Brexit creates a crucial moment for Britain; an inflexion point where we have 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’ve left the EU.
For years, economists of all kinds 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 like roads, railways and ports than they do. Other oil-rich countries like Norway have built up large sovereign wealth funds, but we have not. We’ve got a rock-and-roll economy, that lives for today and depends too much on consumer demand, unlike more sober countries like Germany, which are much better at investing for tomorrow.
The result is that we lag behind the US, 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 won’t be able to raise our living standards sustainably, or build an economy that works for everyone, unless we fix it. Even worse, we have a huge national debt, partly as a hangover from the 2008 financial crisis, but mainly 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.
Part of the answer is to invest more in crucial economic infrastructure like roads, bridges, railways and ports, and to keep doing it consistently and predictably. The Chancellor’s instruction, in his Autumn Statement, to the National Infrastructure Commission to plan for a future where we spend between one per cent and 1.2 per cent of GDP on this stuff, rather than 0.8 per cent today was a crucial first step in ending the infrastructure ‘boom and bust’ which we’ve suffered for decades, in which Governments postpone critical growth-promoting projects whenever money gets tight.
But what about that huge national debt? How do we make it fair for our children and grandchildren?
Well, first we’ve got to stop adding to the debt, which means stopping borrowing. The golden moment when the budget is balanced is due sometime in the early 2020s and, once we’ve got there, we can start saving.
That’s where the UK Sovereign Wealth Fund comes in. Because most of that huge national debt comes from our pay-as-you-go state pension and benefits scheme, paying off Government bonds – gilts – won’t be enough. Even worse, we can’t just grow our way out of trouble because the pension and benefits scheme’s liabilities will just grow with us.
So, instead, we need a UK Sovereign Wealth Fund to pay for what we owe in our pensions and benefits system. It will 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. And, like those other schemes, it should be managed through a fully-independent Board, in this case a new, standalone National Insurance Trust with a heavyweight board of trustees, like the Bank of England, to prevent political meddling.
Building the fund is rather like repaying a mortgage or saving for a pension. We’ve got to put a little aside every month for a long, long time. We’d start by creating 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 build up the fund.
The process needs to take some time – several generations – so the costs don’t all fall unfairly on current taxpayer. But old, bad habits die hard. As soon as there’s a hint, a sniff of a surplus, there will be dozens – hundreds – of proposals for tax cuts or extra spending.
We have to make sure that all the effort and sacrifice of getting the budget into balance isn’t wasted. We haven’t endured years of austerity and belt-tightening just to have a future, probably Labour, Chancellor toss it all away on the latest politically-fashionable spending gimmick. So a balanced budget can’t just be a one-off episode of fiscal sobriety, where our rock-and-roll economy detoxes for a few months before hitting the party scene again. We need a long-term commitment to clean living, to this fundamental rebalancing of our economy, which a UK Sovereign Wealth Fund would deliver.
The answer is an annual public declaration by the independent Office of Budgetary Responsibility (OBR) to make sure the Government’s budget stays balanced, and annual contributions to the Sovereign Wealth Fund are being maintained. The OBR is already responsible for properly-independent financial forecasts, so Chancellors can’t use fairytale projections to cover up problems when money is tight. This extends the same principle a little further, to shine a harsh and unforgiving spotlight on any future Chancellor who isn’t prepared to live within the country’s means.
What kind of post-Brexit Britain would we be creating then? One which is generationally just, because we wouldn’t be expecting our children to pay the bills for our lifestyle today. A socially just, asset-owning society, where high and low earners alike have equal stakes in the investment fund which underpins their pensions and benefits. A country with the financial strength and investment-led growth to use its post-EU independence effectively, as an international force for good in the world.
The opportunity is there. It is up to our generation to grasp it, and to bequeath a new Britain to our children.