I beg to move,
That this House has considered the UK Sovereign Wealth Fund.
It is good to have you looking after us this morning, Mr Owen. The title and subject of this debate come from a proposal I published recently, with help from the good people at the Social Market Foundation, called “The Great Rebalancing: A sovereign wealth fund to make the UK’s economy the strongest in the G20”. It is available in all good book stores; failing that, the Library refers to it in a good deal of detail in its excellent debate briefing note. For anyone who is sufficiently riveted to want more details, it is available on my website with a slightly pithier summary alongside it, written for The Times’s “Red Box” column.
The reason for writing the proposal was simple. This is a crucial moment for Britain. Brexit creates an inflection point—an opportunity to ask ourselves fundamental questions for the first time in many years about what kind of country we want to be once we leave the European Union. How can we best use the spur of our newly won freedoms to change the way our country works? What do we want our economy, our society, our cities and our countryside to look like? “The Great Rebalancing” is an attempt to answer at least some of those questions.
For years, economists of all kinds, of left and right, have said rightly that Britain is worse at long-term planning than other countries. We save less, invest less and build less economically vital growth-promoting infrastructure, such as roads, railways and ports, than they do. Other oil-rich countries such as Norway have built up large sovereign wealth funds, but we have not. We have a rock ’n’ roll economy that lives for today and depends too much on consumer demand, unlike more sobersided countries such as Germany, which are much better at investing for tomorrow.
The result is that we lag behind the United States, Germany, France and even Italy in productivity. It takes a German worker four days to produce what we Brits make in five, so we work longer hours for lower pay than other countries, and we will not be able to raise our living standards sustainably or to build an economy that works for everyone unless we fix that fundamental underlying issue.
Even worse, we have huge national debt, partly as a hangover from the 2008 financial crisis, but mainly because the promises we have made in our pay-as-you-go pensions and benefits system create long-term liabilities that are, financially, effectively the same as debt. That is not fair to our children and grandchildren, who will have to repay the money we have borrowed. We are handing them the bills for our lifestyle, rather than paying for it ourselves. These are long-term structural problems that are deeply ingrained in our economy and in our politics. They have taken decades to build up, and they will take just as long to solve.
Part of the answer is to invest more in crucial economic infrastructure such as roads, bridges, railways and ports, and to keep doing it consistently and predictably. To my mind, the most important and least noticed bit of the Chancellor’s autumn statement was not the £23 billion investment pledge for innovation and infrastructure, although that was certainly welcome and valuable. It was the instruction to the National Infrastructure Commission to plan for a future where, every year, we spend between 1% and 1.2% of GDP on this stuff, rather than 0.8%, as we do today. That is not a one-off; it is a permanent change that he proposes. It stops the infrastructure boom and bust that we have suffered for decades, in which Governments postpone critical growth-promoting projects whenever money gets tight. Making our investments boringly predictable really matters, because stop-start spending does not only delay growth; if there is not a smooth pipeline of projects, taxpayers get less value for money, and we cannot build as much with the money we have.
But what about that huge national debt? How do we make things fair for our children and grandchildren? First, we have to stop adding to the debt, which means stopping borrowing. The autumn statement said the deficit will be down to 2% by 2020, cyclically adjusted across the business cycle, which is a vital step in the right direction. My proposal goes one step further and asks for an annual public declaration by the independent Office for Budget Responsibility to ensure the Government’s budget stays balanced across the economic cycle in future. That is a small but crucial piece of fiscal rule making.
We gave the OBR responsibility for the financial forecasts to stop Chancellors using fairytale projections to cover up problems when they were under pressure. Once we have finally balanced the budget, sometime during the next Parliament, we should extend that same mechanism a little further, to shine a harsh and unforgiving spotlight on any future Chancellor who is not prepared to live within the country’s means. We have not, after all, endured years of austerity and belt-tightening just to have a future financially irresponsible Chancellor toss it all away.
Does the hon. Gentleman envisage a permanent budget surplus?
