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UK government 'not directing' LGPS infrastructure investment

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The UK’s local government minister has defended the government’s steering local authority pension funds towards infrastructure investment but said it has not directed them to do so.

Marcus Jones, the parliamentary under-secretary of state for communities and local government, made the comments in a debate in the House of Commons yesterday evening, which was brought about as a result of a petition organised by trade union Unison to register concerns about government interference in investment decisions by local government pension schemes (LGPS) as they combine to create larger asset pools.

Responding to statements from opposition members of parliament, Jones said “significant misconceptions” had arisen about the government’s policy as a result of briefings from trade unions and other bodies.

He said the government was giving local authorities “more and not less control over investments” and that “we have made it clear repeatedly that investment decisions must be taken in the best interests of scheme members and taxpayers”.

However, he made “no apologies for the fact we have been clear authorities should be ambitious in developing their proposals on infrastructure investment” and went on to set out the suitability thereof for pension funds.

“Nevertheless,” he added, “I have been absolutely clear throughout that investment decisions are for administering authorities, and that that will remain the case.

“There is no question, nor has there ever been, of the government’s directing funds to invest in a particular way – for example, in infrastructure projects.”

He said the new LGPS investment regulations would give local authorities “much more freedom over how they invest LGPS funds”.

Addressing concerns about the power of intervention in the regulations, Jones said it was included “as a backstop” for “rare circumstances” and that there were several safeguards to ensure the power was used “appropriately and proportionately”. 

Israel, Palestine and tobacco

Although LGPS will have more investment freedom under the new regime, Jones re-iterated that the government’s policy was that administering authorities “must act in a way consistent with UK foreign and defence policy”.

Guidance on the investment regulations makes clear, according to Jones, that administering authorities “should not use pension policies to pursue boycotts, divestments or sanctions, except where formal legal sanctions exist and embargoes or restrictions have been put in place by the UK government”.

A Labour MP told the minister he “ran together three things: boycotts, divestments and sanctions” and that, although boycotts were mainly a consumer matter and sanctions a government matter, “the issue relevant to this debate is divestment”.

Asked to clarify whether divestment from companies “involved with Israeli settlements in the Palestinian territories” would fall foul of the government’s position on use of pension policies by local authorities, the minister said “I can clarify that any such divestment must be in line with the policy of the UK government”.

On the question of tobacco, Jones said it was up to individual pension funds to make investment decisions “provided they comply with the board principles” in the guidance on the investment regulations.

“In summary,” he said, “I reassure the House that investment decisions will remain for administering authorities.

“The government is challenging local authorities to be independent and ambitious, subject to local democratic control and appropriate safeguards. We have no intention whatever of gambling with money that has been set aside to pay pensions.”

The government’s guidance prohibiting the use of LGPS funds for boycotts, divestments or sanctions reflects the same view that the government has taken in the context of public sector procurement, Jones noted.

An international law expert previously told IPE there was a risk of misunderstanding over the types of measures the government sought to curb.

Responding to an article in IPE about new procurement guidance on boycotts issued to UK councils, Valentina Azarova, an international law academic at the Holy Spirit University of Kaslik in Lebanon, said the guidance “does not supersede or interfere with the measures that have and will continue to be adopted by European businesses to comply with compulsory domestic law, so as to protect their business, but also domestic consumers, procurers and investors”. 

She added: “It would seem to me that it is crucial to draw a clear distinction between these processes, given also their repeated muddling in the press, and the real consequences of conflation on the ability of companies, pension funds and financial institutions to guarantee their compliance with domestic law.”

Compliance with domestic law, according to Azarova, means “avoiding giving legal effect to Israeli unlawful acts underpinning the settlements”.

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