Did you know that there are approximately 80 citizens’ / sovereign wealth funds currently in operation around the world? Some countries have one while others have several, owing to individual funds for separate states.
The UK has none. Should that change?
I ask the question following a recent talk by Angela Cummine on her newly published book, Citizens’ Wealth. It’s an incredibly complex subject but also one which is important and increasingly relevant, particularly with ideas like universal basic income receiving ever more publicity.
Let us, then, try to imagine what a UK citizens’ wealth fund might entail.
Even the most basic questions are difficult to answer.
Where should the capital to start it come from? A sell-off of state-owned assets? A tax on certain transactions? Should it invest in tangible assets or stocks & shares? What is its purpose? Should it have a micro or macro focus (i.e. should it pay out to each citizen, or fund infrastructure that benefits everybody)?
To go from the top:
Where should the capital to start it come from? A sell-off of state-owned assets? A tax on certain transactions?
One of the suggestions currently being reviewed relates to setting aside a proportion of tax revenues from the controversial business of fracking. The Shale Wealth Fund is still just an idea but it is one being taken seriously. Government has released a consultation on it, which is open until late October. Questions they have identified include whether the fund’s proceeds should be spent locally or regionally (there is no suggestion in the consultation that the fund should be national).
Another, very different, option was mooted by Boris Johnson two years ago: pooling the UK’s public sector pension funds and using the resulting ‘war chest’ to invest in vital infrastructure projects. This is, however, a less traditional citizens’ wealth fund to say the least.
More recently, some have suggested a new tax on financial transactions or redirecting the existing taxation of some financial transactions.
Once those decisions have been made, even more arise. What should it invest in?
Cummine placed particular emphasis on the moral dilemmas faced by citizens’ wealth funds when making investments. Ignore, if you can, the fact that most are derived from the proceeds of selling fossil fuels.
For example, Norway’s wealth fund is banned by law from investing in companies that produce nuclear weapons, companies that are involved with abuses of human rights, and most recently, companies that ‘emit excessive climate changing gases’. In 2016 its ethics committee is looking into ‘allegations of human rights abuses in Qatar’s building sector, Malaysia’s electronics goods industry, and textile factories in some Asian countries’. It engages with some companies on issues and excludes others. However most wealth funds have no ethical criteria.
Loosely related to ethics would the question of purpose. What should the fund be aiming to do?
Many would probably like it to aim to do something similar to the Alaskan wealth fund, which pays out an annual dividend from its investments to each Alaskan citizen. This averages around $1,000-2,000 per person, per year, regardless of age. Some of the only qualifying criteria include having lived in the state for at least one year.
Or it could follow a ‘bigger picture’ policy, which instead gives it a mandate to invest in infrastructure including schools, hospitals, roads, networks, and the like. This is less directly beneficial but arguably more ‘community minded’. Instead of handing out cash to individuals it builds things for everybody to use that should improve overall quality and equality of life in the UK.
As demonstrated, the idea alone of setting up a citizens’ wealth fund is fraught with questions. I have not even touched upon the ethical question of whether it is right to ‘pay off’ citizens for unpopular things (e.g. fracking). Who should the trustees be? Could you name somebody you think could be trusted? Ultimately, there isn’t a shortage of money in the world, but there is a shortage of money directed at socially useful activity. A wealth fund can help to address some of this. Can it perhaps begin to change the purpose and direction of our financial industry?
Cummine was an advocate of public consultation over what new funds should be aiming for, investing in, and how they should distribute funds. I am in agreement with her, that should the UK progress with this idea there should be more, not less, public consultation. Perhaps this could take the form of a referendum – although that wording might remain a bit controversial for the next few years!
What would your ideal citizens’ wealth fund look like?