292. The £6 trillion pot we should use to grow the economy

0:00Nigel Wilson:Andy Burnham looking likely to be the next Prime Minister. Are you optimistic? I'm optimistic because he's worked in central government. London has attracted so much capital. We know how to do big projects in a city area. We've just not done it elsewhere across the UK. So all the money's piled in here. We have£6 trillion of long-term capital in the UK, almost the highest ratio of long-term capital to GDP. the capital is there in the UK it's how do we kick-start it what would be your advice for Burnham this episode is brought to you by Octopus Energy Greg Jackson the CEO is with us now Greg I want you to look into your crystal ball and tell me what's your vision in terms of let's say 10 years for how the average UK house will be powered as we build out more and more renewables on the grid the underlying electricity systems much more volatile.

1:01And that means that people have got their own solar panels, their own batteries can help balance the grid. And cars are going to be doing that as well. So you're going to end up with a system that looks a lot more like the internet, where everything is automatically improving, just like in the internet, improves your bandwidth. Here it'll be improving your energy cost and prices are going to come down. And by the way, it brings prices down, even for those people who don't have the solar panels and batteries or the electric cars because it makes the whole system more efficient for everybody let's hope that's right then greg thank you now on with today's episode this episode is brought to you by google chrome you think you know a browser but gemini and chrome that's new it can help you with practically anything on the web like restoring a vintage motorcycle from a 50-page restoration block or finally break down that long article you've had open for weeks gemini and chrome is here for it ready to make anything online makes sense?

1:55There's no place like Chrome. Check responses set up required compatibility and availability varies 18 plus. Trading at Schwab is now powered by Ameritrade, giving you even more specialized support than ever before. Like access to the trade desk, our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy gut check. Need assistance? No problem. Get 24-7 professional answers and live help and access support by phone, email and in-platform chat. That's how Schwab is here for you, to help you trade brilliantly. Learn more at schwab.com slash trading.

2:41Nigel Wilson:Hello and welcome to The Rest is Money with me, Steph McGovern. Now, wouldn't it be nice if we had£6 trillion to spend on growing the economy? Well, my guest today reckons it's there for the taking. Nigel Wilson is the former CEO of the financial giant Legal & General, and he's funneled billions of pounds of pension and insurance money, so long-term capital, into regional regeneration projects. And he's long argued for more investment in the regions, not as a charity case, but as a genuine investment opportunity. So this would be music to Burnham's ears, I'm sure. So what would the new PM have to do to get his hands on this money and this potential growth?

3:29Nigel Wilson:Here's my interview with Nigel Wilson. Nigel, I've been really keen to speak to you for a while because you have some really interesting thoughts on how we get equality across the country and not all the money just coming in into London, which is obviously something I'm obsessed about. I know we're from the same part of the world. At the same time as talking to you, we've obviously got Andy Burnham looking likely to be the next prime minister. So I guess, can you give us a sense of what you think about Andy Burnham coming in as prime minister and what that might mean for us? I think your synopsis there is very good because London has attracted so much capital.

4:06But we've used that money wisely, I think. I think there's some amazing projects in London. Canary Wharf is an obvious example King's Cross, the Elizabeth Line, the Jubilee Line the DLR which have all opened up London even Thames Tideway is a great project plus we've had HS1 for a long time so we know how to do big projects in a city area we've just not done it elsewhere across the UK so all the money's piled in here similarly all the venture capital is in the Golden Triangle 80 % of all that money comes into the Golden Triangle So very unfair. And the regions themselves haven't helped because all the time that they're getting the train to Westminster saying, please give me some money.

4:50And on an allocation basis, that wasn't a great idea. Whereas what we did primarily when I was at Legal and General, we went there and acted as the principal investor, principled and principal. And it worked amazingly well pretty much everywhere across the country.

5:08Nigel Wilson:Yeah, give us some examples of what you mean by that. Well, I've picked two from the North East where the two breweries, the Scottish and Newcastle breweries and the Vaux Breweries, recites, laid empty for over 20 years. And we've turned them into fantastic areas now. The Newcastle project has been a massive success in partnership with the institutions there, particularly the universities. And it's right beside the football ground, thousands of new jobs. and we're getting the start-up culture and scale-up culture as a consequence of that because doors lead to doors. If you start doing things, other people will get to believe and so we will get a scale-up business.

