October Newsletter: ‘Panic on the Streets of London’

13 October 2022


As a foreigner whenever I have visited New York I feel like I am on a film set. Such has been the dominance of the USA in film and television in my lifetime. As a native Londoner whenever I walk through the streets of my hometown these days, I feel like I’m in a soap opera. Just a week after the world’s largest ever TV audience watched the funeral of the Queen, the UK again dominated the news. Not this time with family troubles, but with farce. They say that for soap operas to stand the test of time they have to descend into comedy. London seems to have managed that in a fortnight.

London’s financial panic, that led to the Bank of England riding in to save some pension funds, was sparked by an ill-thought-out budget that headlined with getting the rich richer. Underlying it all though is a problem with the culture of the country. The UK has a culture of mistrust. The seeds to this culture were laid down by misdemeanours of the 1980’s, notably by one man, Robert Maxwell. Owner of the Mirror Media empire he pillaged the company pension funds for his own gain. The fallout from the scandal was, rightly, the regulation of the pensions industry. But this started a trend across all industries, to regulate and regulate again. This trend shows no signs of slowing.

Regulation starts with good intentions of building resilience. But unless kept in check it disenfranchises. It ignores, indeed sometimes defeats, the benefits of efficiency. At its worst it creates cumbersome rules, channelling decision-making, creating a barrier to the use of common sense. At this point regulation is effectively saying we don’t trust you, do it this way.

This is what has happened to the pensions industry.  Regulation has been piled on regulation. Pension trustees scared to make their own decisions don’t invest in the volatile equity market, the best performing long-term asset globally. New reporting requirements made equity investing a no-no. So instead pension fund decision makers were herded into investing their funds into ‘safe’ government bonds. Regardless of guaranteed ultra-low returns. ‘Hey, bonds only give us 0.6%pa return but there is certainty we will get our money back in 30 years!’. So, with everyone painted into the same corner when something unforeseen happens…bang. Everybody gets hit.

To blame this all on regulation would be wrong. In a world of 8 billion we need it. But somehow in the UK regulation has become directives issued from on high that take away reason and create inefficiencies that end up costing more than the problem the regulation is trying to solve. In its efforts to protect everyone from themselves it merely overcrowds the single ‘lifeboat’ we all get pushed into. To put a stop to these ever more frequent panics, we need a change of culture from our regulators whatever the industry. A change that can only come from a recognition that while regulation is important the vast majority of us, our nurses, our teachers, our doctors, our financial advisers, even our estate agents are capable and responsible. We are not the characters of soap operas who lie and cheat and are beset by moral conflicts at every turn. We do our best, and our best is usually good enough. Until UK regulation allows its citizens to exercise some responsibility and foster a culture of trust rather than mistrust then the cost and consequences of treating us all like we are Robert Maxwells will continue to spiral higher.