At this point in my remarks, I envisage a consistently balanced budget across the economic cycle. That would be a major step forward and, given this country’s history since the second world war, it would produce a welcome degree of certainty for businesses, Government and everyone else. I will come on to how we might then build up the sovereign wealth fund; the hon. Gentleman might like to come back at me at that point if he thinks I have not covered the issue properly.
Once we have stopped borrowing, we can start saving, which is the point the hon. Gentleman just made. That is where the sovereign wealth fund comes in. Most of that huge national debt comes from our pay-as-you-go state pension and benefits scheme, so paying off Government bonds—gilts—will not be enough on its own. Even worse, we cannot just grow our way out of trouble, because the pension and benefits scheme’s liabilities will just grow with us. Instead, we need a sovereign wealth fund to pay for what we owe in our pensions and benefits system.
As the hon. Gentleman is one of the more assiduous members of his party, he will have seen that the Co-operative party floated in September 2013 this very idea of a UK sovereign wealth fund. Does he see our proposal of turning the Crown Estate into that sovereign wealth fund as an attractive idea?
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.
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.
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.
There might be broad agreement on what we are discussing, but the hon. Gentleman has premised much of his case on a surplus being run. As I understand it, the three fiscal rules that the new Chancellor has introduced have moved away from the previous budget surplus rule, and nothing in the current fiscal rules says that we will run a permanent surplus.
What I propose would take effect once we had got the budget in balance. The Chancellor’s new set of fiscal rules is designed to take us through the next few years before we get the budget in balance, but once we do get it in balance, any Chancellor—as we are talking about the period after the next general election, I hope that it will be the current Chancellor, but I will not prejudge the results of that election—will need to rethink and reset fiscal rules. What I argue, as the hon. Gentleman will have heard, is that there should be a national debt charge, initially just to carve out what we are already committed to paying in terms of interest on the debt, but as the economy grows, that would slowly start to yield a very small surplus, which could be used to pay into the sovereign wealth fund. That is a very long-term process, but we need to start it soon.
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”
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.
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.
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.
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?
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.
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.
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.
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.
I apologise for my late arrival, Mr Owen; I had another meeting. Does my hon. Friend agree that we have to look forward, when it comes to these funds? Oil prices, fracking and all the rest have been referred to, but we have to debate the issue as a whole, including wind turbines and all of that. Green energy could be as much as 40% more expensive, and we have to look at all of it. If we are going to put money in, we have to get the price correct.
I thank my hon. Friend and colleague for his intervention. As always, it is good to have his businesslike approach; he looks at the real issues critically and focuses on the situation that we are in. We need to look at the issue more widely and at some things that will cost more. That is part of the debate for the future.
We all know that the deficit needs to be cut, as the hon. Member for Weston-super-Mare openly acknowledged, yet it is incumbent on us all to look at the long term; in this House, we have to be visionary, and this debate gives us chance to do so, and to look at how we can secure a better future, using our resources for future generations.
I respectfully point out that, like many people, I have opposed the severity of Government cuts. I have met people in my office who have come for help and thought that they were deserving of benefits, but those have become harder and harder to get. I am sometimes overwhelmed by the cases I come across. It is very hard as an elected representative, no matter which party Members belong to and whatever their views, not to become perturbed and emotional about those cases. When I see people who should be on benefits, whose medical conditions are being made 10 times worse because there is no alternative than to work, I think, “No, we cannot sustain the cuts.” I stand by that belief. I stand by the fact that our front-line medical staff and emergency services need investment to sustain services. I stand by the belief that we need an Army that is capable of dealing with international commitments. All those things need to be in place.
Achieving all that and still cutting the deficit is incredibly hard to imagine, yet it can and must be done. Looking at the situation and saying that we need to invest in our future with a portion of the money is even more difficult, and that is why we are having this debate. Perhaps the national insurance contributions that the hon. Member for Ross, Skye and Lochaber referred to can kick-start the fund.
