Former minister urges short-term and longer-term spending on infrastructure and calls for a UK sovereign wealth fund to address ‘long-term and structurally-ingrained weaknesses’ of the economy. In a new paper published by the Social Market Foundation (SMF), the Conservative MP for Weston-super-Mare, former minister John Penrose, calls on the government to launch a UK sovereign wealth fund in order to correct what he calls some of the “long-term and structurally-ingrained weaknesses” of the UK economy, such as low saving rates, a low investment rate and failure to build infrastructure.
In the paper, titled The Great Restructuring: A sovereign wealth fund to make the UK’s economy the strongest in the G20, John Penrose MP also urges the government to invest more in infrastructure both in the short-term and in the longer term:
“We need to build and invest more in crucial economic infrastructure, and keep doing it consistently and predictably no matter what the short-term economic weather may be, so we match (or beat) other developed economies.
“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.
“The Government should also legislate for a target of a percentage of GDP for Government long-term infrastructure investment, similar to the ones already in place for Overseas Development (0.7% GDP) and NATO (2% GDP).
The paper will be formally launched at an SMF event in Westminster on Tuesday 8 November. Details of the event are in ‘Notes to Editors’ below.
Speaking about the new paper the author John Penrose MP said:
“I supported the remain campaign in the recent EU referendum. However, leaving the European Union creates an opportunity to ask fundamental questions about our future for the first time in 40 years and we should seize that opportunity.
“Historically, the UK has been worse at long-term planning than many other developed nations: it saves less, invests less, and builds less economically-vital growth-promoting infrastructure (roads, rail, ports etc) than they do.
“I believe the UK needs new fiscal rules, backed by strong new institutions, to change the way British politicians, Governments, savers and businesspeople behave over the very long term, so financial virtue becomes a reliable, permanent and boringly predictable part of our national finances.
“This includes a sovereign wealth fund for the UK. Done right, this could make the UK’s economy the strongest in the G20.
“The underlying principle which underpins the changes that will be needed to fix our long-term weaknesses is generational justice: the idea that it is unfair to saddle our children and grandchildren with the costs of our current spending. But that is exactly what we are doing if we pay for those costs with long term debt, so there must be fundamental changes to the shape of Government finances.
“The proposals in this paper are very big, long-term solutions for equally big, long-term and ingrained problems. They will need a sustained political, social and financial commitment, over several generations, if they’re to be completed successfully. It is the kind of commitment which parents often make for their own children or grandchildren, to ensure they have a better life than they did. These proposals will do the same for the entire country. We should think big.”
Key points of The Great Rebalancing:
- A new National Debt Charge (‘NDC’) carved out of Income Tax will pay the interest on the national debt in the same way as National Insurance Contributions (NICs) pay for the pensions and benefits system at present. It would be set as a % GDP and, as the economy grew, any surplus would be used to begin repaying the National Debt, and to build up a new UK Sovereign Wealth Fund.
- A UK Sovereign Wealth Fund which will build up over the very long term (several generations at least) to fund the liabilities in our pensions and benefits system.
- The UK Sovereign Wealth Fund should have a target date by when the build-up must be complete and the Bank of England will publish an annual letter confirming whether the NDC is set at the right level to achieve the target.
- The Fund should be managed through a fully-independent, standalone National Insurance Trust with a heavyweight Board of Trustees equivalent to the Bank of England, to prevent political meddling. It will be subject to the same rules for prudent investments and transparent reporting as every private-sector pension or insurance firm so taxpayers get value for money.
- Government should legislate for a target of a percentage of GDP for Government long-term infrastructure investment, similar to the ones already in place for Overseas Development (0.7% GDP) and NATO (2% GDP).
- The independent Office of Budgetary Responsibility (OBR) will make an annual declaration of whether the Government is being financially virtuous, to confirm whether the new infrastructure investment target is being followed, and whether the budget is being balanced across the economic cycle so day-to-day public spending is not being financed by long term borrowing.
- A copy The Great Rebalancing: A sovereign wealth fund to make the UK’s economy the strongest in the G20 is available here.
- The Great Rebalancing: A sovereign wealth fund to make the UK’s economy the strongest in the G20 will be launched at a seminar on Tuesday 8 November at the Social Market Foundation, 11 Tufton Street, London SW1P 3QB from 1230-1400. John Penrose MP will be joined on a panel by the SMF’s chief economist Nida Broughton, and the SNP MP Ian Blackford, who will reflect on his own party’s support for a sovereign wealth fund for Scotland.
- The event will be chaired by The Independent’s economics editor Ben Chu. Full details of the event can be found here.
- John Penrose MP is available for interview and comment on his paper.
John Penrose has been Member of Parliament for Weston-super-Mare since May 2005. He served as Minister for Constitutional Reform 2015-16, handling the EU Referendum Bill, voter registration and boundary reform. Before then he has been a Government Whip, Tourism & Heritage Minister (covering the Queen’s Diamond Jubilee and the London Olympic and Paralympic Games) and Parliamentary Private Secretary to Oliver Letwin. Before joining Parliament, John had an extensive and successful business career.
About the Social Market Foundation:
The Social Market Foundation is an independent, non-partisan think tank which develops innovative ideas across a broad range of economic and social policy. We believe that fair markets, complemented by open public services, increase prosperity and help people to live well.