Pensions industry professionals believe tax relief could help achieve UK domestic investment targets – but academic research shows this is not an easy win.
Nearly three quarters (74%) of pension professionals cited tax relief as the best way for the government to boost domestic investment from UK institutions. They were responding to a survey by the Society of Pension Professionals (SPP) of more than 100 attendees at its annual conference.
Tax relief was the overwhelming favourite option, with just 8% backing a statutory requirement and the same proportion preferring a focus on consolidation.
The survey also found that 6% felt there was no best approach because “the policy initiative is fundamentally flawed”, the SPP said.
SPP president Sophia Singleton said it was “no great surprise” that industry professionals preferred tax incentives, but cast doubt on whether the government would adopt this approach “given the current economic climate and the government’s current focus”.
“If this is a real priority for the government, tax incentives need to be considered alongside the various other options,” Singleton added.
PLSA calls for tax reforms
Last month, the Pensions and Lifetime Savings Association included tax reform among a list of recommendations for the government to encourage more domestic investment from pension funds.
It said the government should consider “introducing fiscal incentives for pension funds so that investing in UK assets is more attractive than investing in similar assets of other countries”.
The association cited the US’s tax regime for social housing as a model for the UK to follow.
According to the PLSA’s report, the US government’s Low-Income Housing Tax Credit programme has funded almost all the affordable rental housing built and preserved since 1986, financing more than 3.8 million homes and supporting nearly nine million families.
Academic study
However, the success of tax incentives is not straightforward, according to academic researchers.
A paper published in 2022 by Rogie Ann Vasquez of the University of Cambridge found that grants and tax incentives can be more or less successful depending on the companies involved, the sectors targeted, and the economic context.
This meant that policymakers needed to “perform a targeted application of these subsidy instruments” to increase the likelihood of success.
A separate paper from Alan Kirkpatrick and Anne Fairpo of Bournemouth University Business School, also published in 2022, similarly reported that the evidence supporting tax incentives to boost innovation and the “knowledge economy” was “not conclusive”.
The authors said incentives such as tax reliefs for patents and research and development “deserve further analysis” and are studied carefully, including cost-benefit analyses and other related considerations.
Further reading
How to get pension schemes investing in productive assets (12 August 2024)
Uncovering the truth of pension schemes’ UK allocations (9 September 2024)
TPR grows investment team and vows to ‘probe’ strategies (11 September 2024)
