The outgoing boss of Legal and General has said that the UK government’s flagship regional development policy of levelling up is “failing” and that the recent banking turmoil will make the situation worse.
In an interview with the Financial Times, Sir Nigel Wilson said: “Are we freeing enough capital to get on [with levelling up]? No. Are we building enough affordable housing, social housing, build-to-rent housing? No.
“Will the banking issues have an impact? Yes, because lending is going to be more difficult, there’s less risk-taking capital in the banking system. Along with higher rates, plus the general uncertainty about valuations, that’s going to cause issues.”
Policy should be changed to encourage insurers and pension funds to invest outside the capital to reduce regional inequalities, he added.
The recent banking crisis, with the failures of Silicon Valley Bank and Credit Suisse, could also affect reforms aimed at boosting the competitiveness of UK financial services.
The UK is aiming to change rules inherited from the EU, including the Solvency II capital requirements for insurers, with the intention of unlocking capital for investment in infrastructure and life sciences, among other things.
“It is a concern,” Wilson said. “The old assets are going to decrease in value. You need more modern new buildings that are relevant for the industries of today.”
Wilson, who announced in January that he plans to retire after more than a decade in charge of the FTSE 100 insurance group, added that within the property sector, offices had become a more challenging investment because of the growth of homeworking.
“High streets have been really depleted and if we’re not careful that’s going to happen with offices,” he said. “We haven’t invested in London offices for quite some time because we’ve always believed this is the same pattern as retail.”
L&G is a big investor in property, including to back its pension liabilities. As of the end of 2022, it had £9.4bn invested in the sector, including £4bn in offices. It also had £1bn in commercial mortgage loans.
L&G’s latest Rebuilding Britain Index has found that attempts to “level up” UK regions are failing or stalling and that, in many cases, inequalities have widened.
The report found that 95 per cent of working households have had a real-terms pay cut over the past year as inflation has soared.
It said that creating better-paid jobs and investing in energy-efficient buildings were among the most popular policy ideas for the 20,000 people surveyed. The index tracks social and economic progress in health, education, housing, jobs and other measures.
Wilson added: “If we want to be a science superpower, we want to build the science superpower infrastructure. If we want to be world-leading in the transition to net zero, we need to put a huge amount of capital into that area as well.
“We’d like to invest in this. We think of it as diversification and it’s economically relevant. Putting our money into old shopping centres isn’t what we want to do. We want to invest in new things for the future that improve productivity and deliver growth and real wages.”
