Few moments in modern financial history carry the same weight as the famous Big Bang – delivered by Margaret Thatcher and Nigel Lawson in 1986.
This deregulation of the stock market — which made it easier and cheaper to trade shares – helped turn the UK into a world-class financial centre.
Thirty-six years later, Rishi Sunak is promising his own ‘Big Bang’ to revitalise the British economy.
Boom time? 36 years after the famous Big Bang – delivered by Margaret Thatcher and Nigel Lawson in 1986 – current Chancellor Rishi Sunak is promising one of his own
According to reports, the Chancellor will scrap EU rules which dictate how pension and insurance funds manage their money.
The move could free up £95 billion for infrastructure projects — rail lines, renewable energy plants and hyper-fast broadband — and start-up companies. But how can you cash in on Rishi’s ‘Big Bang’?
With more than £5 trillion under management, pension and insurance firms are some of the biggest investors in Britain.
They own around 10 per cent of all UK shares and are among the biggest backers of investment funds and trusts — increasing their slice of the pie.
These institutional investors tend to be very conservative in outlook, sticking to blue-chip investments and defensive assets such as bonds.
This is partly a deliberate strategy (in order to generate predictable returns), but also partly down to strict regulations.
The EU’s Solvency II rules (which the UK still follows) govern how much cash insurers need to hold back in case they run into trouble.
Crucially, the requirements are much stricter for so-called ‘illiquid’ investments — for example, big infrastructure projects that can’t be sold easily.
Last year, Boris Johnson and Rishi Sunak pledged to update these rules and ‘unlock’ a tidal wave of investment. Now John Glen, economic secretary to the Treasury, has confirmed the Government will ditch the Brussels rulebook.
The chief executives of two major pension firms — Legal & General and Phoenix Group — have said they could collectively invest £80 billion into the UK economy under the new plans.
They highlighted the net zero transition, ‘levelling up’ and the life sciences sector (i.e. vaccine development and medical technologies) as areas of interest. The impact for retail investors is harder to gauge.
Firms such as Standard Life, Legal & General, Aviva and Prudential currently make up about 10 per cent of the FTSE 100.
Reforms: According to reports, Chancellor Rishi Sunak (pictured) is planning to scrap EU rules which dictate how pension and insurance funds manage their money
The sector hasn’t been hugely popular with investors, with most share prices languishing around the same levels as five years ago. If the ‘Big Bang’ helps firms become more profitable, it should be good news for their share prices — and for their dividends.
On the other hand, a large shift away from ‘liquid’ assets (i.e. listed companies) and into infrastructure could sap prices elsewhere.
Dividend-payers such as Shell, BP and Rio Tinto have been popular with pension funds due to their ability to pay out regular profits.
But they may lose out if big investors start to look elsewhere for their returns.
The more interesting question is likely to be what the plans might mean for the UK economy in the long run.
Unlike some of his Conservative predecessors, Boris Johnson has shown a fondness for big spending as a way to boost the economy.
The ‘Big Bang’ plans seek to deliver that investment without it coming directly from the Government — or, more accurately, from the taxpayer.
The markets have tended to share the PM’s enthusiasm for ploughing money into the economy. Joe Biden’s election in the U.S. saw a surge in share prices as investors reacted to plans to ramp up infrastructure investment.
Johnson and Sunak want the ‘Big Bang’ to deliver a cash injection to the UK’s life sciences sector, which covers everything from medical research to drug development.
If institutional investment can help build the next Oxford Nanopore — the £4 billion DNA research company which joined the stock market last year — it could pay off handsomely for investors.
Investors feeling optimistic about UK plc won’t be short of choice when it comes to funds.
FTF Franklin’s UK Mid Cap fund, one of broker AJ Bell’s preferred funds, has a solid record for FTSE stock-picking, having turned £10,000 into £13,400 in five years.
Janus Henderson’s Global Life Sciences fund invests across the sector — including 5 pc in the UK. Over five years, the fund would have turned £10,000 into £16,300.