5:49And as we discussed before, the five universities in the North East have all got together now and put some money into a fund with the support of the mayor, which is always critical to all of this. And at Sunderland, we did the same thing. Sunderland had a look at what we'd done in Newcastle and said, hmm, we'd like a bit of that too. And so we did the Valksbury site there, which amazingly won sort of best new building in the UK, beating Goldman Sachs into second place.

6:17Nigel Wilson:You were saying that you didn't go to Westminster asking for money. How did you get them going? And was it seen as rather than philanthropy? This was, you know, money to be made. Yes, we made money out of all of this, but we took informed and rewarded risks, including Manchester, where we invested three to four billion pounds in Manchester. But we used to have this ease of use metric. How easy are the people in a local area to get on with and how committed will they be to go through this business plan with us? And we would provide pretty much all of the capital that was needed for the projects.

6:57and make a return out of it. And some areas were too difficult or took us a long time to penetrate. Sheffield would have been an awkward town. Why? Well, we used to have what would call moans and groans dinners. We'd have a dinner for the influentials in any town or city across the UK, have them all in a room and then look at the demographics, look at the economics, look at the financial situation and then ask them to explain why they've done so poorly. And you then get mourns and groans about who's let them down, he let me down, she let me down. And after about 10 or 15 minutes, they realise they're sounding rather pathetic about it.

7:36And it's clearly obvious that they're not working collectively as a team.

7:39Nigel Wilson:Some of them would have been viable, though, I'm assuming. They could have been viable, I think. But actually, other people objected to them. There's a lot of nimbyism going on. Why is that project getting priority over my project and whatever? Whereas you need a London type of solution where you actually embig in the context of the town or city that you're in, but actually deliver, deliver on time, on budget. And given the lack of complexity of the projects, you know, at Canary Wharf, we're building 58 story towers right beside the River Thames with the Elizabeth line running underneath. You know, these were four to eight storey buildings.

8:20You know, for instance, in Manchester, we converted the Vimto factory, which had been closed for many years. Some people will remember Vimto and turned it into flats and houses. And our goal was to make the houses, three bedroom houses with a garage,£149 ,999. So it was affordable in a commercial sense rather than just in a social context.

8:44Nigel Wilson:You do hear regions outside of London moaning, and I think, understandably, because there has been a lack of investment and that's led to real problems of deprivation and, you know, unemployment and everything else. But you're saying these are not charity cases. Actually, these are genuine viable investment opportunities. And this is how we get growth across the economy. So it's not just in London. It's everywhere. It's pretty much everywhere. I think there are uninvestable places, which are really difficult to place, which will need public support. But the big towns and cities, we need very little of it.

9:18They just need positive political will and confidence. It's an Indiana Jones moment to work in partnership with the private sector to actually get on and make all these things happen.

9:31Nigel Wilson:And so where is that money coming from then? When it comes to the pension funds, We have£6 trillion of long-term capital in the UK, almost the highest ratio of long-term capital to GDP in the developed... £6 trillion. £6 trillion. So we're not short of capital. So it's not a capital availability problem, it's a capital allocation problem. Tiny amounts of that money historically has been invested outside of London. And because London's been so successful, it's been rewarded capital. or people keep ploughing more money into London. As I mentioned, those many projects which have been either private or public-private have all been pretty successful.

10:14These other places don't have that. And even if you, say, go to Newcastle, the project beside the sage, there's just a big hole in the ground and they've been working on it for several years. And that's the sort of thing that has happened too often in the past and is still happening right now, where they haven't got the capital partners sitting beside them to really drive growth.

10:36Nigel Wilson:So let me just dig into this then, because we often talk on this podcast about how do we get pension funds to invest more in projects in the UK? Should there be some type of government intervention in terms of tax incentives or other things like that? But what it sounds like you're saying is, actually, is the same returns to be made from investing in regeneration projects as there is to, I don't know, put it in stocks and shares and putting it into the Magnificent Seven or, you know, the tech companies doing well? Well, I think there's different risk returns on these, but they're rewarded appropriately for the risks that you're taking.

