UK Sovereign Wealth Fund

Gregory Campbell Excerpts

Wednesday 14th December 2016 Westminster Hall

[John Penrose]

I have not included in my paper any proposal to take existing Government assets and pour them into the sovereign wealth fund, to give it a kick-start. It would be possible, and there are parallels. The previous Chancellor floated the idea of a regional shale gas sovereign wealth fund, based on the proceeds from fracking. A number of Government assets could be added to any sovereign wealth fund, though in my paper, I do not propose that they should be, but there are respectable parallels. For example, the Norwegian sovereign wealth fund is based on the proceeds of its North sea oil. That is certainly an option to consider. I am not proposing it here, but it is certainly not beyond the bounds of possibility. There are very respectable parallels and antecedents elsewhere in the world.

We need a sovereign wealth fund to pay for what we owe in our pensions and benefits system. It would give the scheme the same strong financial foundations as other occupational pension schemes in the UK for the first time in our country’s history. Like those other schemes, it should be managed through a fully independent board—in this case, a new stand-alone national insurance trust with a heavyweight board of trustees, like that of the Bank of England, to prevent political meddling.

Building the fund is rather like repaying a mortgage or saving for a pension: we have to put a little aside every month for a very long time. We would start by creating a new national debt charge, carved out of income tax, to pay the interest on the national debt, currently projected to be just over 2% of GDP by 2021. It would be set as a percentage of GDP and, as the economy grew, any surplus would be used to build up the fund. The process needs to take a long time—several generations—so that the costs do not all fall unfairly on current taxpayers. It is urgent too, because we need to start soon. There will be a brief moment, when the Government’s budget reaches balance in the next Parliament, when we could set the fund up, but old, bad habits die hard. As soon as there is a hint, a sniff, of a surplus, there will be dozens—hundreds—of proposals for tax cuts or extra spending from both sides of the House. Many of them will be excellent ideas, but we must ensure that we do not miss the golden opportunity to set the fund up at that moment, when we can, before it is too late and any surplus money is earmarked for other things.

We must ensure that all the effort and sacrifice of getting the budget in balance is not wasted. A balanced budget cannot be just a one-off episode of fiscal sobriety, in which our rock ’n’ roll economy detoxes for a few months before hitting the party scene again. We need a long-term commitment to clean living—to the fundamental rebalancing of our economy that the sovereign wealth fund would deliver.

Creating the fund would rebalance our economy; build stronger foundations, so that we invest more for the long term; deliver faster growth and extra jobs, so that we could afford stronger and better public services; insulate us against the next economic shock, such as the latest banking crisis; make us less dependent on foreign investors once Brexit is complete; build our international heft around the world; and answer some of those fundamental questions about the kind of country that we want to be after we leave the EU.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I congratulate the hon. Gentleman on his choice of debate. I agree with him about the long-term thinking that will be required to create a sovereign wealth fund. Does he agree with me that successive Governments need to commit to the promotion of a wealth fund? Then the beneficiaries throughout the United Kingdom will support it, because they will see tangible benefits accruing from it.

[John Penrose]

That is a crucial point. As I said, we need to start building the fund soon. It is an urgent priority that we should begin it when the budget hits balance, but once we have begun, we need to save a little for a very long time, and that needs to last over several generations, so that the burden of setting the thing up does not fall unfairly on the current generation of taxpayers. The hon. Gentleman is exactly right: for it to be stable over such a long time, it needs to be politically stable. That means two things. First, I hope that it has cross-party consensus behind it, so that it will have some degree of political longevity; secondly, it will need institutional bulwarks to prevent Chancellors of whichever party, when they are under pressure—facing a general election or a cyclical recession—from interfering, meddling or trying to get their sticky fingers on the money. The hon. Gentleman is absolutely right: the fund will need very strong institutional safeguards around it. Those are laid out in some detail in my paper. I did not plan to go into huge detail about that here. I am happy to, if anyone wants me to, but I thought that I would spare everyone the detail at this stage, simply because of pressure of time and because other hon. Members want to add their thoughts.

If we could do what I propose, we would be a fairer, more generationally just country, because we would not be saddling our children and grandchildren with the bills for our lifestyle. We would be more socially just, because low and high taxpayers would all own the same personal stake in the fund that underpins their state pension and benefit payments.

I hope that all of us in the debate, including my hon. Friend the Minister, will deal with three issues. First, can we all agree that rebalancing our economy is necessary and important? A number of Members have suggested in interventions that there may be consensus on that, but it would be good to get that on the record from hon. Members on both sides of the House if we can. Secondly, can we all acknowledge that once we have the budget in balance, reducing the bits of our national debt that we happen to have issued as Government bonds will not be enough to achieve rebalancing on its own? Thirdly, can we all accept that a sovereign wealth fund to underpin the state pension and benefit system is at least one valid way of solving the deeply ingrained imbalances and problems in our nation’s economy and finances, even if there may be other ways as well?

Think of it: if we can agree on some or all of those issues, cross-party, we could launch a new Britain—a socially just, generationally just, asset-owning democracy on a scale that no other developed nation could match. The post-war Governments created new institutions such as the NHS and the welfare state, which had little relevance to rebuilding homes and cities damaged in the war, but everything to do with forging a new society and nation. The post-Brexit Government is our generation’s chance to do the same—to leave a mark, to mould and weld our fractured society into a new and better shape. This will be a brief political moment in which, if we grasp it without fear, whether we are from the political left or right, we can create a legacy for our children and grandchildren to remember us by with pride, so let us think big and long term, and let us do this together.