We expect people to budget with their money at home in exactly the same way. People must pay for a secure home with a mortgage, which should be paid off in some 30 years of work. People must pay their tax and national insurance to ensure healthcare and future security. On top of that, we ask people to pay into a compulsory private pension fund set up by their employer, and they must then live off the returns from that money. That is what we all must do in this place: we must keep all the balls in the air, as we expect our constituents to, while living a normal life. We must pay our mortgage—the deficit—at a rate that enables us to meet the rest of our obligations. Many young couples out there would love a 15-year mortgage, but it is not possible to pay that and live daily. As my mother says, “You cut your cloth to suit your needs.” We must pay off what we can afford to, and continue to spend money on what we must not neglect.
The hon. Member for Weston-super-Mare said in his paper on the sovereign wealth fund:
“We can and should start doing this immediately, because it is the only kind of Government spending which can justifiably be paid for with long term debt. It will inevitably mean a slightly longer wait to eliminate the Government deficit and achieve a balanced budget, but should earn a good financial return through higher economic growth nonetheless.”
I agree, and we should consider that. It is a difficult, but not impossible, task. We are elected to take difficult decisions in this House and to ensure that they are the right ones. That is why this debate is so helpful.
At the very least, the proposals merit full Government scrutiny and consideration. A committee should be set up to do this work and to see how the Government can invest now to help future generations. I think of Katie and Mia, my wee granddaughters—most of us probably have grandchildren—and I would give them the world, if only it were mine to give them. We would all do that for our children and grandchildren. We have an obligation to the generations ahead to do the right thing, to make the tough choices now and to secure a better future for them than seems to be on the horizon. The work needs to be done, and the hon. Gentleman has started it with this debate. We now need seriously to consider in this place how to do that. The Minister will lead on this issue, so there is no pressure on him whatever. We look to him genuinely and seriously for guidance on how best we can fulfil our obligations as MPs, and—I do not mean to sound like Trump—on how to make sure that we keep Great Britain great.
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.
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.
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.
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.
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.
I could not agree more. I will come on to that, but the Norwegian example is slightly skewed by the fact that Norway is a relatively small country and, when its sovereign wealth fund was being built up, it had an excess of inward investment in the oil industry. Norway therefore did not need to tap the wealth fund for domestic infrastructure expenditure. Norway has also been canny in making significant investment in infrastructure anyway. There is a glaring gap in the UK’s infrastructure investment, and infrastructure would be one of the primary places to secure a positive income stream; it is therefore somewhere we would want to invest.
Just to finish on the Norwegian example, there is never a good time to start a sovereign wealth fund. It is interesting that the Norwegians did not start their wealth fund until the early 1990s, just as oil prices collapsed. They set up a spanking new sovereign wealth fund, and they chose to persevere after oil prices nosedived. Oil revenues built up again during the 1990s and the wealth fund powered away. On whether we should wait and whether there is a right time to start, there is never a right time. The Norwegians started their sovereign wealth fund at the worst possible time for the income streams that they were tapping, namely oil revenues, but they persevered. It is about perseverance and long-term thinking. The hon. Member for Weston-super-Mare made the key point that this works only if we think long term.
We must look at some of the counter-arguments, because as enthusiasts we tend to let our ideas run away with us. The fundamental argument that is always made, especially from the Conservative Benches, is “Why should the Government—or some Government agency, even at arm’s length—keep the revenues and invest them? Surely we should cut taxes and let people spend the money themselves, because they are better judges of how to invest for the long term.” It is a compelling argument, but the trouble is that historical experience does not bear it out: look what happened to North sea oil revenues back in the 1970s.
It has not yet been mentioned today that a prototype sovereign wealth fund, in the shape of the National Enterprise Board, was set up in 1975 by the then Labour Government to invest in domestic infrastructure. As I remember, it had £1 billion a year from North sea oil. It began by building up a portfolio of British industrial companies. There was a Scottish equivalent, the Scottish Development Agency. That was all abolished in 1979 when the Conservative Government came in under Margaret Thatcher. The argument was, “Individuals and private companies are better able to spend the money, so why not cut taxes?”
