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  1. Wealth
September 7, 2018

IPPR reaction: Does the UK really need a sovereign wealth fund?

By Spear's

IPPR’s bold new proposals for the UK include setting up a Citizens Wealth Fund, but will the left-leaning think-tank’s ambitious ideas work? Arun Kakar investigates

‘It is apparent that we need to rethink what counts as a successful economy,’ proclaimed the Institute for Public Policy Research (IPPR) in a hard-hitting indictment on the UK economy that it claims ‘is not working for most people’.

One of the most eye-catching among some 73 proposals for reform is the establishment of a Citizens’ Wealth Fund – intended to ‘transform’ parts of national private and corporate wealth into shared net public wealth. It claims that if the UK set up a sovereign-style wealth fund in the 1970s amid the Wilson government’s exploitation of Northern Sea Oil – as Norway did – then it would be worth over £500 billion today.

Now it proposes to raise necessary billions from planned asset sales, which are expected to raise around £56 billion between 2017/18 and 2022/23 – including £15 billion from the sale of RBS shares and £27 billion for the winding down of UK asset resolution – are touted as key capitalisation sources for the fund. Other sources include tax revenues and the £14.1 billion of assets in the Crown Estate. It would also fund progressive redistribution policies such as ‘larger dividends’ of £10,000 for young people to ‘invest in their futures’.

READ MORE: The New Capitalism: has wealth found a new conscience?

Now whether or not you agree with this specific spending idea is one thing; but what about a UK sovereign wealth fund, a national nest egg for the future? After all we all know that we’re living longer, and medicines are becoming more expensive. Some extra cash down the back of the national sofa might be useful.

‘We believe a fund of this kind would provide a mechanism for all of society to hold a stake in national wealth, and to benefit from the increasing returns to capital,’ says the IPPR. ‘By transforming a part of national private and corporate wealth into shared net public wealth, and stewarding it well, it would help redistribute wealth within and between generations.’

IPPR report

It’s not difficult to see why asset managers have been floating the idea. A government portfolio of domestic and global assets operating with complete transparency could help to finance a significant portion of government spending, while the appetites of pension funds would surely be whetted by the availability of long-dated government bonds to feed their long term liabilities. Norway’s sovereign wealth fund crossed the $1 trillion mark last year and there is no reason to expect that the UK government would be unable to compete for good quality assets, too. After all, our charities and universities have been doing it for years.

READ MORE: Interview: Yanis Varoufakis on the end of Europe — and capitalism

Sceptics argue that it’s an unnecessary move. The UK’s economy is not comparable to governments which operate sovereign funds, and the government missed the boat during the Northern Sea Oil boom. Oil revenues, it is argued, should have been channelled into a fund that benefitted future generations rather than financing current spending plans, and the UK has yet to experience a similar wealth boom. To start a sovereign wealth fund now is also an inefficient way to tackle the issues of inequality outlined by the IPPR, even with the ‘windfalls’ associated with RBS reprivatisation or the sale of government debt. Indeed, this points to what might be a simpler, if less, exciting option.

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IPPR report

‘It’s a nice thing to have, but [the government] will probably be better off simply borrowing less at this point,’ Sam Dumitriu, head of research at the Adam Smith Institute tells Spear’s. ‘If we were running very large government surpluses and maybe putting some of that into a fund, or perhaps if you expect the costs of government to rise in the long run because of pensions or something similar, that would make sense but we don’t have that problem.’

It makes sense: with £1.8 trillion of national debt – enough to swallow Norway’s entire sovereign wealth fund twice over – any chancellor might be more inclined to pay that down with the RBS revenues before considering a new saving’s kitty that makes little practical sense. ‘This is a very poorly designed policy which will tax anyone who wants to own shares, in order to redistribute that money arbitrarily to anyone of the age of 25,’ says John O’Connell, CEO of the TaxPayers’ Alliance. ‘You would have an absurd situation whereby wealthy bankers or footballers are gifted money for no reason other than their youth.’

READ MORE: ‘The injustice is real’ — Nigel Lawson on the dark side of globalisation

If the government really wants to help fund business growth, it could simply cut taxes for people looking to start businesses. ‘If you believe that one of the problems in the UK is that we’re under-investing, then surely you’d want to lower taxes on investment to create a greater incentive,’ adds Dumitriu. ‘What we should be doing is looking at corporation tax.’ Dumitriu calls the idea ‘symbolic’, but not a ‘sensible policy’ that hides the fact that such ‘minimum universal inheritance’ pay-outs are still derived from tax money. Taking less money from the young through income tax and national insurance might be more beneficial and efficient in the long-term

But who knows? With future generations approaching the housing ladder with unease and the government clamouring for younger voters – giving every 25-year-old a £10,000 pay-out might turn out to be the untested, unproven policy miracle stroke of the century.  With Shadow Chancellor John McDonnell calling on all parties to ‘heed the IPPR’s challenges’, the debate is just beginning.

Arun Kakar writes for Spear’s

Photo credit @Berardo62 Flickr

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