29 JANUARY 1972, Page 26


The life funds and the national investment

Nicholas Davenport

One of the more intelligible of the grotesque Scarfe cartoons on Sunday depicted a fat flamboyant tycoon in the visage of Edward Heath holding a cigar and cane in his right hand and with his left hand crushed down on the head of a poor, starving, kneeling out-of-work while he sings 'Who Wants to be a Millionaire.' This conventional Marxist art was inspired by the coincidence last week of over 1 million unemployed and over 500 for the FT index of the booming Stock Exchange. (The last ' bull ' market closed at 520 in January 1969 and the present one, having risen over 60 per cent since March 1971, looks like beating its record.) There is, of course, nothing sinister in the coincidence. The Stock Exchange is booming first because the Heath government has taken more action in the space of one year to expand demand than any government before; secondly, because this reflation has already caused the volume of consumer spending to rise in the past six months by nearly 44 per cent, which is bound to spill over into capital goods sooner or later (perhaps later); and thirdly, because the great lay-off of expensive and redundant labour has allowed productivity to increase by 51 per cent and brought a rise already of 12 per cent in the gross trading profits or companies — with more to come seeing that the nation can now produce more goods (quoting Mr Heath) with 400,000 fewer men.

The Labour leaders, if they were intelligent and not consumed with malevolent party politics, ought to welcome this Stock Exchange boom because it enables industrial and trading companies to come to the capital market and raise new money for investment on more favourable terms. This has already taken place. The Midland Bank records that company issues last year rose from £382 million to £693 million. It is true that the biggest increase was seen in "banking, insurance, investment and finance," which went up from £75 million to £206 million, flut this is not unusual at the start of an economic recovery. The commercial and industrial issues which will cause employment to increase will undoubtedly follow. The capital market where the savings of the people are collected and channelled into productive investment is functioning perhaps more efficiently than it has ever done before. The City boom is the pointer to recovery.

The biggest collectors of the people's savings are the life insurance companies. There are other collectors — the building societies, the savings banks, and the unit trusts. The building societies collected £2,033 million net last year and their house mortgage loans last year reached the enormous total of £1,165 million. Their activity is seen in the 5 per cent rise in private housing starts. Incidentally the Government might well supplement this boost to the building trades by pumping more money into the local authorities for housing loans. But for private commercial and industrial purposes we must look to the life members of the British Insurance Association. The contribution they are making is colossal. Their total long-term funds now amount to an investment of over £14,000 million (against only £2,000 million for the unit trusts). The net annual increment of life pension funds is over £1,500 million. It is interesting to see how they have distributed these vast holdings. Of the total of £14,000 million ' long term' funds approximately 17 Per invested in British government seen'o! 19 per cent in debentures, loan st preference and guaranteed stocks shares, 27 per cent in equity share!' per cent in mortgages, 121 per cent in property and 7 per cent in foreign. colonial stocks and other investmen`i conventional are the managers of, enormous funds that they rarelyv94, distribution of their investments. 'y: example, they consider equity shareSeo risen too fast or are relatively e190 they will hold off the market for 0. twleve months, but as soon as theYeo 1 they are cheap they will bring their,di! holdings up to their normal percell'; will be interesting at this P01 11 whether the managers consider "ti current boom in equities has gone tcfri t As I have said, a 60 per cent rise in s4 industrial index in ten months is ttcl If they do, the market will conie per cent or more and the gi;i51 market, which the Bank of Englar":.ri trying to hold back with anothe',0 issue, will forge ahead under the rds. of these life and pension funds COrl' P seeking investment. ; The haphazard flow of these „t o this or that channel of investale" if always seemed to me the weak Paltso private sector enterprise system. ' or suggesting that the Government 41 immediately direct their whole /11%i policy. This apparently was W'fotirt: Harold Wilson intended in clause ,ohis twelve commandments to the tilatol ment on unemployment (he alwaYs°0081 the Deity) when he said the Gov:stvNc, must accept, as he was prepared on the part of the Labour 101.5 nationalisation of investment rteole bility, public and private, and necessary measures to this end. ,t But there is no reason why ther51 not be some collaboration bet' Treasury and the BIA about the their funds into domestic ifilnr investment. There is still a direction in what is knoW11 voluntary restraint' policy wirlic'ip the investment of BIA funds u developed countries of the sterlii (South Africa, Australia, New Zen' the Irish Republic). The last government also banned for 0"e portfolio and direct investment io t sterling area. And let us not forgee Conservative government did 00c,.0 £250 million of new life funds ' exports credit scheme without t any resentment or rebellion. 1,,te absurd that when the Prime Chancellor and the Employme0tdl are all complaining of the lack of investment there should be no c ol tion between the Treasury and tilee whether their funds could not used to help bring down uneK and stimulate investment. Mr Robert Carr in his 1.641 Cambridge on Sunday compin "economic forecasting in this Cl/ the last few years has gone aw:tieril any wonder when there is no direct — even on a voluntary ban;oot flow of national savings into P investment?