Report – The social and economic value of finance
December 2023 • Unlocking capital markets • by William Wright, Sheenam Singhal, Seethal Kumar & Katharina Ritter
The banking, insurance, and capital markets industry has a vital role to play in driving long-term investment across the UK – but it needs to make a better and more concrete case for the value of what it does. This report drills down behind the headline numbers to highlight the social and economic value of one financial services company at a regional level and the impact it has on people’s everyday lives in every corner of the country.
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For everyone working in the banking, insurance, and capital markets industry it is self-evident that it plays a vital role in channelling investment into the economy to support jobs and growth, and helping millions of people manage risk and save for their futures. But to most people outside of the sector, what it actually does is complex, abstract, and remote. The further you get from London, perhaps the less relevant the industry may seem. Most people (and many politicians) do not trust the industry, they do not understand it, and they do not engage with it.
An alternative perspective
Too often, the industry talks about itself in terms of itself and focuses on big headline numbers to make the case for the value of what it does. This report takes a very different approach and focuses on what we think is more important: the footprint of the industry’s day-to-day activity at a regional level, and its social and economic value in concrete terms in every corner of the country.
On this report we have worked closely with PIC (Pension Insurance Corporation), a specialist insurer that has insured the pensions of more than 300,000 individuals across more than 250 pension schemes with a combined value of more than £50bn as of the end of 2022, to measure and map the local impact of its ‘day job’ across the UK. For example, nearly £12bn of these assets have been invested in socially useful direct investments in the UK ranging from social and affordable housing in Wales, to student accommodation in the South West, infrastructure investment in the North East, renewable energy off the coast of Cumbria, or urban regeneration in Liverpool.
We think this report is timely for at least three reasons:
- At a time when the UK economy needs all the help it can get the industry has an opportunity to reset its relationship with wider society for decades to come by demonstrating its social and economic value, and how it contributes directly to investment, growth, and people’s everyday lives.
- In the debate on the post-Brexit reform of financial services, it highlights the role that insurers play in investment in productive assets and how they could invest more with appropriate reforms to Solvency II.
- In the current debate on the future of pensions in the UK, it underlines how pension buyouts are an important part of the solution through their long-term investment in socially useful projects.
We hope this report encourages other firms across the industry to rethink how they think and talk about their business and to focus on their local and regional impact.
Here is a summary of this report:
1) Beyond the headline numbers: PIC is a specialist insurer that has insured the pensions of more than 300,000 individuals across more than 250 pensions schemes with a combined value of more than £50bn at the end of 2022. While these are big numbers, this report drills down behind these headline numbers to analyse what we think is more important: the footprint of PIC’s day-to-day activity at a regional level, and the social and economic value of PIC’s business in concrete terms in every corner of the country.
2) Direct investments: over the past decade PIC has invested in nearly 200 projects across the UK with a combined value of nearly £12bn. Each of these projects – from social and affordable housing in Northern Ireland and Wales, to student accommodation in Scotland and the South West, infrastructure investment in the West Midlands or North East, renewable energy off the coast of Cumbria or Humberside, or urban regeneration in Liverpool and London – has a direct social and economic impact on the local communities in which they are based.
3) Concrete terms: we have translated PIC’s investments from big numbers into more tangible terms. We estimate that it has helped fund the construction of enough homes to accommodate 130,000 people (equivalent to the population of Solihull), enough university accommodation for 14,000 students (the entire student population of the University of Hull), and enough renewable energy to power a city the size of Aberdeen. Building these projects has created tens of thousands of direct and indirect jobs across the UK.
4) Policyholders: PIC’s customers are individual policyholders who live in every corner of the UK, with 1,200 living in Northern Ireland, 15,000 in the West Midlands, and 24,000 in the South East. In many cases there are strong local connections between PIC policyholders and the local companies where they used to work. More than 25,000 of PIC’s policyholders have attended more than 50 townhall events up and down the country.
5) Public credit: in addition to its direct investments PIC has invested nearly £4bn in the public bonds issued by companies operating across the UK: from utilities companies in Wales and Yorkshire, to energy firms in the North West and Scotland, and transport and infrastructure firms in London and the South East.
6) The policy debate: in the current debate on the reform of UK financial services, PIC’s local footprint underlines how appropriate reforms to Solvency II could unlock more investment in socially useful projects across the country, and that pension buyouts have a productive role to play in the future of UK pensions.
7) Tax contribution: in addition to the social and economic value of PIC’s investment footprint across the UK, it makes a significant direct contribution to the economy with tax and employment. PIC’s total tax contribution over the past five years was more than £1.2bn from corporation tax, National Insurance, income tax, and VAT (enough to employ more than 7,000 nurses a year).
8) Employees & diversity: PIC business is growing fast and it has quadrupled its headcount over the past decade. It has an unusually high level of employee engagement and better performance on many diversity and inclusion metrics than the rest of the financial services industry.
9) ESG: PIC has more than halved its own emissions and energy consumption over the past four years on a per employee basis and has committed to get to net zero across its entire portfolio by 2050. Many of its new build housing projects are up top 40% more energy efficient than existing housing, and a number of its urban regeneration projects will operate on a net zero basis.
10) The wider industry: the banking, finance, and capital markets industry has a vital role to play in driving growth and investment – and a rare opportunity to reset its relationship with wider society. We hope this report helps the wider industry think about how it can make a better case for the direct social and economic value of what it does to support the day-to-days lives of millions of people in every corner of the UK.