What country ever went wrong with a sovereign wealth fund? It is easy to envy Singapore and Norway – the latter of which now has £1.3 trillion squirrelled away, equivalent to £240,000 for every citizen. Britain would be in a much better situation now had it, like Norway, invested its windfall from the North Sea, rather than chucking it into the pot of general day-to-day expenditure. Paying state and public sector pensions liabilities out of tax revenue rather than from a long-term investment fund is going to become an ever more serious burden on the state.
We shouldn’t, then, sniff at Rachel Reeves’ idea for a ‘national wealth fund’. It is just that what the Chancellor has in mind is very different from what Norway has. Firstly, there is the question of scale. Britain doesn’t exactly have a lot of state wealth to invest just at the moment. While Norway’s fund has been grown from half a century’s worth of oil and gas revenues, Reeves’ fund will be started with a modest £7.3 billion squeezed out of the public budget, in a context of a government that is heavily overdrawn on its current account. From a personal point of view I would look to pay off my credit card balance before I started having a flutter on the stock market.
But then Reeves’s fund isn’t predominantly about accumulating wealth. While the Norwegian fund has its 18 trillion kroner spread over 9000 companies in more than 70 countries, Reeves is looking to concentrate on one asset class, and an extremely dodgy one at that: early stage green technology. She wants to invest in green steel (made using hydrogen rather than coking coal as a reducing agent), in hydrogen production from electrolysis of water and in carbon capture and storage – the sort of technologies we need, in other words, if we are to get anywhere near reaching Britain’s 2050 net zero greenhouse gas emissions target without returning to the stone age.
I can tell you what investing in this sort of stuff is like from personal experience. Three years ago I bought a small stake in a company called ITM power – whose business is in producing green hydrogen – at 240 pence a share. It was great at first as the shares galloped up to over 600 pence. I thought I would just wait until I had trebled my money and then sell at least half my holding. But then I went away on holiday and forgot about them. Their price now? Er, 57 pence a share.
That is what Reeves can expect to happen to her National Wealth Fund. She will have losses galore. If she does make us a profit it will come on the back of fantastic returns on one or two holdings – while most others collapse. That is the nature of investing in early-stage companies.
What Rachel Reeves is setting up doesn’t really deserve to be called a National Wealth Fund
This is not to say that it is wrong for the government to invest in green technology. Clearly, there is a national interest in cleaning up our energy system and the like. And if taxpayers are going to put money in, it is better that we buy a stake rather than simply handing out grant after grant. Then we can at least share in the success stories.
Moreover, it is a relief to know that Reeves and her Treasury officials won’t be picking the stocks themselves. They plan to leave it to the National Infrastructure Bank set up by Rishi Sunak when he was Chancellor in 2021 – and which will have to take a very hard-headed attitude and be prepared to ditch companies whose ideas are failing. Governments, it hardly needs repeating, have a pretty appalling record at trying to ‘pick winners’. They tend to go for all the highly visible stuff and prestigious stuff, like making cars and aeroplanes, and miss out the boring companies which are making the better profits. They also have a habit of chucking money at companies which happen to employ large numbers of people in marginal constituencies – not the greatest investment technique.
For years, Britain has seemed to possess a Sovereign Poverty Fund that invests our cash in basket cases like Royal Bank of Scotland (now NatWest) and then sells out at the first hint that a company might actually make a profit. Taxpayers bear the losses and leave private investors to enjoy the gains. It would be a novelty for our cash to be invested purposely to make a profit. However, what Rachel Reeves is setting up doesn’t really deserve to be called a National Wealth Fund. It is really just a novel way of subsidising green technology. Seen in that light it is not such a bad idea – just don’t expect it to pay your pension.
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