How foreign states raided Britain’s crown jewels | Daily News Byte

How foreign states raided Britain’s crown jewels

 | Daily News Byte


Was the Cameron government naive or has the world become more alarming in recent years? Maybe a bit of both. Either way, the UK is trying to drive Chinese investment away from critical infrastructure.

Following growing pressure from Washington, the UK decided in 2020 to ban Huawei and other vendors it deemed a high security risk from its 5G networks. In November, after months of anticipation, the government blocked the sale of the UK’s Newport wafer fab. Largest semiconductor plant, China-owned Nexeria. It also bought Chinese state-owned power group CGN out of its stake in the Sizewell Sea nuclear energy project in Suffolk.

Under the long-standing deal, CGN, which was put on an export blacklist by the US in 2019 after Washington accused it of stealing American know-how for military purposes, invested in the Hinkley Point Sea Power Station in Somerset; Then Sizewell C, which has just been given the green light; And is still technically a major investor at Bradwell-on-Sea in Essex where it hopes to install its own reactor design.

The Chinese company still retains a stake in Hinkley Point and received formal approval for Bradwell from the UK’s nuclear regulator in February. But there is growing skepticism in Westminster that the Chinese will ever be able to build on the site.

“The government has deliberately cast the net too wide [with the NSI Act] To make sure it doesn’t miss anything,” says Neil Cunningham, partner at City law firm Ashurst, “the government won’t actively single out China but I’m sure there is a hierarchy where China is at or near the top. from the list.”

In focusing on how the UK got into a situation where it sold off so many of its assets to foreign investors, most people fail to consider the other side of the equation: why British investors are selling.

It’s not like they don’t have plenty of cash. UK pension schemes, insurance companies and retail investors have total assets of £5.6 trillion. This is the largest and deepest pool of capital in Europe. However, only 12 per cent of this money is invested in the UK stock market and less than 4 per cent of the FTSE 100 group of largest companies.

According to the Bank of England, defined benefit, or “final salary”, pension schemes reduced their allocation to UK equities from 48% to just 3% in 2000. More surprisingly, less than one per cent of the £4.6 trillion in pension and insurance assets is invested in unlisted equities, according to New Financial. As the think tank’s head William Wright says, it’s like the ancient mariner’s rhyme: “Water, water, everywhere—nor a drop to drink.”

What is so frustrating is that, with money so tight, the country desperately needs investors like pension funds and insurers with long-term time horizons to direct their patient capital into the real economy. And, in theory at least, such assets will provide the right kind of return profile to meet their liabilities.

Back to ourselves

Last year, Boris Johnson and Rishi Sunak wrote a somber letter to UK-based institutional investors urging them to put more of their money into UK assets: “It’s time we recognize the quality that other countries see in the UK and hold ourselves back. . By investing more money in companies and infrastructure that will drive growth and prosperity in our country.”

Earlier this year, local government pension schemes were told to set plans to invest up to 5% of their assets in local initiatives – a target so low that it largely serves to highlight the extent of the issue. This also prompted swift pushback from a number of plans that featured goals that might conflict with their fiduciary responsibilities.

The trouble is, UK investors don’t invest as they do because they are unpatriotic or believe British assets are worthless. Rather it depends on a number of deep-seated regulatory and structural issues.

Most defined benefit pension plans are closed to new members and switch from equity to bonds as most of their members reach retirement. Onerous regulations make it too expensive for insurance companies to invest in private equity and liquid assets like infrastructure. Most low-cost retail investment products are also unsuitable for this type of investment.

In fairness, a good chunk of the regulatory changes that have been wrapped together and attempted to address this inconsistency as the Edinburgh Reforms.

A cornerstone of this drive is Solvency II, a piece of arcane insurance regulation that most people would never have heard of if it weren’t for the fact that its reform is often touted as a potential Brexit dividend. Although the benefits are often overstated, it is true that existing EU rules do not fully suit UK insurers. Without getting lost in the weeds, the reform should mean that insurers will be asked to hold less capital against long-term investments.

The Association of British Insurers has calculated that it could free up around £100bn in what it calls “long-term productive finance”. Whether this money will actually find its way into investment in British assets, say, future dividend payments, remains to be seen.

‘Sliding Doors Moment’

Perhaps the best answer to the predicament the UK finds itself in can be found in an interesting “sliding door” moment in recent British political history.

In his book “Two Hundred Years of Muddling Through: The Surprising Story of the British Economy,” economist and author Duncan Weldon describes an apartment paradox. For all of Margaret Thatcher’s reputation as a tax-cutting prime minister, the amount of revenue collected by the Treasury during her time in charge was around 40 percent of GDP. How come? In one word: oil. Crude was discovered under the North Sea in the late 1960s but production didn’t really start cranking until the late 1970s. The UK went from producing 1.5m barrels a day in 1979 to 2.7m in 1988.

During the 1980s, taxation on oil from the North Sea delivered an average of £18bn a year to the UK Treasury (when adjusted for inflation). Weldon writes, “One of the 12 pounds received by the British government came directly from the North Sea.


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