UK Sovereign Wealth Fund

Debate between John Penrose and Simon Kirby

Wednesday 14th December 2016 Westminster Hall

[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.

[John Penrose]

Just to ensure that we are all clear, I clarify that my paper supports what the Minister is describing. The proposal in my paper is that the national debt charge would not start until the budget was in balance and would only equal what we were already going to be paying in debt interest to begin with. I reassure him that I am not suggesting an undercutting or a swerving away from the fiscal rules announced in the autumn statement. Those are essential to get us to the point where the budget is in balance, as he is ably laying out at the moment.

[Simon Kirby]

I thank my hon. Friend for again demonstrating what a sensible person he is.

The hon. Member for Ross, Skye and Lochaber (Ian Blackford) asked about North sea oil and why we did not create a fund in the past. He knows full well that successive Governments made use of the revenue from North sea oil to support public finances in the years when the revenues rose. I can tell him that going forward from April 2017, his Scottish Government will have the powers to contribute to their own reserve fund if they so wish. Perhaps that is something they might consider. We all agree that investment in infrastructure is key to growing the economy. That is why the extra £23.7 billion announced in the autumn statement is important; it takes the total we are spending to £170 billion during this Parliament. That will improve productivity, increase living standards and be an essential part of our plan going forward.

--- Later in debate ---

[Simon Kirby]

Housing does raise productivity. It is a much-needed part of our economy. People need affordable homes to rent or buy. The building process, as I am sure the hon. Gentleman is aware, creates jobs and increases prosperity and productivity.

The hon. Member for Strangford mentioned a shale fund—a suggestion that others have made, too. The UK does not currently meet the criteria of a country that would benefit from a shale wealth fund: we have a high debt and a large deficit, and we do not have extensive commodity or natural resource exports. The development of the shale industry would leave a positive legacy for local communities and regions where it is based. The Government’s policy is for those communities to be able to choose to invest the funds for the long term. I thank the hon. Gentleman, as ever, for making a very thoughtful contribution that added greatly to the debate. [Official Report, 19 December 2016, Vol. 618, c. 9-10MC.]

The hon. Member for Harrow West apologised for not being able to be present during my speech, and I appreciate that. He asked about lifting investment restrictions on the Crown Estate. That is an interesting idea; I will do as he asked and write back to him on that matter.

I thank the hon. Member for East Lothian (George Kerevan), as ever, for his thoughtful contribution. He mentioned inter-generational fairness. I agree that that is an important issue, but at 90% of GDP next year, our debt is just too high. That represents a burden on future generations, and it is important that we retain our focus on our priority of returning the public finances to balance and getting the debt falling. Therefore, it is not possible, and it would not currently be appropriate, for the UK to set up a sovereign wealth fund. He also mentioned taxation levels; I feel duty-bound to remind him that from tomorrow, for the first time, his party—the SNP—will be able to put up taxes in Scotland. The Scottish Government can put their money where their mouth is, if they choose to do so.

[John Penrose]

The Minister is being generous. I want to pick up on the point he has now made twice: about prioritising the reduction of the overall level of Government debt in the economy once we have eliminated the deficit. I completely applaud that, but does he accept in return that the debt denominated as gilts or as bonds is only part of the overall picture of liabilities that the Government and successive Government have loaded up? A large proportion of the total liabilities—a larger proportion than the actual debt denominated as bonds—is embedded in the state pensions and benefits system. It would be a mistake for any of us to ignore those liabilities. They are equivalent to debt, so at some point we need to face up to the costs that they include, as well as to the ones he is rightly pointing out with the bonds themselves.

[Simon Kirby]

I thank my hon. Friend for that point, and I accept that the debt is made up of a variety of different things.

I commend my hon. Friend once again for securing the debate, which has been interesting. We have discussed some significant issues for the British economy. There are many areas where he and I are in full agreement, but in closing, I would like to highlight three key aspects.

First, rebalancing our economy is necessary and important. Secondly, dealing with the deficit and getting debt falling is necessary but not sufficient to rebalance the economy. A dynamic and strong economy where growth is shared across all parts of the UK is what we need. Thirdly, on the effectiveness of sovereign wealth funds in various countries, I must repeat our conviction that setting one up is not appropriate for the UK at this point in time when our priority is to get debt falling.

Indeed, as my hon. Friend the Member for Weston-super-Mare notes in his paper, there is little point in attempting to build up such a fund when debt is at

“its current, historically high levels.”

I share my hon. Friend’s desire to live within our means —the hon. Member for Strangford used the expression “to cut our cloth accordingly”—and to secure our public finances, to get debt falling and to invest sensibly in our future success, which are all important areas that represent core priorities for the Government. Those priorities were reflected in the approach that we outlined in last month’s autumn statement: to build an economy that works for everyone.