The 1980s were the decade of maximum inflow of funds from North sea oil. What happened to investment in that decade? Industrial investment fell—indeed, by the end of the 1980s, the UK turned out to be one of the lowest spenders on private industrial investment in the OECD. So it did not go into private sector investment; what about public sector investment? We started the 1980s with something like 2% of GDP being spent in net public investment in infrastructure, which is quite good by today’s standards. By the end of the decade, that had been reduced to something like 0.2% of GDP. There was a catastrophic fall in investment throughout the 1980s. Whatever the huge influx was of funds from North sea oil, it was not passed on in investments.
What about tax cuts? I always like to remind Conservative Members that during the 1980s the share of taxation in GDP did not fall. Yes, Mrs Thatcher cut income tax quite considerably, but she counterbalanced that by increasing VAT. The overall tax burden did not fall, so we have to ask where the North sea oil money—the excess revenue for the Treasury of more than £100 billion in that decade, in contemporary terms––went.
In the first half of the 1980s, there was a very serious recession, from which the economy took 18 quarters to recover and which reduced the Treasury’s overall tax income. Essentially, the Treasury made up the loss from that early-1980s Thatcherite recession by using the North sea oil money. In the end, in the 1980s—the peak years of income from North sea oil—the money was wasted. It did not go into private or public infrastructure investment and it was not used by private individuals to expand their savings; it simply went down the drain.
Does the hon. Gentleman agree that there is not necessarily a choice between tax cuts and a sovereign wealth fund? Potentially, depending on pacing, we could do both. In some cases, it might make sense to do both, if only because—as the Government have already said in answer to parliamentary questions—we will need to do something to reduce the country’s overall debt burden. All I am arguing is that we should not ignore the liabilities built up in our state pensions and benefit system as part of that burden. We need to address that and we may also want to make tax cuts, but for different reasons, to do with demand stimulation and so on.
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.
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?
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.
Thank you very much, Mr Owen, for calling me to speak. It is a pleasure to take part in this debate.
I begin by thanking the hon. Member for Weston-super-Mare (John Penrose) for securing a debate on such a genuinely interesting issue: his proposition for a UK sovereign wealth fund. I have read with interest his recent paper for the Social Market Foundation, “The Great Rebalancing”; the ideas he presented there are very much the basis for his speech today. He was kind enough to advertise the paper’s availability for those seeking a late Christmas present for a loved one. However, I can genuinely say that I enjoyed his pamphlet and I enjoyed listening to his speech today.
I do not want to get the hon. Gentleman into any trouble, but I have to say that parts of his speech were very much on board with certain parts of current Labour party economic policy, even if we do not necessarily reach the same conclusion on this issue. However, on separating current and capital spending and balancing day-to-day spending while allowing for long-term investment, we are very much on the same page. I only hope that his Government will listen to him and implement such a sound economic policy, which is rapidly becoming a mainstream consensus position.
The Labour party has been calling for higher levels of Government investment, given that, as the hon. Gentleman and other hon. Members outlined, we are investing less as a percentage of GDP than any other comparable developed nation. As the hon. Gentleman writes in his pamphlet:
“The result is chronic under-investment relative to other developed nations, and creaking infrastructure which chokes and slows economic growth.”
Frankly, I could not agree more: we are committed to mobilising billions of pounds more for sustainable investment in the UK economy. We want to see £250 billion of direct Government expenditure in key infrastructure projects over the next 10 years and a further £250 billion mobilised through a national investment bank. Labour will deliver the long-term investment the UK economy needs, to boost growth and tax receipts, and to ensure that our welfare and public services can receive the funding they desperately need—today and in the future. In that way, the public finances will be better placed to respond to the demands of meeting pensions and benefits payments in the long term.
The hon. Gentleman’s idea is for a sovereign wealth fund that would be ring-fenced for pensions and benefits payments. I see some difficulties with that idea. Ring-fencing our pensions and benefits systems to a sovereign wealth fund means using a pot that would vary pro-cyclically to fund a social security system that functions counter-cyclically. In other words, benefits need to be paid out when the economy takes a downward turn, which is when the wealth fund would be at its weakest. Moreover, it seems risky to use a fluctuating fund as a ring-fenced source of public spending that needs to be fairly stable in the long term. What would happen if, at the moment people needed Government support, the wealth fund could not pay out?
