UK Sovereign Wealth Fund

Debate between Ian Blackford and Simon Kirby

Wednesday 14th December 2016 Westminster Hall

[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.

Sale of Annuities

Debate between Ian Blackford and Simon Kirby

Wednesday 19th October 2016 Commons Chamber

[Simon Kirby]

As ever, my hon. Friend makes an excellent point. There were very few people interested in buying those products, which would have resulted in a very poor deal for customers. The market was not big enough to provide value for money and on that basis we decided not to proceed.

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

On that point, given that we now know that there was an absence of buyers in the market, where was the Government’s consultation before they offered their proposal? We cannot get away from the fact that this was a manifesto commitment from the Government. I welcome the U-turn; they have done the right thing, but why was the matter not brought to the House? Why did we read about it in the media?

Last April the Financial Conduct Authority said that there were concerns about the secondary market in annuities, which would mean

“a significant risk of poor outcomes for consumers”.

The regulator said:

“Annuities are inherently difficult for consumers to value, and consumers who will be able to participate in this market will include a higher proportion of older, more vulnerable consumers.”

We could see that. The FCA came out with that last April. Why has it taken so long for the Government to do the right thing? We recognise some of the concerns for consumers as a result of the pensions freedoms introduced. May we have a full review of the pensions freedom policy?

[Simon Kirby]

I thank the hon. Gentleman for recognising that this is the right thing to do. It is a difficult decision and it is, as ever, a balance between two conflicting viewpoints. My job as a Minister at the Treasury is about making sure that consumers are protected, that industries are regulated sufficiently, and that there is the very best possible deal for customers. Withdrawing this product, which is aimed at many old and vulnerable consumers, is absolutely the right thing to do.

Savings (Government Contributions) Bill

Debate between Ian Blackford and Simon Kirby

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 17th October 2016 Commons Chamber

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

First, let me thank everyone here today for contributing to this interesting debate. As my hon. Friend the Financial Secretary said in her opening remarks, the measures contained in this Bill are really important priorities for this Government, and both Help to Save and the LISA offer people in this country a new and effective option for how they save their money. Help to Save focuses on giving more support to those on low incomes. It will give a 50% boost to those who can get into the saving habit of putting aside a small, regular amount into their account each month. The LISA focuses on younger people. It is an account that will offer genuine choice and flexibility, not to mention—

[Ian Blackford]

rose—

[Simon Kirby]

I will give way, but I had hoped to address the hon. Gentleman’s many comments later on.

[Ian Blackford]

I am grateful to the Minister, but this is an important point. Will he explain to the House why he thinks it is right to encourage people to invest in the lifetime ISA rather than in a pension, given that a pension will give a better return, as has been demonstrated in the figures, such as the one I cited of a 32% difference over a 40-year period? Why are the Government being misguided and prioritising ISAs over pensions?

[Simon Kirby]

I thank the hon. Gentleman so much for that intervention, but the Government are not doing what he suggests. We are offering people a choice, and these two schemes are complementary and serve very different purposes. The genuine choice and flexibility to which I alluded are at the core of this Bill, but now let me deal with the specific points raised today.

The hon. Members for Salford and Eccles (Rebecca Long Bailey) and for Harrow West (Mr Thomas) mentioned credit unions. The Government recognise that many credit unions were interested in offering accounts, but it was not clear that a multiple provider model would guarantee national coverage for the scheme. We will continue to explore further options for credit unions to support delivery of the scheme, and I am sure that we will have that conversation in more detail as the Bill progresses.

The hon. Member for Salford and Eccles talked of this scheme being a substitute for benefits, but it is about increasing the financial resilience of low-income families so that if they are hit with an unexpected bill or if someone loses their job, they will have money for a rainy day. If something unexpected happens to their income, they will have savings to bridge the gap. She also asked why two years was chosen. This is the period of time needed to encourage account holders to develop a regular savings habit—a habit all too lacking in many people, especially younger people. I reiterate that the amount is up to £50 a month. People may not be able to afford that amount, but any regular saving is something that all of us should encourage.

I wish to clarify one point. The hon. Lady mentioned that there would be an additional penalty if people took money out of a lifetime ISA. An additional charge will be applied to reflect the long-term nature of the account, and that will act as a disincentive to people removing money unless it is essential or if there is a very important change in circumstances to be taken into account.

I wish to thank my hon. Friend the Member for Newark (Robert Jenrick) for his contribution. Our constituents are looking forward to the introduction of these products, and I agree with him that they contain significant incentives. He also mentioned the abolition of savings tax. It is worth putting it on the record that 95% of people have no savings tax to pay thanks to the new personal savings allowance.

The hon. Member for Ross, Skye and Lochaber (Ian Blackford) mentioned a smorgasbord of issues, a few of which I shall pick up on. He said that women were disadvantaged by automatic enrolment. Before it began, 65% of women employed full time in the private sector did not have a workplace pension; as of 2015, that had fallen to 35%. He said that a lifetime ISA was just for the rich, but it is for anyone between the ages of 18 and 40. They can open it and save into it until they are 50. The maximum annual contribution that an individual can make is £4,000. People can pay less than that and still enjoy the Government bonus. We expect that a large majority of those who use the lifetime ISA will be basic rate taxpayers.

The hon. Gentleman mentioned StepChange. Well, this is what StepChange has said:

“We welcome Government recognition of the need for a savings scheme aimed at those on low incomes. Our research shows that if every household in the UK had £1,000 in rainy day savings, 500,000 would be protected from falling into problem debt.”

He also mentioned the Association of British Insurers, which said in August:

“The industry supports the Lifetime ISA as a vehicle to help people save, in addition to a workplace pension.”

I hope that is fairly clear.

My hon. Friend the Member for North West Hampshire (Kit Malthouse) asked very sensible questions and made some thoughtful points. In particular, he asked about the limit of £50 a month. Individuals saving £50 a month for four years will earn a generous bonus of £1,200. It is probably an appropriate limit for people on low incomes, at whom the scheme is targeted. There has to be a ceiling.

The hon. Member for Harrow West asked about payroll deduction. I have to thank him for a very sensible and measured contribution. There is no reason why payroll deduction cannot take place. I cannot make a commitment to him today, but I can confirm that I am happy to see whether there is more that we can do in that area.