Why hasn’t Britain got a sovereign wealth fund?

Michael Peevey

Brilliant article and too, too true. Another benefit is that the SWF could take strategic stakes in UK companies at risk of takeover and make sure that they are managed for the benefit of UK citizens -- a good example being BAA. If the UK SWF took 20% or so in it then it could be run in a much more practical way and not just leveraged to pay off the excessive debts taken out to buy it in the first place

It is never too late to start saving though and it is amazing how quickly things can turn around. When Singapore started GIC and Temesek twenty or thirty years ago I doubt that they would have dared dream how quickly it could rise up to be so massive and powerful.

Come on Gordon -- lets stop whinging and lets get going with this.

Dick Winchester

Excellent article but the answer is simple. We don't have an oil based wealth fund because we don't have a national oil company. We did of course. It was called Britoil and earlier BNOC and was set up initially by Wedgy Benn. However, under pressure from the City and from mainly US oil companies Margaret Thatcher killed it off in the 80s and pretty much gave away its assets to BP.

She was of course told at the time that strategically this was somewhat naive not just because this would lead to a much more rapid depletion of N Sea resources but that inevitably it would be bad for the UK's oil service/manufacturing sector.

All that came true of course especially when Thatcher also killed off British Underwater Engineering Ltd and sold its assets to overseas companies. As a historic note her hitman for that job was one David James.

The consequences of Thatcher's utter stupidity are that of course the UK did nothing like as well out of the oil/gas boom as we should have done. Not only is there essentially no financial legacy in the shape of even a modest SWF but UK company penetration of the industry has been exceedingly modest.

The only winners were the City and the Treasury. The loosers included UK industry and of course Scotland in particular.

aristeides

The many reasons why we don't have a SWF are blindingly obvious. Firstly, there would be no appetite to pay the investment managers the sums required. Secondly, in a large democracy like the UK, the investment decisions would be subject to far too much political interference - the first two commenters so far have already produced a litany of pet projects. Thirdly, the track record of state investment decisions in the UK is abominable - MG Rover anyone? Or perhaps we should step in to buy Alitalia? It's going cheap.

To read the line "Britain’s sovereign wealth was effectively distributed to taxpayers to spend or save as they chose" in the Speccie as though it were a bad thing beggars belief.

john problem

In the absence of our own SWF, may I suggest that our masters set up an MCC? A Management Consultancy Company, that is. They could sell their expertise on rail transport and hospitals to the French, on infrastructure to the Dutch, on crime control to New York, on securing the automobile business to the Germans, on education to the Scandinavians, on good financial regulation to the Australians, on claiming a mandate with low voter support to the Russians (perhaps not yet) and so on... Could make a lot of money - consultants are paid a packet. Selling world class expertise is so much more satisfactory than selling stuff from a hole in the ground.

Dick Winchester

aristeides...

Thanks for lighting up my evening. I haven't laughed so much for years.

You need to do two things. First take a trip to Norway and check out their industrial capability. You'd hate it.. They still build ships. Actually, you needn't go as far as Norway. Just pop up to Aberdeen. The Norwegians own most of the strategically important companies based there and the Americans own the rest.

Secondly, try to find yourself some lessons in "opportunism" and "strategy".

aristeides

Dick

Your faith in the ability of any UK government either 1) to appoint or pay investment managers well qualified enough to make the correct "strategic" decisions and 2) not subsequently to interfere in those decisions is, I think, misplaced.

For the right, some of the things that might be regarded as strategically necessary investments might be in defence systems or, say, nuclear power. For the left, those two might be anathema but investment in schools and hospitals, green power, or preserving a large manufacturing base in the car industry might be considered "strategic". You or I might call it opportunistic. The problem is it won't be your or my decision and history tells us that the results will inevitably be parlous.

As far as Norway goes, you simply cannot make us like them. What makes them relatively unique in the SWF world is that they are not governed by an autocratic regime. What gives them the ability (apart from the oil money) to operate a relatively successful fund is a level of political consensus that is not achievable in the UK.

Mike O'Hara

for the answer to this, you need to ask Lady Thatcher and Sir Nigel Lawson why the huge influx of funds was blown on tax cuts for the highest earners, rather than invested (as Norway did).

Our "Sovereign Fund" is therefore in private hands, rather than available for projects of national priority.

RH-K

A very interesting and solid article, though expressing views I never thought to find in the Spectator, where I expect to be viewed as of the wild-eyed and loony left since I vote Lib-Dem.

Our oil came on stream at just the wrong time, of course, as due to many other places coming on stream at the same time prices were about to begin a 20-year slide. In the early eighties we had a lot of unemployment, partly as a result of the Thatcher economic policy and partly as the pound was riding high on the back of the oil, so the revenues from oil went, at least in part, to pay unemployment benefit.

Of course the wisest option, though one that could never realistically have been considered, might have been to leave it in the ground until the arrival of Peak Oil and the industrialisation of China and India drove prices through the roof.

Nick S

One problem with democratic nations is that governments tend to focus on surviving the election cycle, rather than long-term planning. It is easier to spend money in the short-term to buy votes than invest for the long-term.

Voters want governments to provide more for them and do more. But they don't like having to pay for it in higher taxes. So governments need to find some 'sugar daddy' to foot the bill. Taxing the wealthy more or getting windfall revenues from natural resources is a popular choice.

John Francis

Mrs Thatcher used North Sea oil to restructure the British economy and society. I thought she was right then and I still do. Funnily enough Spectaor readers used to seem to agree with me. Perhaps "Dave" Cameron and his mates are now going to tell us it was all a ghastly mistake and the money should have been used to buy shares.

wossname

One of Thatcher's protege's, Michael Edwards, said at the time, "If you treat the money from North Sea oil as revenue instead of capital, you might just as well leave it in the ground." The same might be said of all Britain's national assets which she sold off at fire sale prices to make a small group of individuals very wealthy while she was selling off our future.

Paul Dawson

I agree with the article but would point out that the proposal to establish a national investment bank was considered by the Wilson Report published in 1980 on the functioning of the UK financial sector. A minority supported the creation of such a fund but the proposal fell on stony ground in Downing Street and the Treasury. Instead the money was used to maintain UK public expediture at a higher level than otherwise would have been permissible. The irony is that social expenditure actually rose during the Thatcher years. At the time HM Treasury argued in its "Economic Progress Report" publication that companies and investment institutions could use the abolition of exchange controls in 1979 to buy more overseas assets and that the remitted income would bolster the UK economy once the oil revenues had ceased. This argument would have more plausibility if the UK had retained a stronger manufacturing sector and had enhanced its infrastructure. Unfortunately this did not happen and instead public infrastructure has been financed by utilising the accounting legerdemain of PIFI schemes the costs of which will haunt us in years to come. All in all a huge wasted opportunity. There is however nothing to prevent a future government from deciding to use privatisation proceeds from e.g. the Tote to establish a soverign wealth fund but those managing it must be protected from political inteference otherwise it will be used to fund politicians pet schemes and we all remember how much was wasted on the Dome!