Publication Machinery of government 20 February, 2020

Time to think big: A UK Sovereign Wealth Fund

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This Reform Perspectives argues that the UK must create a Sovereign Wealth Fund to drive long-term investment, growth in new industries, and meet the challenges facing future generations.

This Reform Perspectives argues that the UK must create a Sovereign Wealth Fund to drive long-term investment, growth in new industries, and meet the challenges facing future generations.

It is authored by John Penrose MP, Member of Parliament for Weston-super-Mare and Chairman of the Conservative Policy Forum.

The challenges ahead

The paper argues that Britain currently faces three major problems. Firstly, we save, invest and build less than other countries – we have a rock-and-roll economy that lives for today, and does not invest for tomorrow. Second, Britain is better at inventing clever new widgets than it is at turning them into profitable and competitive companies. Thirdly, a growing, ageing population is a demographic timebomb carrying ever-growing costs, and which will have to be funded by fewer and fewer working-age people.

It’s time to think big

This Reform Perspectives argues that a UK Sovereign Wealth Fund could help combat these issues. 

It would create a pot of savings that could pay for state pensions and benefits. Building slowly over time, the Fund would provide an intergenerationally fair solution that would save many from having to shoulder the costs of others.

It would create an ‘anchor investor’ for British entrepreneurs and start-up businesses, making it easier for innovators to transform their inventions into strong businesses. New cutting-edge technologies can be funded so they can easily scale up without moving abroad, keeping jobs and wealth in the UK.

It would also create a source of funding for long-term investment capital. 

Seeding the Fund

There are several ‘investment acorns’ which need to be planted in order to grow the Fund.

Firstly, the Fund should be made the legal owner of existing and future state-owned commercial investment funds, like those held in the British Business Bank. The Fund should also be made the legal owner of state-owned land and property, managing and investing the profits from leases on behalf of taxpayers.

Other countries with Sovereign Wealth Funds have used the proceeds of mining and drilling to set up their funds. Similarly, the UK Fund should have the rights to all future mining and extraction, whether it’s of gravel for building, lithium in Cornwall or mineral deposits that haven’t even been discovered yet.

The National Fund, which is currently worth about £500 million, should be used to start the UK Sovereign Wealth Fund. As the Fund develops, growth-year surpluses from the Government budget could also be lent to the Fund, on condition they are repaid during the next recession. The Fund could invest them and keep the profits when the loan is repaid.

Sticky-fingered politicians

The Fund could be at risk from politicians who may want to use its resources to finance various projects, so would need to be protected.  The report argues that the Fund should be set up with a heavyweight board of trustees like the Bank of England, to maintain its independence.

Social and financial capital

Even though the Fund would take decades to reach full maturity, our economy would feel the benefits much sooner. The Fund would start rebalancing Britain’s economy, creating stronger and more reliable financial foundations so that we invest more for the long-term.

The paper concludes that a Sovereign Wealth Fund could make Britain a more socially-just society too, because rich and poor would all own the same, equal stake in the Fund and the wealth it contained.

Reform Perspectives are designed to inject new and bold policy thinking into the debate about public policy.