11:14it we have to develop this system which i talked about earlier about the vc and the startups and scale-ups because in the uk cis eis and vcts are all tax advantaged and you're mandated to invest in uk businesses you can't get the money in and say well actually i found this really cute business in california i'm going to put all the money in there which is which is interesting cash isis are the same i can't say jesus have you seen the rates in venezuela it's 58 you can get on your money i'll put all my cash isa in in Venezuela you have to put it in sterling sterling accounts here in the here in the UK so again mandated for pensions I think we should have what's called soft compulsion this is what we invented during auto enrollment instead of getting people to tick a box to opt in yeah you had to tick a box to opt out yeah and a lot of people and then you were put in a default fund even if you didn't fill in the form saying where you should put put your money so the money is flowing in there we then should have another box which says x percent 10 is going to be invested in growth initiatives right across the uk if you want to invest in that it's automatically done for you soft compulsion if you don't want to invest in that you tick a box and say no in the same way that you did that when you you yeah but if you do that are you not going

12:34Nigel Wilson:to then ask the person whose money is going into the pension pot going to go well hang on all i care about is returns which one's giving me the best returns as i said we put in tens of billions of this type of money into these activities already and the sad truth is most people put their money in the default fund and uh that default fund should include you know startups and scale-ups in britain because some of those and many of those are going to be huge successors and i'll use arm as an example arm was founded in in cambridge grew in cambridge listed in the UK very successfully sold to SoftBank.

13:14Nigel Wilson:Yeah. And the SoftBank acquisition price was about 50 billion, in fact, less than 50 billion, but it's now 400 billion. Of that 350 billion, 1 % has gone to UK shareholders and 99 % primarily to the rest of the world. And that's what happens as a consequence of the model that we've got now. And it's only if you look at the data over a long period of time, you realize that's just a mistake to do that, to not get people in the UK investing in these growth assets. Because we can fly to Boston, we can fly to America and get capital very easily. I mean, Canary Wharf's got a huge number of very large American banks who dominate a lot of the financing for these particular areas.

13:59And so the capital is there in the UK. It's how do we kickstart it? like when I mentioned EIS, SEIS and VCT is all being tax advantaged, cash at high.

14:11Nigel Wilson:Yeah, these are all tax incentives for people who invest in. And they invest in the UK. I nudge a little bit over saying, actually, we should do this for some other asset classes as well. So for venture capital in series A, so that is tax advantaged as well. So you start the scale up journey with a lot of UK capital already coming into the businesses. But why do we need that if you're saying the returns are good anyway? How many have you got of these investments? What of the different tax ones? Yeah. Well, I've got quite a few, actually. So I use things like EIS and SEIS and obviously ISAs and things like that.

14:44Nigel Wilson:But have a mixed portfolio. Yes, everybody's going to have a mixed portfolio. I think that gave you tax advantage, which you went into. I'm saying these other ones, through the pension schemes, which are tax advantaged, can be the same. The most successful businesses in the world are investing in the UK in all of these projects. Increasingly, they're investing outside of London and the Golden Triangle, but they're still mainly focused on those areas. Because if we want to revive the north and the northwest and the Midlands and parts of the southeast and southwest, we've got to create a structure that makes that happen.

15:29Right now, we don't have that structure. And I think it's too easy to say, well, you know, my returns won't be good. Well, they probably will be good because there's so much catching up to do on terms of London. London's got the highest per capita income of any city in Europe perhaps one of the Swiss cities is higher but it's there or thereabouts our second cities are miles behind and they're miles behind Munich and Lille have higher per capita incomes than Birmingham why is that? because they've got huge investment going into them for a very long period of time whereas we know these other areas are massively deprived

16:06Nigel Wilson:From your perspective then running legal in general when you did you saw that there were returns there But what made you run the business like that, i.e., you know, missing out the middleman, you know, missing out central government and going to local authorities and going to housing associations? What prompted that for you? Necessity, I think, when you try for the UK to grow, we can't just have London growing and everything else growing at a pedestrian pedestrian pace. and therefore when you sit down and if I just look at Newcastle at the moment there's at least 10 really good projects to be done in Newcastle and they're just very slow moving at them at the moment Yeah, tell me about it I've seen that as trying to set up a business in Newcastle, it's just so slow with landlords and everything else and it can take forever Manchester I think is an alternative to that, is that they've done things much quicker in Manchester and I think one of the advantages Andy has is that he's seen that firsthand.

17:09You know, our politicians tend to spend all their life being London-centric.

17:13Nigel Wilson:They do, yeah. And therefore, as a consequence, they have a conscious bias towards other places because they go and visit them when there's a crisis, mainly rather than an opportunity. But looking at what's happened there, and the support of League of England General and others in Manchester, you can see the trajectory is much higher. Manchester had the highest per capita income of any city in the world in the 19th century when the last technological revolution happened. And that was largely driven by people in Manchester, not by central. Right, and manufacturing and everything else that happened there.

17:50Everything was there, yeah. And similarly, you know, the North East, that's when they took off.

