Once again, Britain has found herself financially ill-prepared for a crisis originating abroad and, as a result, the pandemic has wrought havoc on the public purse and grown national debt to eye-watering levels.
It is younger people who will pay, as they are already paying now.
Generational unfairness is now embedded in the UK’s economic system, with younger people struggling to buy houses as older people see the value of their assets grow year on year, and a tax system which burdens those same younger, working age, people with the costs of caring for the elderly while the elderly preserve their assets.
And it’s only going to get worse. Tax and National Insurance increases are on the table, national debt is so high and rising that several generations of the as yet unborn will be paying it back, and there is a political atmosphere that shies away from taking the radical action necessary to solve even one of these problems.
Imagine if, instead of leaving future generations a legacy of profligacy and debt, we instead left them a national savings account. Not one of those gimmicky ‘£500 for each child’ schemes – but a real, solid, balance sheet of investments made by the government and owned by the people.
A sovereign wealth fund, as part of a wider rebalancing of the economy, is the answer.
It would be easy to say that we’ve missed our chance – that we should have put the proceeds from North Sea Oil and privatisation into such a fund, and now it’s too late. Yes, if we’d done it then we would now be wealthy beyond our wildest dreams, with some estimates suggesting that a British sovereign wealth fund founded in the early 80s would now be the biggest in the world and worth over $1 trillion.
But if we don’t act now, we risk people saying the exact same things in 40 years’ time. Because the reality is that while establishing a fund decades ago would have been better, doing so now is still a very good idea.
A sovereign wealth fund started today would take in Britain’s national assets from the British Business Bank, prime real estate owned by the public sector, the Crown Estates, revenue from licensing the successors to 5G, tax income from natural resources like lithium in Cornwall, shale gas and other kinds of exploration licenses and the tax revenue that will eventually come from them, and the budget surpluses the government should be generating in growth years from now on as they commit to balancing the books. When as yet unimagined windfalls reach the Treasury – from natural resources, public sector owned inventions, and one-off licensing schemes – these too can be put into Britain’s new sovereign wealth fund.
It would be a gradual process, taking decades of commitment to taking a small slice of our shared assets each year to invest in our nation’s future. To be successful, it would have to sit alongside a new approach to the public finances, one that regards national debt as a heavy weight that holds our economy back and shifts to surplus, not deficit, being the norm.
The benefits would be numerous; supporting the pound, smoothing the national finances through difficult economic times, giving us a way to fund public infrastructure that does not involve borrowing, and eventually taking the burden of pensions funding off of younger people.
Norway’s sovereign wealth fund is the biggest in the world, owning 1.4 per cent of global stocks and shares with a value of almost a quarter of a million dollars per citizen. It has three main purposes, first, it shield’s the Norwegian economy from changes in oil prices, second, it acts as a pension fund for the nation, and third, it is used to boost the economy during difficult times.
The Qatar Investment Authority has a similar primary purpose to Norway’s – to reduce the country’s exposure to fluctuating natural gas prices. Its secondary purpose is to build diplomatic relations and support the economies of its allies, and that’s why the diversification of Qatar’s assets has included huge investment in the UK, including in London real estate, high-end retailer Harrods, supermarket Sainsburys, and a range of others – all adding up to about £40 billion of UK holdings.
Australia’s investments are divided into several funds with different purposes, the profits from each one is ultimately intended to be used for things like capital investment in roads, rail and higher education, to underpin the country’s disability insurance, and to invest in medical research.
Singapore’s fund is invested with a long-term view, and returns are used to support the country’s healthcare and education systems, pour money into research and development, and at times to fund projects including land reclamation and infrastructure. Unlike other sovereign wealth funds, Singapore’s was not founded using windfalls from natural resources. Instead, it was established using the foreign reserves that supported its currency, adding further weight to the argument that it’s not too late for the UK.
As the UK moves into recovery from the pandemic and seeks to carve out a new place on the world stage following Brexit, establishing a sovereign wealth fund is the logical next step. Doing so would end the damaging cycle of borrow and spend, tackle inter-generational unfairness, and secure the nation’s future.
