Shadow Chancellor proposes a British Sovereign Wealth Fund!

During the Labour Party conference in Liverpool the Shadow Chancellor Rachel Reeves announced plans for a National Wealth Fund (NWF), a British Sovereign Wealth Fund (SWF) . Its mandate will be derived from Labour's 'Green Prosperity Plan' which is to mitigate the risks associated with climate change and achieving Net-Zero Carbon Emissions. The Shadow Chancellor claims that Labours plan will mean that by 2030 all of Britain's energy requirements will be sourced via 100% clean energy. During the Conference she said:

"The next Labour Government will create a National Wealth Fund, so that when we invest in new industries in partnership with business, the British people will own a share of that wealth, and the taxpayer will get a return on that investment. Wealth flowing from jobs in electric battery factories, in the West Midlands, the North East, the North West, and the South West. Offshore wind driving investment in our ports: from the Humber to Southampton, East Anglia to Belfast. Clean steel with jobs in Rotherham, Sheffield, Scunthorpe, Cardiff, and Port Talbot. And carbon capture and storage in our industrial heartlands, in Grangemouth and in South Wales, in Humber and in Teesside, and here in Merseyside too".

The National Wealth Fund (NWF) will receive ￡8 billion over a 10 year period and will invest in 8 new battery factories, 6 clean steal plants, renewable ready ports, Hydrogen Electrolyser plant and other Net-Zero industries. It is hoped that the investments will accelerate UK's green infrastructure and remove dependency on fossil fuels. NWF intends to create jobs and help reduce the high energy bills of today. The Labour leader Sir Kier Starmer blamed the Tories for not using the North Sea Oil revenues to establish a British Sovereign Wealth Fund. He stated the following comments:

"We won’t make the mistake the Tories made with North Sea oil and gas back in the 1980s where they frittered away the wealth from our national resources. Just look at what’s happening at the moment. The largest onshore wind farm in Wales. Who owns it? Sweden. Energy bills in Swansea are paying for schools and hospitals in Stockholm. The Chinese Communist party has a stake in our nuclear industry. And five million people in Britain pay their bills to an energy company owned by France.

A new British sovereign wealth fund will drive us forward on this mission. We will make sure that the public money we spend building-up British industry spurs on private investment, stimulates growth in construction, life sciences, finance and insurance and the British people enjoy the returns".

As someone who is researching and writing a PhD Thesis on Sovereign Wealth Funds from a UK perspective, I find this proposal most welcoming and certainly feasible. Setting up a fund is not so difficult however clarifying its mandate, investment strategy, risk analysis, and management is far more challenging. One would require highly skilled and talented people, including those from the private or corporate sectors that will demand high bonuses.

SWFs are products of 'State Capitalism', governments acting like investors and expecting financial returns. To ensure success many SWFs have strict rules to exclude politicians from meddling in their operations through acts in parliament. There are currently close to 100 Sovereign Wealth Funds across the world and their numbers are rising. Many nations have or are setting up funds to develop their economies and to attract Foreign Direct Investment (FDI).

A great example would be ISIF, the Irish Sovereign Wealth Fund, which has been very successful in supporting local industries, generating healthy returns, and tackling climate change by bringing in FDI and co-investors. A British Sovereign Wealth Fund can learn a lot from ISIF.

In my opinion the UK needs a fund with multiple mandates not just to tackle the energy crises as proposed by Labour's NWF but other crises to come, hence why we need a future savings fund. John Penrose MP an early advocate for creation of a British SWF has highlighted the need to save for the future pension crises that is yet to come. With an aging population and less workers paying into pensions it could present future governments with massive shortfalls.

I will be writing a paper on my take on a British SWF, in the meantime I welcome the proposal by the Labour leadership but say the same words that a Professor said to me during one of my presentations on SWFs:

"This is all so fascinating, but I need more details, you see the Devil is in the Details"