Ed McGuinness: The security case for a Sovereign Wealth Fund

10 Jun

Ed McGuinness is a founder of Conservatives in the City, and contested Hornsey & Wood Green at the last general election.

Security is not a dirty word Blackadder… Crevice is a dirty word but security isn’t!” Immortal words uttered by Stephen Fry’s General Melchett to Rowan Atkinson’s Captain Edmund Blackadder in the eponymous 1999 sitcom.

General Melchett is, of course, correct. Security has become the go-to principle for many recent policy decisions. Some obvious; Hikvision’s supply of CCTV cameras to a large portion of UK public services or Huawei’s ejection from the UK’s 5G network. Some rather more subtle; re-evaluating the sale of UK technology companies to US giants or our energy security plan. 

Security, in a post-Covid world, is not just about the overt security mentioned earlier; think military, anti-terror or even cyber security. It now encompasses things much closer to home. Security now is about security of supply chains so we can get the parts we need for essential equipment, such as ventilators or PPE. It is also about food and energy supply – otherwise we risk costs of essentials becoming prohibitively expensive.

Encompassing all of the above should be a secure economy. In an era with an aging population (more than 40 per cent of the entire NHS budget is spent on over 65s) and so much government spending on financing an ever-ageing population, the ability of governments to pull fiscal levers to provide that all-encompassing security is diminishing. 

Enter the Sovereign Wealth Fund. Some have argued on this site for such a fund as a means of easing the fiscal burden increased by the National Insurance rise which came into effect only a few months ago.

But as the cost of living crisis intensifies and as there is an increasing focus on the short-term needs of people’s basic essentials from the Government, we need to be planning for our longer term economic security if we are to have the ammunition to tackle future crises.

Fundamentally, however, establishing a Sovereign Wealth Fund is an intensely conservative thing to do; it would tackle short termism, enhance individual opportunity, and create a fairer society in which we all have a stake. 

First, it is worth establishing the mechanics. Reform set out in a 20202 paper how a Sovereign Wealth Fund would be established and funded, alongside the short-term benefits it would bring whilst building, using Einstein’s eighth wonder of the world (compound interest) over time.

Initially, the fund would be seeded with the National Fund (currently at just over £500 million). It would own the rights to all state-owned land and property alongside current and future investment funds (effectively an umbrella fund) and have the rights to all future mining and extraction of the UK’s natural resources (after, all these belong to the British people).

In turn, the fund would act as an “anchor investor” for startups and infrastructure projects which would provide long term stability for projects to grow, and also participate in profits. Whilst this would not, at least initially, be the trillion dollar Norwegian Government Pension Fund Global (which has returned 6.6 per cent growth per year since 1996), it would, over time, benefit the economy by funding pensions and smoothing fiscal cycles by acquiring government surplus during expansions and repaying in recessions.

It is worth noting that while this may appear to some to be state ownership, it is not. Sovereign Wealth Funds are passive, diversified entities which hold small, non-controlling stakes in a huge range of enterprises – with the aim of preserving capital and growth rather than management. Crucially, this one would be separate from government – managed by independent trustees for the citizens of the nation, not for the government of the day. 

Such a sovereign wealth fund would be Conservative for three main reasons. First, it would tackle short termism, which is the antithesis of Conservative thinking. Conservatism promotes well thought-out, incremental change in line with changing societal values and norms.

Second, a sovereign wealth fund would rebalance the scales of fiscal discipline, so that a little invested by the current generation would benefit future generations. By asking for a little now to ask for less later means we are trusting future generations more and more – and conservatism has always been about trust in the people.

Third, and most importantly, the fund would make the United Kingdom fairer. Everyone in the UK would have an equal share in the fund with benefits paid as dividends from it. Conservatism means giving people a stake in society – in the past, this was imminently tangible through property. But in the future, this could include a share (redeemable as a pension) in a sovereign wealth fund.

The Norwegian fund has £270,000 for each citizen of Norway – not owned or controlled by the government of the day, but by a board of trustees, with strict rules established in law, to be managed on behalf of the citizens of Norway. This model could be followed here.

Establishing a Sovereign Wealth Fund would bring not only practical benefits for the present (seed money and investment capital), but could provide a means of easing societal problems in the future (growing pensions and social care) whilst providing a secure economic outlook (fiscal rebalancing through growth and recession).

Ultimately, if we wish to dig ourselves out of the “crevice”, and provide ourselves with economic security and resilience, it is worth enacting this particular “cunning plan”. 

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