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Last week’s UKIP conference was dominated by personality not policy, but there was one idea from the purples that deserves some attention – which is to use the public revenues from shale gas to create a British sovereign wealth fund.

The inspiration for this policy comes from Norway, whose own fund is the subject of a fascinating report in the Economist:

“The Government Pension Fund Global, as it is officially known, or the Oil Fund, as everyone calls it, is probably the world’s biggest sovereign-wealth fund. It is currently worth about $760 billion and is expected to grow to more than $1.1 trillion by 2020. The fund owns an average of 2.5% of every European listed company. It is a big shareholder in a raft of blue-chip companies, such as Royal Dutch Shell, HSBC and Apple, and has a 9% stake in BlackRock, the world’s biggest fund manager.

“The fund is not weighed down by any particular liabilities, such as paying pensions (its name is misleading). This gives it lots of freedom to manoeuvre.”

Norway has been described by its former Prime Minister Jens Stoltenberg as a “fax democracy” – because, in order to maintain access to European markets, the country’s laws are supposedly faxed over from Brussels in the form of EU directives. However, with Norway’s oil fund carrying such clout in the board rooms and stock markets of Europe, one might wonder about the faxes being sent in the other direction:

“[The fund’s] governance is designed to be transparent and virtuous. Although overseen by Norway’s Finance Ministry, it is run day-to-day by the country’s central bank. An ethical-investment committee ensures it shuns firms regarded as inherently sinful (such as those making tobacco or weapons or employing child labour). It challenges the norm in the opaque world of sovereign-wealth funds by publishing its results in full.”

Like their Viking forebears, the Norwegians are getting ready to make their presence felt:

“The fund’s move in August to appoint a board to advise it on corporate governance was a sign that it plans to take a more active role in managing its portfolio of companies… This will mean playing a bigger part in the appointment of directors… It will also push companies to improve their corporate governance and enforce high ethical standards. The fund is particularly exercised about corporate tax avoidance.”

Britain, despite sharing in the riches of the North Sea, is in a very different position. Instead of being used to build-up assets for the long-term benefit of the nation, our own oil and gas revenues have disappeared down the drain of current public expenditure.

Shale gas, however, could provide us with a second chance. By establishing a British sovereign wealth fund, our politicians might finally tear their attention away from tomorrow’s headlines and consider the needs of the future.

But what about our mountainous national debt? Surely we have to use any windfall from shale to pay it back?

Certainly we need to get on with the job of eliminating the deficit – but once we’ve stopped adding to the debt mountain, there’s a good reason why we shouldn’t try to reduce it. Right now there’s a strong feeling that our national debt has reached a level beyond which it is unsafe to go. This places a powerful constraint on the ability of future governments to return to the policies of borrow and spend. If, however, debt levels were to be significantly reduced, then all the old temptations would come rushing back. Like an overweight person getting back on the cake after losing a stone or two, a spendthrift government could easily undo the good work of a fiscally responsible predecessor.

A sovereign wealth fund, however, would allow budgetary surpluses to be safely locked away. Whereas public borrowing is under the control of the Chancellor and can be concealed by various sleights-of-hand, the money in an independently and transparently managed fund would have to be raided in full view.

Building up such a visible and inviolable national asset would also create confidence in the fundamental solvency of our nation. Thus, paradoxically, keeping our national debt levels at the upper limit of acceptability could reduce the interest we have to pay on them.

44 comments for: Heresy of the week: Once we eliminate the deficit we should not pay back our national debt

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