Pensions savings should have a “home bias” that directs a huge stockpile of cash into UK companies, according to Andy Haldane, the president of the British Chambers of Commerce.

This would help close a funding gap that hampers the growth of small and medium-sized businesses, he told the organisation’s annual conference.

“UK households hold financial assets of around £9 trillion, more than enough to finance business in Britain,” he said.

“In 2000, over half of UK pension assets went into UK equities. Today, it is less than 5%. In money terms, that is a divestment from UK companies of more than £2.5 trillion – roughly the market cap of every UK-headquartered listed company.”

Mr Haldane said there was a gulf between the needs of companies and the capital available, and measures taken so far, including the launch of the National Wealth Fund, were making only a modest impact.

He said the British pension system was the only one in the world that did not have a home bias. His plan would force retirement schemes to channel funds into UK companies as the price of pension tax relief, avoiding the need to deploy taxpayer funds.

“We spend more in tax relief on savings than we do on defence,” he said. “Yet these benefits are conferred without any accompanying commitment to support British businesses, or therefore UK growth.

“Shifting those incentives towards UK companies would deliver a far larger return while keeping decisions on those investments in the hands of managers.”

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A bolder approach from the Government to boost investment in UK companies would help stem the exodus of British-listed firms abroad, he said.

The former Bank of England chief economist, who is tipped to become an adviser to Andy Burnham, is expected to put his pensions proposal at the heart of an economic plan for the incoming prime minister.

The conference was also addressed by senior figures from the five main parties. Among them was Rachel Reeves, who said she had “unfinished business” as chancellor, including pursuing fiscal devolution.

Ms Reeves is supporting Andy Burnham to become prime minister even though he is expected to replace her in his new cabinet.