17:56Nigel Wilson:The shipbuilding and everything else. Too often, you know, as I said earlier, you know, just coming down in Ascombe Whitehall as opposed to engaging with commercial patents because they're all so big. I mean, Legal and General alone had$1.5 trillion of assets across the world. Putting a few hundred million here, there and everywhere is within its risk appetite. And there's just so many new projects need to be undertaken everywhere. Yeah. And for you, that's the way we get growth across the country. So one of the things Andy Burnham, is keen for given you know his manchesterism is this sense of well fiscal devolution so more of the um you know revenue that's generated there going into through taxes or whatever going into the local area and the local um leaders deciding what happens with that money and what investments they make there's that element of it there's also the nationalization part of this so the state intervention what are your thoughts on whether that helps or not well it's not clear enough to decide right now will it help enough but we're trying to increase the size of the pie not sort of reallocate money that's already productive elsewhere it's new money in new projects that will deliver growth I think flexing the ownership between public private it will should only happen when there's catastrophes I mean and I would regard Thames water as a catastrophe for the nation 16 million people have been impacted on that where there's a complete failure a complete market failure where the government should step in but where there isn't they shouldn't be trying to you know um fiddle with it too much with the economy focus on what's going to deliver growth and better outcomes from a societal point point of view as opposed to being this is our ideology therefore we're going to privatize all the utility companies yeah so i mean the argument from burnham's side would be state intervention given that the people in the area would then decide what happens So it would redistribute or even pre-distribute wealth better because it's not like businesses who are just extracting wealth for like the top people.

20:07Yeah, I think that's a mile off what really happens on the ground. Because when you do this investment, it creates real jobs, you know, pay real wages and delivers good economic and social outcomes. So I think that's the way to progress because science and technology will transform the economy. It will save us. It won't be the government who's going to save it. It's going to be science and technology, which is AI. Well, it's not artificial intelligence. It's real intelligence. We haven't really caught up to how clever these people are and how intuitive now they're getting and all of the wondrous things that we're going to see.

20:44And at the moment, it's a lot of, you know, I'll call it generally AI, which is a horizontal, whereas it's vertical AI. You wouldn't go and ask, you know, ChatGPT or Claude, please help me construct an EV autonomous vehicle. You might, though. You won't do that because that requires, you know, all sorts of other skills to do that. And drug discovery is the same is that you will have a very specialist verticalization of the sort of intelligence required to use compute. it's all going to come off the horizontals which are being developed here but the actual verticals by sector are going to be very different.

21:27Nigel Wilson:So you're saying real intelligence as in people? People are part of that process as well but using, I hate the word artificial intelligence, but computing power. Do you, why? Because it's not artificial, it's real computing power. It's come from us originally. Yeah, which has come from us and we're going to make the judgments on a lot of this stuff. And drug discovery is going to be amazing. There's going to be cancer vaccines, which we're beginning to show progress on already. Like cervical cancer in young women. Cervical and ovarian cancer being at the leading edge, which is wonderful to see.

22:04But there's people working on how to do that in the future. Dementia, which we're finally getting research going into that because they can do the research so much speedier and quicker now than they could before. So there will be dementia drugs, successful ones, in the next five to ten years, which are going to be better medication for the heart, which not only stops you getting heart attacks, improves the heart on a go-forward basis. You'll still have to do your hours in the gym and pumping iron and everything else.

22:34Nigel Wilson:No, the fat jobs are for that.

22:39But these are all non-knowns right now that these things are happening. and what we have in the UK is lots of IP. There's no doubt our best universities are among the best in the world. Our research facilities are amongst the best in the world. We should be funding all that appropriately through the start-up scale-ups and the students who are coming out who are not going to find the jobs they thought they would have four or five years ago, we should encourage them to be entrepreneurs. They can't all be entrepreneurs but we should definitely teach entrepreneurism at university. And at school. And at school, yeah.

23:13And at school. So right the way through, you should be thinking of how I can self-determine my success rather than sort of wander around at some milk round or whatever. And lots of people want to do that because they're not buying a house early and they're not having children early. So their risk appetite for taking this on is much higher. And as a consequence of that, you and I should be doing more EIS and SES and VC and indeed following it through with Series A, B, C and D funding. because there's going to be some wonderful opportunities for growth through science and technology. A lot of very clever people in the UK are going to make money out of that.

23:50I'd rather they made the money for UK pensioners and other savers as opposed to US equity and hedge funds.

23:59Nigel Wilson:Nigel, I don't want to stop you. I've got loads more to ask you, but let's go to a quick break.