UK Sovereign Wealth Fund

Jonathan Reynolds Excerpts

Wednesday 14th December 2016 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Thank you very much, Mr Owen, for calling me to speak. It is a pleasure to take part in this debate.

I begin by thanking the hon. Member for Weston-super-Mare (John Penrose) for securing a debate on such a genuinely interesting issue: his proposition for a UK sovereign wealth fund. I have read with interest his recent paper for the Social Market Foundation, “The Great Rebalancing”; the ideas he presented there are very much the basis for his speech today. He was kind enough to advertise the paper’s availability for those seeking a late Christmas present for a loved one. However, I can genuinely say that I enjoyed his pamphlet and I enjoyed listening to his speech today.

I do not want to get the hon. Gentleman into any trouble, but I have to say that parts of his speech were very much on board with certain parts of current Labour party economic policy, even if we do not necessarily reach the same conclusion on this issue. However, on separating current and capital spending and balancing day-to-day spending while allowing for long-term investment, we are very much on the same page. I only hope that his Government will listen to him and implement such a sound economic policy, which is rapidly becoming a mainstream consensus position.

The Labour party has been calling for higher levels of Government investment, given that, as the hon. Gentleman and other hon. Members outlined, we are investing less as a percentage of GDP than any other comparable developed nation. As the hon. Gentleman writes in his pamphlet:

“The result is chronic under-investment relative to other developed nations, and creaking infrastructure which chokes and slows economic growth.”

Frankly, I could not agree more: we are committed to mobilising billions of pounds more for sustainable investment in the UK economy. We want to see £250 billion of direct Government expenditure in key infrastructure projects over the next 10 years and a further £250 billion mobilised through a national investment bank. Labour will deliver the long-term investment the UK economy needs, to boost growth and tax receipts, and to ensure that our welfare and public services can receive the funding they desperately need—today and in the future. In that way, the public finances will be better placed to respond to the demands of meeting pensions and benefits payments in the long term.

The hon. Gentleman’s idea is for a sovereign wealth fund that would be ring-fenced for pensions and benefits payments. I see some difficulties with that idea. Ring-fencing our pensions and benefits systems to a sovereign wealth fund means using a pot that would vary pro-cyclically to fund a social security system that functions counter-cyclically. In other words, benefits need to be paid out when the economy takes a downward turn, which is when the wealth fund would be at its weakest. Moreover, it seems risky to use a fluctuating fund as a ring-fenced source of public spending that needs to be fairly stable in the long term. What would happen if, at the moment people needed Government support, the wealth fund could not pay out?

The hon. Gentleman wrote in his paper that

“Clearly it wouldn’t be generationally fair or just to expect the same people who had just fought a war, or weathered the financial storm of a global financial crisis, to rebuild the financial cushion…within the next few years of a single economic cycle.”

However, I feel that an eventuality such as a war could cause exactly that type of situation. We have already seen that the Conservative Government consider it fair for the average UK citizen to pay the price of six years of austerity following a financial crash in which they played no real part, and I am not sure how a sovereign wealth fund would ensure that that could not happen again.

Of course, there are advantages to wealth funds if they are used, for example, to invest in infrastructure projects, which many Members have mentioned. However, countries with effective funds tend to run a budget surplus and, as we are all too aware, the UK does not—and has not done so for some time. Indeed, the last Chancellor missed out on all his deficit reduction targets and did not reach his arbitrary surplus goal, so it is no wonder the new Chancellor has abandoned that goal altogether. I struggle to see now how a fund could be built up, given the pressures on the public finances as they stand.

Overall, though, the concept of a sovereign wealth fund for the UK is definitely one that should be discussed. Other countries around the world have indeed benefited from establishing one, and Norway’s great success is often cited as an example. However, at this stage we do not have a workable proposal about how to build up the necessary reserves, and I would certainly not be happy with people becoming dependent on a fluctuating fund for state support and pensions, as has been advocated. Equally, we need to be realistic about how capable Britain is of building up such a vehicle at this time and about the difference between our circumstances and those in countries that have deployed sovereign wealth funds to their benefit.

However, I thank the hon. Gentleman for allowing us to debate this issue today. I look forward to hearing the Minister’s comments. I am sure that the idea of a sovereign wealth fund will be debated in more detail in the future.