It’s not (yet) too late for Hunt to save our grandchildren from destitution

Stop talking the country down, the Chancellor said last week. Jeremy Hunt wants us to acknowledge that economic growth will soon be fired up once more, even if we need to get through a few months of fiscal tightening (ie tax rises) before reaching the promised land.

I admire his optimism, although it looks a bit out of place now that the IMF has identified the UK as the only big economy heading for a recession. Even if we do manage to spark economic growth in the next few years, it will be small beer. In the Autumn Statement last November, the Office for Budget Responsibility (OBR) forecast medium-term growth in potential output of around 1.75 per cent per year. Given the scale of our indebtedness and future spending commitments, this is nowhere near enough.

I don’t particularly want to join the ranks of Mr Hunt’s despised doom-merchants, but imagine the country as an individual. He is up to his neck in debt yet is still trying to borrow more from lenders who charge him ever higher rates for doing so. A big chunk of his income goes on paying the interest on the loans and yet he still wants to spend beyond his means. Worst of all, his biggest costs have yet to come because he is trying to sustain a long-term lifestyle that is no longer affordable but has no savings to fall back on.

He could have squirrelled away a lot of money because he was fortunate enough to find oil and gas in his back garden. But rather than set the proceeds aside for a rainy day, he blew the lot. Indeed, the failure of the country to make the most of its North Sea bonanza represents the greatest missed opportunity of the past 50 years.

Other oil rich countries set up sovereign wealth funds to invest their windfalls to underpin future spending liabilities. We never did. Both Conservative and Labor governments used the extra cash to keep non-oil taxes lower than would otherwise have been possible without sharp cuts in public spending.

Our near neighbor Norway has amassed around £1 trillion in assets, funded by oil and gas revenues. Its fund is so large that yesterday it reported a loss of £133 billion brought about by rising interest rates and inflation. That’s almost as big as our NHS budget.

The fund holds stakes in around 9,300 companies globally, owning 1.3 per cent of all listed stocks. It also invests in bonds, unlisted real estate and renewable energy projects. It is worth about £200,000 per citizen and bolsters a generous welfare state. Is it too late for us to do the same? We have squandered our North Sea legacy, while the opportunity to use the revenues from shale gas to seed a wealth fund has been sacrificed on the altar of environmental activism.

If we are not prepared to harness the potential for wealth creation under our own feet, we also need to accept that we must cut our cloth accordingly. Spending will have to be reduced, future welfare commitments scaled back and our young people encouraged to start making provision for a future much bleacher than anything we have created for ourselves.

I look at my two grandsons and wonder how on earth the current levels of welfare and health care spending can be sustained until they are my age. The answer is they can’t be, so we need to start preparing for the financial circumstances that will prevail 50 years from now. By 2067, the OBR’s baseline projections have public sector debt increasing to 283 per cent of GDP.

We are bedevilled by short-termism and trying to get our politicians to look beyond the next election is hard enough in good times, let alone when the economy is in trouble. But we owe it to future generations to try to not just hand them the IOU for keeping ourselves in reasonable comfort. They will have their own bills to pay and ours, too, so we should now start building up the means for them to do so.

The Labor Party recently committed to a National Wealth Fund or around £8 billion to invest in “green” technologies. The Tories need to be far bolder and announce the beginnings of a sovereign wealth fund which will aim, over the next decades, to accumulate enough money through investment to pay the pensions, benefits and social care that an aging population will require.

John Penrose, MP for Weston-super-Mare and chairman of the Conservative Policy Forum, has been pushing this proposal for several years and, while he has garnered support from his colleagues, nothing has happened. The biggest obstacle is the Treasury, which has never bought into the idea.

Penrose envisages seeding the fund with all existing and future state-owned commercial investment funds such as those held in the British Business Bank. State-owned land and property would also go in, making the fund the legal owner of everything from the Crown Estate to heritage buildings like Somerset House and valuable city center real estate. Future revenues from off-shore wind and mining of mineral deposits such as lithium in Cornwall would be included.

To stop the Treasury raiding the fund for pre-election tax cuts, it would be overseen by trustees and underpinned by statute. It would need strong defences. Moreover, just announcing this fund would open up the debate about the future direction of the welfare state and the possibility of moving to tailormade, social insurance-based provision for today’s children who will otherwise have few of the state benefits currently on offer.

We have a moral obligation to future generations to do this – otherwise they will look back on our fecklessness with opprobrium, and rightly so. We are handing them the bill for our lifestyle, rather than paying for it ourselves.

If it is necessary to flatter, as well as cajole, those in power, then politicians eager to leave an indelible impression on national life might consider how their names would be esteemed alongside those of Lloyd George or Beveridge for laying foundations for the future. How does the Hunt Fund sound? His Budget just a few weeks away promises to be a miserable affair, bereft or any Big Ideas. Well, here’s one. Let the Chancellor announce the sovereign wealth fund we should have established 40 years ago. It’s not (yet) too late.


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