Lord Vaux of Harrowden (CB)

My Lords, when you are trying to solve a problem, it is best to try to understand the root causes of the problem and then resolve those causes—diagnose and treat the disease, not the symptoms. That is why I have repeatedly asked the Minister why she believes UK pension funds have been so reluctant to invest in so-called UK productive assets. I know she gets frustrated with me asking this question regularly, but she has never answered it. She always responds, as she did again on 11 March, by explaining what the symptom is: that UK pension funds invest a much lower proportion in UK productive assets than international comparators. She is right, and, as noble the noble Baroness, Lady Altmann, just pointed out, I do not think any of us disagree with that, but that does not answer the fundamental question. Why are UK assets apparently so unattractive to UK pension funds? What are the barriers to investment that we need to remove? The Minister has often told us that the mandation power is just a backstop to the voluntary Mansion House agreement and probably will not be used. That is precisely the problem. It does not need to be used; its very existence is, in effect, mandation. As the Times pointed out so clearly on Saturday: “A voluntary agreement … ceases to be voluntary … if it is underwritten by the promise of compulsion”. Even if the power is not used, it still creates a fiduciary duty problem: the trustees are still, in effect, being forced to act in a way that they might not believe to be in the best interests of members, but they will not even have the defence of ,“We were only following orders”, if it turns out badly. The Minister has never given an adequate response to the question of who should bear the risk if the government-mandated assets result in poor performance. On 11 March, the Minister said: “This power does not direct schemes into specific assets or projects. What it does is set a broad framework aligned with the industry’s own voluntary commitments under the Mansion House Accord. Trustees retain full discretion over individual investment selection and the balance between asset classes”.—[Official Report, 11/3/26; col. 279.] But that is not what the Bill says. What it actually does is give the Government power to require that an undefined and unlimited percentage is invested in qualifying assets, which are defined as “an asset of a prescribed description”. I stress that it says “an asset”, not just a class of assets. There is no limit in the Bill on what those assets can be, except that they cannot be listed on a recognised exchange. Contrary to what the Minister has told us, specific assets or projects can be prescribed. Nor does the Bill require them to be in the UK; they can be anywhere in the world. The first regulations to define the asset allocation are subject to the affirmative procedure, but after that, any future Government can prescribe any asset, anywhere in the world, on any percentage, under the negative procedure. As the noble Baroness, Lady Bowles, pointed out, a scheme can apply for an exemption, but it is an incredibly high hurdle. A scheme must prove that the asset allocation requirement would cause “material financial detriment to members”. That is extraordinary—not just that it is “not in members’ interests”, but “material financial detriment”. Contrary to the Minister’s assurances, this unlimited mandation power can be used to direct trustees to invest in classes of assets or specific assets. It fundamentally undermines the fiduciary duty of pension trustees. This dangerous power must be removed from the Bill. Instead, the Government should, as I said at the beginning, focus their efforts on identifying and removing the underlying barriers to UK investment.