Andy Haldane says the billions spent subsidising savings should reward money kept in British firms — but critics warn a home bias could dent returns
The economist advising the man widely tipped to become Britain’s next prime minister has called for the tax breaks on pensions and ISAs to be redrawn so that savings invested in British companies are rewarded more generously than money sent overseas.
Andy Haldane, president of the British Chambers of Commerce and the Bank of England’s chief economist between 2014 and 2021, set out the idea on 25 June at the BCC’s annual conference in London. The proposal carries unusual political weight because Haldane is reported to be advising Andy Burnham, the frontrunner to succeed Keir Starmer in Downing Street after the prime minister announced his resignation on 22 June.
For anyone paying into a workplace pension, it is not a remote City debate. Every contribution is currently topped up at the saver’s income tax rate, so a basic-rate taxpayer effectively gains 20p for every 80p paid in, with higher-rate savers gaining more. That relief is the single biggest reason a pension outperforms an ordinary savings account — and Haldane wants to turn it into a lever, with the full benefit increasingly dependent on where the money is invested.
His central argument is a fiscal one. The government spends more than £50bn a year on pension tax relief and over £10bn on ISA relief, a combined sum that, as he told delegates, exceeds the country’s defence budget. Yet much of that subsidised money, he argued, flows into American companies and foreign governments rather than British business. Speaking to Reuters, Haldane described the relief as “a spectacularly low return on investment for the UK government” when savers placed it abroad. He told City AM that adjusting the system to favour domestic assets was an “absolute no-brainer”.
He also wants occupational pension schemes to be invested in UK equities by default, rather than the global stock indices commonly used, which are dominated by US firms. Britain, he said, is an international outlier. Pension funds in Europe, Canada, Australia and Japan typically invest between 20% and 40% in their own companies, while the UK’s large and mature system is the only one in the world without such a home bias. The scale of the retreat is striking: in 2000, more than half of UK pension assets sat in domestic shares, against under 5% today — a shift Haldane put at more than £2.5 trillion, roughly the combined value of every UK-listed company.
He framed the plan as a “third way” between unfettered free markets and the outright mandation of how pension funds allocate money, insisting it was about correcting that absent home bias rather than constraining choice. Haldane has not published a detailed proposal.
The idea is not without its detractors. Industry experts have long warned that pushing pension funds to invest at home concentrates risk in a single economy and can deliver lower returns than a globally diversified fund. British savers invest internationally in large part to spread that risk and to reach industries the domestic market lacks.
Public opinion is also mixed. A YouGov survey commissioned by the Association of British Insurers, with fieldwork on 10 and 11 March across 2,127 adults, found that 72% had little or no confidence in the government making the right decisions about how their pension is invested, with just 1% expressing a lot. Among over-45s, 46% believed that requiring funds to invest in set assets would shrink their retirement savings, against 5% expecting a positive effect. Haldane, by contrast, told the conference that more than 70% of British investors said they would prefer a system favouring UK companies, and that many wrongly assumed a large share of their pension was already invested at home.
The reliefs in question are substantial. Pension contributions attract income tax relief up to an annual allowance of £60,000, and savers can normally take 25% of their pot tax-free, capped at £268,275, under HMRC rules. Any reform tying relief to investment location would reshape how far those perks stretch — a point on the impact for ordinary savers highlighted by IBTimes UK.
None of this is law. A separate reserve power already sits on the statute book under the Pension Schemes Act 2026, allowing ministers to compel UK allocations if voluntary efforts under the May 2025 Mansion House Accord fall short. After sustained industry opposition, that backstop was tightly constrained: it is capped at the Accord’s targets, cannot be used before 2028, and lapses in 2032 if unused.
How far Haldane’s thinking shapes policy now rests on the Labour leadership contest, in which nominations open on 9 July and close on 16 July. Burnham is so far the only declared candidate. The future of Chancellor Rachel Reeves, who has already leant on pension funds to finance long-term infrastructure, is among the questions hanging over a possible Burnham government.
For savers, the direction of travel is clearer than the detail. Increasingly, a pension’s tax treatment looks set to be judged not only by how much is paid in, but by where it ends up.
