Lord Fuller (Con)

My Lords, the noble Lord, Lord Davies, found the Government’s position inexplicable such that these amendments have become necessary. I can understand that. The point is that the Government do not—they do not understand finance. Perhaps they should have had a few more prawn cocktails before the election; they might have got some learning inside them. This group demonstrates that there is ignorance in this Bill about investment, asset classes and asset allocations. New Section 28C(5) treats private equity as if it is just one class, but it is not. That is why I welcome Amendment 121, specifically proposed new paragraphs (f) and (g), which would lay out the appropriateness of scale-up capital and quoted and unlisted companies. There is no doubt that you can make a lot of money in private equity. High risk leads to high rewards; the big hitters can and do make money. The early backers of Revolut turned a million into a billion, as the FT reported last week. On that basis, everybody should be having a go. What could go wrong? We all know that, in many cases, companies get loaded with debt and dividends are extracted; we have ended up with serial bankruptcies in the casual dining sector, for example, and Claire’s has gone bust twice in the last four months. I am not exactly sure the Government should be mandating this sort of thing by statute. Putting that to one side, I have some experience through my membership of the Norfolk Pension Fund in private equity investment. I have been a board member since 2007. There are some big firms in this space; HarbourVest might be a name familiar to noble Lords but others are available, as it says in the adverts. To participate in this space, you typically enter a 10-year commitment for quite a lot of money as a fund. You provide the fund manager cash certainty. He can go ahead and acquire smaller firms within the fund. You do not pony the money up front necessarily; it just needs to be available when the fund manager calls you to chip in. By and large, the fund manager finds the firms and invests that money, typically over the first four years of the indicative 10-year period. They then grow and nurture those firms until they can be sold for a profit—unless they go bust in the meantime, which many do. At some point, 10 to a dozen years later, after all the surviving companies have passed on and the fund closes, all the money is returned to the pension fund. It is a well-trodden path and a proper asset class. This is why proposed new paragraph (g) in Amendment 121 is so important. These opportunities should be available to pension funds, but the Bill as currently constructed excludes them. It is madness. This is not what we need as a nation. We need to go further. We need to be able to step in and help those founder-owned companies, together with local business angels, their families and friends, to get to the stage where HarbourVest can have a nibble. We need to make the small nibbles into larger fish. It is the scale-up issue. The exam question here is to identify good founder-led businesses locally and grow them. I declare an interest; I have been a director of New Anglia Capital Ltd, which was public sector, 100% owned by councils in Norfolk and Suffolk for the purposes of investing in early stage companies, taking them from a glint in the eye to the stage at which private equity might get involved. My goodness, it is hard. We have invested in bright prospects in life sciences, engineering, medical technology and clean energy. It is high risk, and I am told it carries the opportunities to make big returns—not that we have found them yet. But at least it carries that opportunity. As a nation we need to turn those cygnets into swans and those small acorns into mighty oak trees. The Bill should aim to do that, but it does not. The conflict is with the press release that accompanied the Mansion House announcement. The Government’s own presser boasted: “More than 50 scale-up businesses have signed a joint letter to the Chancellor welcoming the reforms as a ‘significant milestone in ensuring British institutions back British businesses at the scale required to generate growth, employment and wealth’”. I feel sorry for the people who signed up that letter, because they were suckered. The Bill does little to scale up businesses and it has taken the noble Baroness, Lady Altmann, to put proposed new paragraph (f) into the amendment so that the Government’s own press release can form part of the law. Forcing everything to be large, as we have heard, makes it harder to get the boost for start-ups. Amendment 121 would remedy this. We need it not just for those start-up businesses: the founders, their families and friends and all those angels—important though they are. We need it for our provincial cities and market towns. These are the places with the gems that need to grow in pursuance of “UK growth assets rather than wider overseas assets”, as it says in the Member’s explanatory statement. Without this amendment, Mansion House is a mirage. By this Bill the Government have done a confidence trick on those who believed there would be a flow of capital to these businesses. It is not too late to change course. I echo strongly the comments of the noble Baronesses, Lady Bowles and Lady Altmann, and note that we are in Committee. I think this Committee is doing valuable work, because it has set up the conversations we all need to have between now and Report. The Government can reflect on what they are trying to achieve and recognise that it will not be achieved by the Bill as currently constructed. We may then need to have a compromise that will actually do the thing we are here to do, which is to invest in Britain and have better, more secure futures for people who want to invest in pensions, not Lego sets or Star Wars characters.