60th of their final salary for each year worked. Now, the majority have defined contribution pension schemes, where the amount contributed by employers in the private sector is significantly below the level in a defined benefit pension, and the sum available at retirement is worth far less than the old defined benefit schemes.
- Favourable demographics for the state pension. The UK state pension is pay-as-you-go; the working generation pays the pensions of the retired. The baby boomers had fewer old people to pay for and they died earlier. The generation paying for the baby boomers have a far greater number of pensioners to support for longer, with a triple-locked pension increase guaranteed. It is the younger generation that pays.
“Our children are paying for us. For investors, this generational divide undermines the future customer base and a key resource of any company – its people.”
Highlighting housing as another problem area, Paul adds: “Affordable housing is a particular challenge to the younger generations, but also to anyone who has a low income, who didn’t benefit from the days when house prices were a tiny fraction of their current value. The days when demand was lower and supply greater and when tax relief was available for mortgage payments are behind us.
“We know there is no easy solution and any remedies will need to be completed over decades, but we do know the solution does not involve boosting demand by subsidy (for example, help to buy or exemptions from stamp duty). Those ‘solutions’ are a sticking plaster for a broken market. It is worth reviewing the entire tax structure surrounding housing transactions.
“Subsidising young first time buyers to borrow enormous sums of money to give to those in possession of a substantial asset cannot be right. The housing market should not be a wealth transfer system from the young, the poor and the Government to those fortuitous to have been born at the right time.
“An absolute necessity is to increase the supply of housing. This requires the Government being honest enough with the electorate to acknowledge that we have to build more houses on greenfield as well as brownfield sites.
“UK customers of the companies in which we invest are hamstrung by exaggerated housing costs. It causes a resource problem for companies; they cannot easily recruit the best people for their businesses because the best people may not be able to afford to live near those businesses. This reduction of the talent pool damages the economy. It damages people.”
With regards to the third issue, climate change, the business suggests that despite some efforts, not enough is being done across society.
Paul Emerton says: “The UK government is in a position to both encourage a reduction in demand for carbon and encourage the substitution of green energy sources. Currently, policies reflect a variety of contradictory rules, thus airlines escape fuel taxes but coal is being phased out from energy generation. The latter is positive, but both fuels generate CO2 and add to the greenhouse effect. There is a case for leadership which is prepared to more clearly explain the dangers and the potential solutions.
“If global warming is to be recognised as a threat and addressed, as a nation, as a planet, we need to do more, faster. The government should encourage the use of public transport, design carbon reduction into the road network, lower speed limits, add cycle lanes on direct routes and build more of the newer, more powerful wind turbines. Globally, the solution is probably a tax on greenhouse gases.”