The hon. Gentleman wrote in his paper that
“Clearly it wouldn’t be generationally fair or just to expect the same people who had just fought a war, or weathered the financial storm of a global financial crisis, to rebuild the financial cushion…within the next few years of a single economic cycle.”
However, I feel that an eventuality such as a war could cause exactly that type of situation. We have already seen that the Conservative Government consider it fair for the average UK citizen to pay the price of six years of austerity following a financial crash in which they played no real part, and I am not sure how a sovereign wealth fund would ensure that that could not happen again.
Of course, there are advantages to wealth funds if they are used, for example, to invest in infrastructure projects, which many Members have mentioned. However, countries with effective funds tend to run a budget surplus and, as we are all too aware, the UK does not—and has not done so for some time. Indeed, the last Chancellor missed out on all his deficit reduction targets and did not reach his arbitrary surplus goal, so it is no wonder the new Chancellor has abandoned that goal altogether. I struggle to see now how a fund could be built up, given the pressures on the public finances as they stand.
Overall, though, the concept of a sovereign wealth fund for the UK is definitely one that should be discussed. Other countries around the world have indeed benefited from establishing one, and Norway’s great success is often cited as an example. However, at this stage we do not have a workable proposal about how to build up the necessary reserves, and I would certainly not be happy with people becoming dependent on a fluctuating fund for state support and pensions, as has been advocated. Equally, we need to be realistic about how capable Britain is of building up such a vehicle at this time and about the difference between our circumstances and those in countries that have deployed sovereign wealth funds to their benefit.
However, I thank the hon. Gentleman for allowing us to debate this issue today. I look forward to hearing the Minister’s comments. I am sure that the idea of a sovereign wealth fund will be debated in more detail in the future.
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.
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.
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.
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.
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.
About half of the extra £23 billion that the autumn statement has put into infrastructure investment is going into housing. How does that raise productivity?
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.
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.
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.
What a splendid debate. There is a high degree of consensus among all parties, with a few isolated islands holding out against the principle. Much of the debate has been about how we might set up a fund, the competing mechanisms that we might use to build it up, and when we should have started, but there has been widespread agreement that, in principle, such a fund is desirable. Scottish National party Members say they are in favour of the principle of a sovereign wealth fund, but they argued that we should have started it earlier and built it up from oil. None the less, they were in favour.
The voice of Northern Ireland agreed. The hon. Member for Strangford (Jim Shannon) said he was brought up to save for a rainy day, as were we all, and he is absolutely right. The hon. Member for Harrow West (Mr Thomas) brought up the Co-op party’s suggestion—similar but not identical to mine—which was helpful.
Although the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) was kind about my paper, I am not sure that the Labour party and I are at the same point on generational justice; it puts less weight on it than I do, although I reassure him that the fluctuations in the fund that he is worried about need not be fatal, but that is for a longer conversation on another occasion.
The Minister was very helpful in accepting the three questions that I asked. On the need for rebalancing, he was clear about the desirability of making our economy more robust and more sustainable. Is debt repayment sufficient on its own, or do we have to take into account our broader liabilities, to rebalance the economy? The answer to the latter is yes, and the Minister was clear about that. He left the door temptingly open on whether this proposal is the right answer. He was generous in his acknowledgement of the strengths and benefits of sovereign wealth funds around the world. He rightly says, as my proposal acknowledges, that it would be wrong to start such a thing now. He leaves the door temptingly ajar, so that it might be something we should consider in future, but I understand that he cannot commit Her Majesty’s Government to this at this point. However, that gives us plenty of opportunity, on a cross-party basis, to come back to this and make sure that that chink of light is brought into full focus.
Question put and agreed to.
That this House has considered the UK Sovereign Wealth Fund .