Angus Brendan MacNeil
Main Page: Angus Brendan MacNeil (Independent - Na h-Eileanan an Iar)Department Debates - View all Angus Brendan MacNeil's debates with the HM Treasury
(12 years, 2 months ago)
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It is a great pleasure to serve under your chairmanship, Mr Leigh, for, I think, the first time, and it is a particular pleasure, if I may say so Sir, to have the Economic Secretary as the Treasury Minister responding to the debate.
We live in a time when nation after nation is being told: “You are not as rich as you thought you were.” As a result, nation after nation is facing cuts—sometimes mild, sometimes severe—in the services their Governments can provide, the real incomes that their labour can earn and the value of their assets, calculated as the debt that can be raised against their businesses and homes. We are living in such times because for more than a decade nation after nation rapidly increased the amount of its borrowings as a proportion of its economy—its national leverage. It was not just excessive Government borrowing, but an entire national pastime undertaken by millions of households, companies and banks in many nations. That beggaring of future generations is now—sometimes harshly but ultimately correctly—being brought to an end, and it is in that context that we review a future fund, including how it may help and how it might fit with current Government policies.
So, what is a future fund? A future fund is shorthand for moving the burden of paying for public sector pensions from the current tax-as-you-go model to a proceeds-from-invested-capital, or fully funded, model. It is fair to say, and I am sure that the Economic Secretary will confirm this, that Lord Hutton’s recent review of pensions ruled out a move to a future fund. Like you, Mr Leigh, I do not have any wish to be a champion for lost causes, but I hope that I am able to make some strong points about why the Treasury should reconsider Lord Hutton’s proposal to move on and not make a transition in the way in which public sector pensions are funded. This is not about public sector pension negotiations or about changing public sector pensions; it is about the process that the Government undertake to fund the pensions.
I encourage the Economic Secretary and the Treasury to reconsider a future fund for three main reasons. The first is that it promotes intergenerational fairness, and reinforces the Government’s view about long-term thinking for the security of our economy. Secondly, it offers an opportunity to rebalance the structure of earnings, to restore emphasis on pension provision—deferred income—rather than on immediate income and, thirdly, it enables the creation of a UK sovereign wealth fund, to stimulate investment in long-term projects.
I shall take each reason in turn. First, on a future fund promoting intergenerational fairness, those of us of a certain age look back on our lives and, being part of a bulge bracket of population—some of us at the latter end of it—perhaps realise that we have taken a lot for ourselves and that, as a generation, we have been somewhat greedy on the nation’s resources. That is one reason why this Government came into office at a time of such enormous debts, which future generations will need to repay. One thing that guides me as a Member of Parliament is looking for ways in which we can use fiscal probity to unburden future generations of some of those liabilities. Let us be under no illusion: it will not be easy for our children and grandchildren to compete in the future world economy. It will be tough. We have new competitors coming up all the time, so they will need every advantage, one of which is to bequeath them lower taxation rates than they otherwise would have.
Does the hon. Gentleman consider the Norwegians to have been a great example of setting up an oil fund for future generations to ensure that their oil wealth was not squandered in one generation?
The hon. Gentleman makes an extremely fair point. I was not in Parliament in the 1970s, and I am not sure whether such points were made at that time, but clearly countries that have received the beneficence of resources—Norway is one example, and Australia another—have seen the value of looking at the long-term investment of natural resources, and have set up future funds to provide for future pension liabilities. The hon. Gentleman makes an excellent point in support of my argument. Of course, we are not as endowed with natural resources as those countries are, but the fundamental point about fairness between the generations is still solid.
Let us remind ourselves that the current level of public sector debt—the debt that we all talk about and are so worried about—is £1 trillion. The public sector pensions liability, which we do not often talk about, is £1.1 trillion. All those obligations have to be paid by future generations and, as we have so significantly ramped up this first amount of debt, should we not look for ways to reduce the unfunded part of public sector pensions for future taxpayers? A future fund would, over time, eliminate that burden from taxpayers and transfer it to the returns that would be generated from a funded pension scheme.
The Intergenerational Foundation has noted some questions about public sector pensions, and also some of the risks, and this change would reduce risk. At the moment, Lord Hutton’s proposals manage risk by way of a view of a cost ceiling on total public sector pension liabilities, which is based on projections of economic growth. The projections show the liability as a steady share of gross domestic product, falling in the long term. I am not sure that history is littered with Governments who under-predict economic growth; in fact, I think that it is often the other way around, with Governments having a rather rosy view of future growth. So, inherently, as we consider the risk that will fall on future generations, there is a likelihood that the Government, under current systems, will underestimate the liability that they are passing on. As Lord Hutton said:
“What we’ve seen is how very quickly the assumptions which underpinned my assessments of the long-term sustainability of public services pensions have been shown to be too optimistic…That is going to affect the sustainability of public sector pensions in a negative way.”
