John Penrose is a former Cabinet Office Minister and is MP for Weston-super-Mare.
This Government will be the first post-Brexit administration, with a once in a generation opportunity to recast the kind of society and economy we want Britain to be. The post-war governments created new institutions like the NHS and the welfare state, helping to forge a new society and build a new nation. Brexit offers a chance for our generation to match the hopes and ambitions of our forefathers.
Central to that vision should be the idea of generational justice. Not expecting our children and grandchildren to pay the bills for our lifestyle today. On everything from preserving the environment so future generations have a green, sustainable planet to live on, to the amount of taxes we expect current workers to pay for their parents’ pensions and winter fuel allowance, we have to invest for the future as well as living for today.
That’s why I have long argued Britain needs a Sovereign Wealth Fund, to create exactly the kind of post-Brexit legacy which our generation needs to leave for its successors.
Economically, it could be transformational, as it has been in Norway, which established its fund back in the early 1990s. Their fund is now worth over a trillion dollars, invested in 9,000 companies – including Facebook and Amazon – across 77 countries, and in West End London property too.
Britain should be saving for future generations too but, as I said in my paper, The Great Rebalancing, we have historically been worse at long-term planning than almost everybody else. We save less, invest less and build less economically-vital, growth-promoting infrastructure (things like roads, rail and ports) than other countries do.
The result is that we lag behind the US, Germany, France and, embarrassingly, Italy in productivity. It means it takes a German worker four days to produce what we Brits make in five. So we work longer hours for lower pay than our counterparts in other countries, and we can’t raise living standards sustainably, or build an economy that works for everyone, unless we fix it.
A Sovereign Wealth Fund would do just that, creating a ready-made investment fund which, because of its super-long-term horizons, could be exactly the kind of patient capital which Britain’s infrastructure projects need.
But there are social reasons for a Sovereign Wealth Fund too. Something you won’t hear the Labour Party say very often is that controlling the deficit and the national debt is one of the fairest things we can do for our children and grandchildren. They, after all, are the ones who will have to repay the money we’ve borrowed.
Most of our national debt is embedded in our pay-as-you-go state pension and benefits scheme. It dwarfs the Government bonds that make up the rest of the debt. And it’s structural so, even if we grow our economy, the pension and benefits scheme’s liabilities won’t get more affordable. They will just grow with us.
But if we use our new Sovereign Wealth Fund to underpin the State Pension and benefits systems, so they’re funded by a big pool of investments like a company pension scheme, the structural problem goes away. We won’t be expecting our grandchildren to pay for all those whopping IOUs we’ve written, because they’ll have assets to match.
It wouldn’t only be generationally fair, but socially just too. We’d create an asset-owning society, where high and low earners alike have equal stakes and rights in the investment fund which underpins their pensions and benefits. The Fund would cushion us against the next big economic shock, whether it’s another banking crisis or something different, so we could rebound faster and afford stronger and better public services. We’d be less dependent on foreign investors, and all that investable cash would build Britain’s international heft around the world too.
Government departments, commentators, think tanks and politicians of all stripes are inching towards this conclusion too. Michael Heseltine has said that in order to consolidate our pension funds we should create a British sovereign wealth fund. Last weekend, Tony Blair, called for a ‘sovereign property fund’, and the 2017 Conservative Manifesto said that sovereign wealth fund should be a ‘central part of our long-term plan for Britain.’ The Co-Operative Party has talked about establishing a sovereign wealth fund out of Britain’s crown estate, and the idea has been supported by the Institute for Public Policy Research.
Creating the fund won’t be quick, of course. In fact, it’s better if the process takes a long time – several generations – so the costs don’t fall unfairly on current taxpayers. But we need to start now, with the kind of big, bold, strategic decision set out in the manifesto, to take this country forward.
It would mean that our generation would rival the post-war ones. We’d have created a new, stronger, more socially-just and generationally fair society. A better Britain with the financial strength to use its post-EU independence effectively, as an international force for good in the world. Attlee, Beveridge, and perhaps even Churchill himself would be proud.