It is of course important that councils retain their independence, but I believe that it is equally important that councils pursue best practice.
With £178 billion under management, the local government pension scheme is one of the largest funded pension schemes in Europe. As I am sure you can appreciate the cost of using external fund managers is considerable and the Government believes that cost of investment could be made more efficient. By using collective investment vehicles and using passive management for bonds and equities, up to £660 million could be saved a year.
Allowing the Secretary of State to intervene will ensure that councils are following best practice and gaining maximum return from their investments. I do not believe that these regulations will prevent councils from practising ethical investments, but I would like to be clear that I do not want to see councils pursuing their own foreign policies. Foreign policy is rightly reserved to national Government. Councils should prioritise securing long-term returns from their investment rather than dividing communities and making political statements.
Local boycotts can damage integration and community cohesion within the UK, hinder Britain's export trade, and harm foreign relations to the detriment of Britain's economic and international security.
In addition, the Cabinet Office has issued guidance to remind public authorities of their international obligations when letting public contracts. This makes clear that boycotts in public procurement are inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government. This is not a new policy and has been in place for many years under successive governments.
The Government also has a longstanding policy of value for money in public procurement. EU and UK procurement legislation requires public authorities to treat suppliers fairly and equally. International market-access agreements such as the WTO Government Procurement Agreement extend those obligations to various other countries. Boycotts can also be unlawful and lead to severe penalties against the contracting authority and the Government. The proposed guidance will remind public authorities of these important matters.
I am confident that these measures will bring about better returns for local government pension members and make investments more cost effective for councils.