UK Sovereign Wealth Fund

Ian Blackford Excerpts

Wednesday 14th December 2016 Westminster Hall

[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.

[Mr Gareth Thomas]

In the words of Oasis, the hon. Gentleman is looking back in anger. I understand, given his political perspective, why he is doing that. Might I encourage him to look forward and to think about how we might establish a sovereign wealth fund going forward? Has he had the chance—assiduous politician as he most definitely is—to reflect on the Co-op party proposal, which envisages turning the Crown Estate into the beginnings of a UK sovereign wealth fund?

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[Ian Blackford]

I am grateful for the hon. Gentleman’s kind remarks. We need to make sure that people in this country can benefit from the wealth that is created. It is a reasonable contribution to the debate to consider what should happen with the Crown Estate.

I would actually take things a stage further because I want to see the benefits of the Crown Estate come down to our communities. There is considerable value generated by the Crown Estate in the highlands and islands of Scotland and we have seen none of the direct benefit of that. Of course some of that will be devolved to the Scottish Government over the coming years, but I do not want the assets of the Crown Estate to sit in a fund, whether that be in London or in Edinburgh; I want my communities in the highlands and islands to benefit directly from it.

There is a bounty that will no doubt come from offshore wind over the course of the next few generations, and I want to take that opportunity to make sure that its benefits and bounty are reinvested back into the highlands and islands, so that we can broaden the base of sustainable economic growth. I agree with the broad direction of travel that the hon. Gentleman has suggested, but I would do it in a slightly different way to make sure that our local communities get direct benefit from the bounty of the Crown Estates.

I know that many other Members want to speak, so I will move on quickly. We have long argued that to take account of the volatility of North sea oil, we have to establish not just one, but two, funds as and when circumstances permit: a stability fund and a savings fund. Why a stability fund? It is an implicit recognition of the volatility of commodity pricing and a desire to set a cautious budget that would allow excess tax receipts generated in periods of high oil prices to be released for current spending at a time of price weakness. That would create stability of revenue sources for Government spending and protect the economy from price shocks.

Secondly, a long-term savings fund would, as is the case in the 30 countries that have established such funds, have a long-term legacy for future generations. A lack of vision and a focus on only the short-term have seen the UK consistently refuse to do that. If we are now seeing an emerging consensus challenging that, I will be delighted.

Although I welcome this debate and the initiative of the hon. Member for Weston-super-Mare, what he argues for is simply not going to happen in the short term given the state of the UK’s finances today. We need to make sure that in Scotland, as circumstances dictate, we can return to this as a solution for us all.

In the short term, maximising the potential for the North sea and west of Shetland must be a priority. The fiscal and regulatory regime must therefore support ongoing investment, so that we can continue to benefit from the oil that is still there to sustain jobs and our future prosperity. We have taken a substantial bounty from the North sea. Now is not the right time to establish a wealth fund; now is the time to put in place mechanisms that will support the industry, development and the ability to extract longer-term value and, of course, taxation revenue.

Just as those in Westminster sat on their hands when an oil fund should have been established, they have now been slow to respond to the weakness in oil and gas prices. Inaction has impacted the ability to maximise recovery in the industry. Today, the priority is to support this industry with an eye on creating the circumstances that will allow us to return to the needs of establishing an oil fund. For us, recovery in the oil industry and in tax revenues goes hand in hand with a transition to a green economy. It is part of a holistic approach that recognises that we need to adapt to a new, low-carbon economy.

I say yes to a sovereign wealth fund, but as part of a wider strategy. It is just a pity that we have missed so many opportunities and that, in the meantime, Scotland has missed out.

[Jim Shannon (Strangford) (DUP)]

It is always nice to be called to speak, Mr Owen. I congratulate the hon. Member for Weston-super-Mare (John Penrose) on setting the scene on a subject that has to be discussed and given some thought in this House. Those of us here, and those who unfortunately have not been able to make it, will have ideas about how to do this. This is the first stage of a discussion that we should, perhaps, have had many years ago. At least we are starting the process; let us start it with this discussion. I look forward to the shadow Minister’s contribution, other Members’ contributions and, in particular, the Minister’s response on how to take this forward.

We are considering the proposals put on paper by the hon. Member for Weston-super-Mare in his report, “The Great Rebalancing: A sovereign wealth fund to make the UK’s economy the strongest in the G20”. That is a very grand title, but it encapsulates his thoughts on the subject—and, perhaps, our thoughts as well. An enormous level of thought and groundwork went into these proposals. I congratulate the hon. Gentleman on the paper, which we read—not just the background notes—back home, and it gave us food for thought. I am astonished that he found the time to do so much work on it. Anyone who takes the time to read the background notes will understand the time that he has put into writing this paper, which is worthy of discussion in the House, and in Westminster Hall today.