--- Later in debate ---

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Owen. I congratulate the hon. Member for Weston-super-Mare (John Penrose) on securing the debate and raising this most important topic. He asked whether there could be consensus across the House. There are those of us on this side who have been arguing for infrastructure investment for quite some time, for the simple reason that we need to build capacity in the economy—we need to create the circumstances for growth.

We all want a high-wage economy; we would absolutely welcome that. The debate is about the mechanisms that will create it. We make the point that if we want to deliver a balanced budget in this country, that has to come through the delivery of economic growth; it cannot come on the backs of the poor, as has been the case over the last few years because of austerity. The issue has to be about building capacity in the economy, creating the circumstances for growth, which perhaps can deliver the kind of outcomes that the hon. Gentleman talks about.

I am delighted that we are having this debate, but in some senses it is happening too late for us in Scotland. As the House of Commons Library briefing paper confirms, more than 30 countries have sovereign wealth funds, and it is estimated that funds based on oil and gas receipts are responsible for more than half the global total value of those funds. We in the Scottish National party have long argued that we should have established a wealth fund from our oil revenues to ensure that future generations could benefit from the proceeds of North sea oil. Not for the first time, and over a long time, Westminster was not listening.

The UK Government have taken a staggering £340 billion in tax receipts from North sea oil. Where has that gone? Why have we not seen a legacy from that bounty for all the people in this country? It was not invested to ensure that there was a legacy for future generations. Rather than North sea oil receipts being looked at as a bounty that could be invested to ensure that there was future growth, the proceeds of North sea oil were frittered away.

Let us contrast the UK’s lack of foresight with the foresight of our near neighbours in Norway. Norway’s wealth fund, to which the hon. Gentleman referred, now exceeds $905 billion; the value is $177,000 per capita—for each Norwegian citizen. That astonishing sum shows what can be done if people take the right approach to investing in their future. The Norwegians recognised that oil was a bonus. It will run out at some point, but they ensured that their country would have a lasting benefit. Let me quote what The Economist said in an article in September this year:

“Two decades after Norway’s government paid a first deposit into its sovereign-wealth fund, the country is learning how to manage a behemoth. The vehicle, which is used to invest abroad the proceeds of Norway’s oil and gas sales, has amassed a bigger fortune than anyone expected, thanks to bumper oil prices.”

The hon. Gentleman has talked about a wealth fund that may build up over generations, but Norway has achieved the largest wealth fund in the world after two decades because it was prepared to put something away for future generations. In that sense, I support the broad outline of what he says. The article goes on:

“As the direct benefits of oil decline—around 46% of Norway’s expected total haul of oil and gas is gone—the relative importance of the fund will grow. The annual revenues it generates now regularly exceed income from oil sales.”

Establishing a wealth fund from the benefits of North sea oil receipts is an effective means of protecting an economy from oil prices that can prove to be volatile. In that sense, the lucrative revenue generated by oil and gas is used to protect its own longevity as well as the overall prosperity and stability of an economy during price swings. We have known all that for decades.

The McCrone report, delivered to the UK Cabinet Office in 1974, claimed that North sea oil revenues could have made an independent Scotland as economically prosperous as Switzerland. The report was so alarming for the UK Government that it was buried as top secret for 30 years. That is, perhaps, of little wonder. Scotland’s bounty has kept the UK afloat; there is no lasting financial legacy for Scotland. The Norwegians have a foundation of financial security; we have a UK Government who would not come clean on the benefits of North sea oil and have denied us the opportunity to have our own legacy from that bounty. Yes, let us plan for a sovereign wealth fund, but that should have been delivered over the past few decades.

Denis Healey said the following about the saga:

“I think we did underplay the value of the oil to the country because of the threat of”

Scottish

“nationalism”.

He said he thought that Westminster politicians

“are concerned about Scotland taking the oil, I think they are worried stiff about it.”

That is the reality, yet we are constantly told by Westminster politicians about the perils of Scottish independence and that we cannot afford to take responsibility for our own destiny. If we had this oil fund, that would give us the tools to manage any financial storms like those we have witnessed over the past few years.

Denis Healey let the cat out of the bag; it was a worry that the wealth of Scotland could create this oil fund and undermine the significance of Westminster. McCrone suggested way back in the 1970s that an oil fund should be set up, but here we are in 2016 asking why we have not done so.

[Mr Gregory Campbell]

There is an emerging consensus about the need to think long term in regard to the wealth fund. Does the hon. Gentleman agree that some people will listen to his comments about an oil fund, which would, by its nature, have a very limited lifespan—the oil is going to run out at some stage in the near future—and think we need to think beyond that lifespan? We need to be talking about a generational expectation rather than a general election expectation.

[Ian Blackford]

I agree, in so far as we have to establish the mechanisms to make sure that we have something left for future generations and the issue is not just about oil. What I want to do in this debate is talk about the missed opportunities and how we can learn from them.

I will come specifically to how we can deal with not only the financial crisis but the decline in oil prices over the past few years. We cannot run away from the fact. We know that oil prices are depressed at the moment and that revenues from North sea oil have declined alarmingly, and that that will remain the case for the next couple of years. However, there is still the value of 2 billion barrels of oil in the ground under the North sea, and at some point oil prices will recover: there will still be the opportunity to create that oil fund out of the North sea oil revenues.