If the definition of political success is when other people start claiming your ideas as their own, then this week’s speech by Richard Tice committing Reform UK to creating a UK sovereign wealth fund ought to count as a pretty big win.
I first proposed the idea in a policy paper more than a decade ago. CapX was wise and far-sighted enough to feature it in 2019. And most recently, we published a bang-up-to-date version at the Centre for Small State Conservatives last December.
The reasoning is pretty simple. Our ageing society has more and more retired folk who’ve all been promised state pensions, benefits and health care, with fewer and fewer working-age taxpayers to pay for them. Without pretty significant reforms, the welfare state we’ve all grown up with is bankrupt. Tomorrow’s pensioners will discover the cupboard is bare, unless they sentence their children and grandchildren to grinding poverty to pay for everything instead.
It’s a horrible choice, but a sovereign wealth fund creates a third and much better option. Tomorrow’s taxpayers would be spared the costs of all those state pensions and benefits, because there would be a huge portfolio of sovereign wealth fund investments waiting to fund them instead.
It isn’t an instant, ‘magic wand’ solution, of course. It’s taken almost 80 years for the welfare state to get into this mess so it will probably take the same again to get out of it. The important point is to set it up as soon as possible because, like saving for a pension, it’s always best to start early. Countries like Australia and Norway started their sovereign wealth funds years ago and they have become huge over time. Norway’s fund is worth more than a trillion euros, invested in everything from West End London property to Facebook, Google and Amazon.
How a UK sovereign wealth fund would work
A new UK sovereign wealth fund needs to be big, to make the welfare state sustainable and stop it going bust. Reform want to start by seeding it with existing investments in local government pensions. Those assets are already needed to fund council pensions, of course, so the opportunity isn’t nearly as big as it sounds, but there’s still some upside to be had from pooling the investments and managing them better.
In fact the same argument applies to a host of other state-owned assets too. A new sovereign wealth fund could take on parts of the British Business Bank or the Infrastructure Bank, the current Government’s newly-launched National Wealth Fund, the Crown Estate, Somerset House or Greenwich Palace. Plus it could own the Crown’s existing rights over future mining, drilling and resource extraction, of everything from gravel for building, to Cornish lithium mines or drilling for the last of our North Sea oil.
Once the fund gets started, the crucial point which every political party must endorse is that those assets would belong to voters, not the government. They’d have to be managed by fully independent trustees with the same powers and duties as any other pension or insurance fund, to keep political meddling at bay.
But then, once the fund grows big enough to pay for all those expensive pension-age benefits we’ve promised ourselves when we retire, tomorrow’s taxpayers would be off the hook. Those same fully-independent trustees would take over paying retirement-age benefits and write a public letter to the Chancellor saying National Insurance contributions should be cut.
How to make Britain the world’s biggest asset-owning democracy
It would be a game-changing moment. The demographic timebomb of our ageing society would have been defused, creating a more sustainable and affordable financial future for our children and grandchildren.
Plus we’d have created a huge, commercial, anchor investor so British startups could grow into world-beating firms without having to move abroad. And our economy would no longer be nearly so dependent on foreign investors.
Most fundamentally and importantly of all, a UK sovereign wealth fund would rewire our society because every citizen would own an equal stake in its wealth, with retirement benefits paid in dividends from assets we all collectively own rather than as taxpayer-funded handouts from the state. It would reduce welfare dependency and make every Briton an equal shareholder in the nation’s future as well. We’d become the biggest and fairest asset-owning democracy in the world. And that would be a political legacy which any politician, in every party from Reform to the Greens, should be proud to own.
If you like this idea, you’ll find more details, soundbites and rebuttals about it under A UK Sovereign Wealth Fund in the Policy Thumbnail section of our website
This article is the latest in a fortnightly series of policy proposals published in CapX from John Penrose and the Centre for Small State Conservatives.
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