Leaving the European Union forces us to ask fundamental questions about our future for the first time in 40 years. It’s time to think big. We’re historically worse at long-term planning than many other developed nations: we save less, invest less and build less economically-vital, growth-promoting infrastructure (roads, rail, ports etc) than they do. Other oil-rich countries like Norway have built up large sovereign wealth funds, but we have not.
Even worse, we have a huge national debt, partly as a hangover from the 2008 financial crisis, and partly because the promises we’ve made in our pay-as-you-go pensions and benefits system create long-term liabilities which are the same as debt. This isn’t fair to our children and grandchildren who will have to repay the money we’ve borrowed. We’re handing them the bills for our lifestyle, rather than paying for it ourselves.
These are long-term, structural problems which are deeply ingrained in our economy and our politics. They’ve taken years to build up and will take years to solve. We must use the spur of our newly-won freedoms outside the EU to rebalance our economy, as I set out in a new paper published by the Social Market Foundation think tank this week.
The key is to start investing more in crucial economic infrastructure like roads, bridges, railways and ports, and to keep doing it consistently and predictably no matter what the short-term economic weather may be, so we match (or beat) other developed economies.
That means setting a target for the percentage of GDP we are going to spend on these things, like the ones already in place for overseas development (0.7 per cent) and NATO (2 per cent), and sticking to it religiously no matter what. And because our children and grandchildren will get the benefits of what we build too, we can justifiably pay for it with long-term borrowing. It will mean a slightly longer wait to balance the budget, but the extra jobs and growth we’d create would be worth it.
But what about that huge national debt? How do we make it fair for our children and grandchildren? Rather like repaying a mortgage, we’ve got to save a little for a long, long time. It’s a long-term commitment which will need strong new rules, policed by equally strong new institutions, to make sure politicians don’t back out before the job is done. Those new rules and institutions are:
· A new UK sovereign wealth fund, building up over the very long term (several generations at least) to fund Britain’s pensions and benefits system, managed through a fully-independent, standalone National Insurance Trust with a heavyweight board of trustees, like the Bank of England, to prevent political meddling.
· Once the budget is in balance, an annual public declaration by the independent Office of Budgetary Responsibility (OBR) to confirm it stays balanced across the economic cycle, without junking the new infrastructure investment target either.
· A new National Debt Charge carved out of income tax to pay the interest on the national debt. It would be set as a percentage of GDP and, as the economy grew, any surplus would be used to begin repaying the national debt, and to build up the new sovereign wealth fund.
These changes would fundamentally rebalance Britain’s economy, creating stronger and more reliable financial foundations so we invest more for the long-term. The faster growth and extra jobs would underpin stronger and better public services, insulate us against future big economic shocks like the last banking crisis and build our international heft around the world. The sovereign wealth fund would be huge, and make us less dependent on foreign investors once Brexit is complete.
But, more importantly, the changes answer some of those fundamental questions about the kind of country we want to be after we leave the EU as well. They would make us a fairer country because we wouldn’t be saddling our children and grandchildren with the bills for our lifestyle today.
And the sovereign wealth fund would give low and high taxpayers alike a personal stake in the system which underpins their individual state pension and benefits payments, creating a broad-based, socially-just, asset-owning democracy on a scale even bigger than the one created by Margaret Thatcher’s sales of council housing 30 years ago.
I believe the chancellor has a chance to make a start along this path at the autumn statement on November 23. He – and we – should think big.