The change in the pensions structure would considerably eliminate that risk.
I shall now talk a bit about the second point, which is the rebalancing of the structure of earnings, to restore the emphasis on pensions. Over the past few decades, the role that pensions have played in the round of the compensation offer made to potential employees has reduced considerably and, I would say, undesirably. There is much more emphasis today on the immediate levels of compensation, on “How much will I earn this year?” rather than on “How much of what I earn am I putting away for my long-term retirement needs?”.
House of Commons statistics have tracked the active membership of occupational pension schemes for private sector and public sector employees, and have compared 1995 with 2010. Over that period, the number of public sector workers in such pension schemes increased, from 4.1 million to 5.3 million, but the number of private sector workers halved, from 6.2 million to 3.1 million. That was a halving in the coverage of occupational pension schemes in a very short period—15 years—which is why I say that the change has been dramatic. Being conservative, I like to see things in the round of their consequences. We are now seeing that many people fear that they do not have enough money for their retirement, and the Government have rightly recognised the need to encourage pensions through auto-enrolment programmes. This would be another measure that would encourage people by, as I shall explain in a minute, creating a floor on public sector pensions that would enable the focus to turn back to how pensions will be provided for private sector workers.
The third point is the role of a future fund in creating a sovereign wealth fund. To create a future fund, we have to fund it—and, boy, does it take a lot of money. If we have £1 trillion of liabilities, that is a lot of money to save up, so a long period is needed. The Australian future fund set a period of 14 years before money could be taken out: the law was passed in 2006, and no disbursements can be made until 2020. For the UK, taking a 20-year period, it would require a minimum of at least £20 billion a year—probably significantly higher than that; somewhere between £20 billion and £30 billion a year—fully to fund all the Government pension schemes over those 20 years.
To put that in context, that figure is equivalent to 3% of total Government expenditure. It sounds a lot, but the Government spend a lot—it would be 3% of expenditure—and it would be only half the money that the Government are spending on the interest on their own debt. It is therefore a manageable amount of money, even though the amount is significant. In addition to looking to fund that out of annual public expenditure, it would also be possible to make asset sales into the fund. In fact, the Australian future fund started with an asset transfer, from the sale of part of the telecommunications company Telstra, for its seed investment. I have checked—with the Minister here, I wanted to be absolutely sure—and the Government’s deficit reduction targets would not be imperilled by any future sale of assets going into a future fund. Quite rightly, if I may say so, the deficit reduction targets are set absent of any funds from the proceeds of the disposal of certain assets, such as those of Royal Bank of Scotland.
Some may say that taking £20 billion out of public expenditure when we are trying to create demand is a very odd suggestion, but of course the £20 billion would not be lost from the economy. Essentially, £20 billion would be transferred from current expenditure to an investment fund for long-term investment. That money would become a fund of resources that could be used to invest in long-term projects. If we take the Ontario teachers’ pension fund—I hope you will look it up later, Mr Leigh—it involves patient capital that is invested in long-term investment projects. It is there to secure the pensions of those wonderful teachers in Ontario; they are not quite, but almost, as good as the teachers in Bedford. It is there to protect their pensions, which it does by looking for long-term investment returns. It is the fund that seeded the money for Birmingham airport. If we had our own infrastructure fund set up as a future fund for public sector pensions, we could provide resources to fund long-term investment projects.
Let me say something that I rarely say, which is that I agree with the comments made by the Secretary of State for Business, Innovation and Skills, who spoke yesterday about the need for a significant investment in housing construction. Of course, we need other construction projects, but we understand that we are under fiscal restraints because we must demonstrate that our deficit is being reduced. I ask the Treasury team to consider this very carefully: in current market conditions, particularly with the constraints of fiscal responsibility and the lenient conditions for monetary policy, a future fund would be uniquely placed to provide the long-term patient capital to fund such infrastructure investments, without there being any challenge to the probity of the Chancellor’s deficit and debt reduction policies. This environment provides an opportunity to fund and seed a future fund with the resources from the Government’s credit easing or quantitative easing programmes, and that would happen in such a way that markets would see that it was matching a reduction in the country’s long-term public liabilities for funding public sector pensions.