UK Sovereign Wealth Fund

Debate between Gareth Thomas and George Kerevan

Wednesday 14th December 2016 Westminster Hall

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

I apologise to the Front Benchers: because of other commitments, I will have to read their responses to my contribution and others in Hansard.

I want simply to re-emphasise the proposal that the Co-operative party floated some three years ago: that the Crown Estate, which holds some £8.6 billion of land and property, should have changes made to its regulations to allow it to invest overseas and so essentially become the beginning of a sovereign wealth fund. It is appropriate to have a degree of realism about the size of other sovereign wealth funds and, therefore, about the task for a future Government who want to set one up. As others have suggested, one has to start somewhere if one thinks a sovereign wealth fund is a good idea.

For all intents and purposes, the Crown Estate acts like a sovereign wealth fund by investing in property—usually retail centres—and paying the surplus it generates back to the Treasury to help offset the costs of our royal family. We should encourage the Crown Estate to be a little more ambitious by lifting the restriction that says it can invest only in UK assets and by allowing it to invest in assets overseas, as other sovereign wealth funds do. The Crown Estate clearly has a track record of expertise in the retail sector, and one might therefore expect it to continue with that approach. I see no reason for the Crown Estate not being allowed to contemplate, under the Treasury’s watchful eye, investment in similar ventures overseas. The Crown Estate could then hopefully generate sufficient surplus not only to pay for the royal family, but to invest in the types of infrastructure projects that all Members want to see.

The Crown Estate has a comparatively smaller asset base than the funds held by Norway and a number of middle eastern countries. Nevertheless, I see no reason for not advocating a more ambitious strategy, with the hope and aspiration that the Crown Estate might begin to become a sovereign wealth fund. I have had no clear explanation from the Treasury of why it opposes changing the law to lift the restrictions that limit the Crown Estate’s investments to the UK market. I hope that the Minister—if not in this debate, then perhaps by way of letter—will think about that, because if the restriction were lifted, the Crown Estate would begin to act like a sovereign wealth fund.

[George Kerevan]

Does the hon. Gentleman accept that some of the Treasury’s reservations might be overcome if we followed the Norwegian example and had limits for classes of investment that a sovereign wealth fund could make? If we went down the route of investing in foreign equities or bonds, only a proportion of that investment would then qualify for the overall fund.

[Mr Thomas]

That is a helpful suggestion. If the Treasury could be persuaded to allow the Crown Estate to dip its toe in overseas markets, it might initially restrict how and where, and in what type of assets, the Crown Estate invests. The hon. Gentleman, cautious Scot as he clearly is, might wish to encourage the Treasury both to be open-minded about investment overseas and to carefully restrict such investment. I do not oppose such a restriction if it allows the Crown Estate to be a little more imaginative.

With that pithy contribution, I encourage the Minister and my Front-Bench colleague to embrace the Co-op idea with enthusiasm and consider how we might begin a UK sovereign wealth fund.

--- Later in debate ---

[George Kerevan]

In a spirit of compromise and reaching a consensus that might have an impact on the Treasury, I happily take the hon. Gentleman’s point.

All I am trying to say is that the crude default assumption that taking the money and giving it to individuals or companies will resolve the infrastructure investment problem has historically not proven correct. We come back to the need for some kind of overall public agency that saves and invests. The crude Thatcherite argument, if Members will forgive me for putting it that way, that says “Leave it to the public” is wrong. Short-term pressures on the public and on companies are just as great as those on Governments and Ministers. Somebody somewhere has to create an agency that thinks long term. That is what we are talking about.

[Mr Gareth Thomas]

The hon. Gentleman’s colleague was a bit sniffy about the idea of turning the Crown Estate into such an agency. Could the hon. Gentleman be persuaded to be more positive about the idea?

[George Kerevan]

I am not sure that I recognise that characterisation of my good friend, my hon. Friend the Member for Ross, Skye and Lochaber (Ian Blackford). In case it has never been said on the record before, I will say that he was once my student when I lectured in economics—he is younger than he looks—so everything he knows about economics probably came from me. Anyway, I will come on to the Crown Estate in a minute.

What should we spend the money on? I agree with the hon. Member for Harrow West (Mr Thomas) that the Norwegian example of simply investing in foreign equity is too narrow. Given the primary crisis here in the UK, we should impose an injunction on whatever form of wealth fund we create to invest primarily—not totally, because for safety and balance it should have a remit to spread its portfolio—in infrastructure. The OECD reckons that a baseline of something like 3.5% of GDP should be reinvested in public infrastructure every year to maintain and develop reasonable levels of productivity. In the UK, that investment has fallen to less than 2%. I fully recognise that significant funds for infrastructure investment over the forecast period were announced in the autumn statement, but even so the figure will rise only to about 2.3%, and we need to get up to at least 3.5%, so there is an infrastructure investment gap. The flow of funds could come from a sovereign wealth fund, because above all a sovereign wealth fund can think long term, whereas the City and the financial institutions are being forced to think more and more short term. Again, one of the crucial things we get from a sovereign wealth fund is the ability to think long term rather than just talk about thinking long term.

How would we fund it? I share some of the disquiet about simply linking it to running a budget surplus. Running a budget surplus is extraordinarily difficult; it has rarely been possible to run one over any length of time, in this country or in others. Gordon Brown ran one for a few years at the beginning of the millennium, but it was largely done through artifice because he sold off the gold reserves at rather a bad time. Roy Jenkins, who some Members may be old enough to remember, ran a budget surplus at the end of the 1960s, but only with a hugely draconian austerity programme that actually undercut investment in the long run.

From looking closely at the autumn statement, I do not believe that there is much chance of our running a budget surplus at the end of the forecast period. I certainly agree that we should seek to have a balanced current budget over the medium term, but artificial controls on investment and on borrowing for investment are the wrong way to go. There is no reason not to have quite a healthy borrowing for investment, provided that it is roughly in line with trend growth, because it will make a return. Simply linking the sovereign wealth fund to running a budget surplus is offering a hostage to fortune.

We should therefore look at other sources of funding. The Crown Estate is one—clearly we have assets there that could be deployed. I also remind hon. Members of something that has not yet been mentioned: in the last decade, most of the sovereign wealth funds that have been created, particularly in China, have come from recycling the foreign investment earnings from a trade surplus. It is a bit difficult for the UK, given that we have a trade deficit. Fortunately, in Scotland, where we still have a trade surplus, that surplus would underline the re-creation of our sovereign wealth fund.

Clearly, this is an idea whose time has come and about which there is broad consensus across the parties. It is also an idea that the Treasury has always been reluctant to think about, but that stems from the short-termism of the Treasury. The new Chancellor has suggested that he wants to think longer term. A sovereign wealth fund would be his chance to prove that that is what he is going to do.