I was raised to save for a rainy day, as many in my generation were—and that is not just because I am an Ulster Scot and we think that every pound is a prisoner. I was taught to save for a rainy day at an early age by my mother and father, and it has not done me any harm over the years. I am now married, of course, and the money is never my own anymore; it belongs to her, but that is by the bye. I do not wish to dumb down in any way the hard work of the hon. Gentleman, but to me this is like the Government saving for a rainy day, as I said to him when discussing the debate beforehand. The hon. Member for Ross, Skye and Lochaber (Ian Blackford), who spoke before me, is a strong advocate for the WASPI—Women Against State Pension Inequality—women and their pensions, and I am glad he is here. Before I came in, I thought, “What if we had had this fund 20 years ago? We would have been able to look after the WASPI women and make sure their pensions were covered.” We did not, but at least we have chance to look at this issue now.

[Ian Blackford]

As always, the hon. Gentleman makes a number of pertinent remarks. There is a view that we do not have the resources to pay the appropriate pensions to people, but we should keep an eye on the Government Actuary’s Department, which has argued—I am keen that people should not get away from this—that the national insurance fund will be in surplus to the tune of about £30 billion by 2016-17. The resources are there to give the women what they are due, and over the next 20 or 30 years, pensions will remain affordable.

[Jim Shannon]

I thank the hon. Gentleman for those figures. I was not aware of them, but if that money is available, perhaps we are in a position to start the fund today with some of those resources.

I am sure that, like me, many hon. Members, including the hon. Gentleman, will know of 63-year-old women in their constituency who still have to work as their pension is unavailable. Those women are wishing that in the 1980s, at the time of the North sea oil find, which we have heard many comments about, the Government had decided to invest in a rainy day fund, which could have helped the pension pot. For that reason, the sovereign wealth fund must be considered seriously by the Government. That is why this matter is worthy of debate.

This issue is not cut and dried, by any means. There is talk of the Government’s shale fund being similar to this plan, as the hon. Member for Weston-super-Mare mentioned, but this is not the day to debate the pluses and minuses of fracking. A lot of hard work would need to be carried out before the fund saw any profit, but many people are already making claims about the potential for shale oil, if that comes through—and I suspect that, at some time, it will. We must think about what can be done for the future benefit of all people in the UK. Today’s austerity is a reality for us all. We have to be honest in this House about moneys and finances.

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[George Kerevan (East Lothian) (SNP)]

I begin in time-honoured fashion by thanking the hon. Member for Weston-super-Mare (John Penrose) for securing this debate. I say that genuinely because we do not get enough chance to think long term or to debate issues in detail, and this is a practical issue on which to do so.

This has been a limited debate, and I begin my summing up by agreeing with many of the hon. Gentleman’s reasons for having some kind of sovereign wealth fund. In the current context, the most important reason is that a sovereign wealth fund would provide inter-generational justice. There have been discussions about a UK sovereign wealth fund since the 1970s; the issue has come and gone. There have been many arguments for a sovereign wealth fund and, in the ’70s, the North sea oil money had arrived and we needed to do something sensible with it.

Such reasons are episodic. On both sides of the House, we have all come to understand that inter-generational fairness is an issue. Successive generations have repeatedly used up available funds, often making a mess of the economic situation, and left it to future generations to pick up the pieces, as the Women Against State Pension Inequality Campaign is at the moment.

In the absence of any inter-generational mechanism for creating such fairness, we have to consider some kind of sovereign wealth fund. The Government are on record as seeking some form of inter-generational justice, and this is the only mechanism currently under discussion that has any chance of success. Without prejudging how we do it, a sovereign wealth fund is worthy of discussion because it exactly fits the kind of programme that the Government have suggested.

The hon. Gentleman did not examine in any great detail the other argument for some kind of sovereign wealth fund. During a periodic economic crisis, a sovereign wealth fund, provided we do not touch the capital, would give us an emergency revenue stream that can be put to use without unbalancing the broader fiscal mix. Since 2008, at the same time as building up the equity base of their sovereign wealth fund, the Norwegians have been able to tap some of the income stream temporarily, to offset lower tax revenues as a result of the global economic crisis. Again, that would seem to recommend itself to the Treasury.

[Ian Blackford]

I applaud what Norway has done, but one of the weaknesses of the Norwegian model is that it invests primarily in equities and bonds. If we get this right, there is an opportunity to invest in infrastructure. My hon. Friend is right that we should draw down only on the income streams, but there is a real opportunity to invest in infrastructure to build capacity and growth opportunities, as well as investing in financial assets.

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[The Economic Secretary to the Treasury (Simon Kirby)]

It is a great pleasure to serve under your chairmanship, Mr Owen.

I start by thanking my hon. Friend the Member for Weston-super-Mare (John Penrose) for securing this debate today. The issues it raises go to the heart of the Government’s economic approach, which is to get our finances in order and to build for the long term-success of the country. I read with great interest my hon. Friend’s paper, produced with the Social Market Foundation; I might indeed consider purchasing it as a small Christmas gift. The objectives that informed his paper are all ones that I share, along with Members on both sides of the House, I am sure: to see the UK’s economy strengthen and grow sustainably in the future.

Let me start by addressing the idea of sovereign wealth funds more generally, because I agree that they can form an important part of any country’s strategy for investing in its future success. Often, they are a way for Governments to manage fiscal surpluses, foreign currency operations or balance of payments surpluses. They can indeed be an effective tool for both planning sustainable investment and managing volatility in receipts. We have seen how they can work well for countries that have large fiscal surpluses. Hon. Members have mentioned Norway’s Government pension fund; there is also Saudi Arabia’s Saudi Arabian Monetary Agency’s foreign holdings fund.

However, we are not debating today the valuable role that sovereign wealth funds play in other countries around the world; we are considering whether such a fund would be appropriate for the UK, and—importantly—appropriate at this time. As the House is fully aware, we are not in the same position as many other countries that have elected to set up such funds. The crucial point is that the UK has not run a surplus since the start of this century, although we are now committed to doing so.

We have chosen the path of a credible fiscal policy that will restore our economy for long-term health, and although we are no longer seeking to deliver that surplus in 2019-20, we remain resolved to do so, to bring our public finances into balance. That is why we have committed once again in the autumn statement to deliver the surplus: we set out our plan to make that happen as soon as possible in the next Parliament, while in the interim bringing cyclically adjusted borrowing below 2% by the end of this Parliament, and getting public sector net debt, as a share of GDP, to fall in this Parliament, too.

I share my hon. Friend’s conviction about the need for strong and sustainable public finances for the UK and I understand his interest in exploring the potential for a British sovereign wealth fund. I agree with the hon. Member for Strangford (Jim Shannon) that the country should be prepared for a rainy day—sensible advice that we should all listen to. However, given that UK debt will soon be at a 50-year high of 90.2% of GDP, our priority must be to return the public finances to balance and to get the debt falling before we can consider a sovereign wealth fund in more detail. However, although such a fund may not be an appropriate avenue for us to explore at this stage, I will touch on some of the issues that today’s consideration has raised.

One such issue has been our infrastructure. One of the key roles that a sovereign wealth fund can perform is to act as a vehicle to fund sustained investment in infrastructure. Although we may not have a sovereign wealth fund, or even a formal statutory target for the proportion of our GDP that we invest in infrastructure, the Government share my hon. Friend’s conviction about making the infrastructure investments we need that will boost our productivity and strengthen our economy. That is why we have asked the National Infrastructure Commission to make recommendations on the future infrastructure needs of the country.

Once again, I refer all Members to the commitment in the autumn statement, where we prioritised high-value investment in infrastructure and innovation. That included the new national productivity investment fund, with £23 billion of extra spending targeted at high-value projects that will deliver more opportunities and higher living standards for working people—whether that is more homes, better transport links or the 21st-century digital capacity we need.

[Ian Blackford]

The Minister is setting out why he thinks it is not relevant to set up a sovereign wealth fund today, but does he accept that there was a missed opportunity with the £340 billion bounty that came from North sea oil? That could have been used to establish an oil fund that would have delivered benefits for today and the future.

[Simon Kirby]

I often say as an MP—I suppose the same is true as a Minister—that it would be nice to have a crystal ball, a magic wand and a time machine. We are where we are, and we have to make the best decisions going forward—rather than looking back in anger, if I may quote the hon. Member for Harrow West (Mr Thomas).

The additional capital will take public sector net investment to over 4% of GDP for the rest of this Parliament, well above the average of the last 30 years; in real terms, it has been more than 50% higher on average this decade than it was under the whole period of the previous Government.

Another aspect of my hon. Friend’s excellent paper was the suggestion that a new national debt charge be carved out of income tax to help pay down the debt. He will know how much I share his conviction that we need to get debt falling, but I know he also shares the Government’s commitment to helping people who are just about managing. It is important that we build an economy that works for everyone. That is why we would not look to deliver a new income tax charge in our current position. Indeed, as part of the tax lock, we have legislated not to increase the main rates of income tax, national insurance contributions and VAT during this Parliament. Alongside that, we have prioritised an approach to taxation that supports working people, such as our increase in the tax-free personal allowance.