The Citizen’s Wealth Fund

We want to cut taxes, don’t we? We want to cut spending, yes? Well, let me suggest a policy that would not just enable us to save billions a year – more than enough to take a penny off income tax, simply by cutting bureaucracy – but would help us pay to build the homes we need, and finance the roads, railways, power stations and airports that this country is crying out for. It would help us to cover the cost of the vast and growing army of older people; and it would end an absurdity – an ontological explosion in the public sector of a kind that has not been seen since the jobbery and Buggins’-turnery of the later Roman Empire.

To explain this opportunity, let me ask you a question I recently posed to a senior member of the Government. How many public-sector pension funds do you think there are in the UK? I asked. “I don’t know,” he said. “A few hundred?” Keep going, I said. “A thousand?” he hazarded. I pointed upwards. His eyes rolled. “Ten thousand? You tell me!”

I told him. There are more than 39,000 public-sector pension funds in this country – each with its own trustees, each with its own managers and advisers and accountants. Every quango, every university, every branch of local government has its own pension fund, from British Nuclear Fuels to the Meat and Livestock Commission to the seven – yes, seven! – that were created to manage the pensions of those who were involved in the London 2012 Olympics.

The waste is extraordinary. Think of all those advisers and investment managers taking their fees – their little jaws wrapped blissfully around the giant polymammous udder of the state. Think of the duplication.

So, Boris’ idea is to roll these all up into one fund which would then be able to “invest” in all that infrastructure stuff that Ritchie likes so much. And I’ve got to say that there’s something for it. Let’s have the pensions of those tax consumers dependent upon how efficiently pension funded projects are run. Might shake some of the complacency out of the system.

And once they’ve done this with their own money for a generation then we can evaluate whether our own private sector pensions should follow them.

In fact, someone really ought to ask Ritchie about this. Someone who is allowed to post there of course. If this is such a great idea for pensions, that they be invested in this sort of infrastructure, then why is it that he’s not campaigning for the public sector pensions to be so invested? Why is he shouting about private pensions only? Given that, you know, government might actually have some power, unions might have some power, over those public sector funds?


34 thoughts on “The Citizen’s Wealth Fund”

  1. Is it true though? I don’t claim expert knowledge, but I’ve seen many references to something called the Local Government Pension Scheme. Isn’t this a single scheme, thus refuting Boris’s statement that “every branch of local government has its own pension fund”?

  2. > There would be a decent revenue stream from such investments, which is more than can be said, frankly, for the investments made by British public-sector pension fund managers over the past 20 years. They piled into the banks, and lost colossal sums in the crash of 2008 – eight times more than it cost to bail out RBS. The NHS alone has a black hole of £300 billion in its pension fund, and across the public sector it is hard to see how we will meet our obligations to future pensioners.

    Has he got the faintest idea what he’s talking about? NHS pensions are unfunded – you can talk about a black hole if you like, but you can’t blame fund managers for it.

  3. Rolling up many different schemes would reduce some costs by economies of scale.
    A bigger fund would be able to diversify more, but only if the infrastructure provides a decent return.

  4. “compared with the 2 or 3 per cent currently achieved by pension fund managers in bonds or gilts.”

    As someone not in a local authority pension scheme, I’m happy that they (and others) are prepared to lend to the Government for long periods at a negative real rate of interest, thus keeping borrowing costs (and my taxes) down.

  5. bloke (not) in spain

    “Rolling up many different schemes would reduce some costs by economies of scale.”
    It’s difficult to see how that’d be true.
    There may be thousands of different pension funds, but there aren’t thousands of different pension fund managers. It’s a limited field.
    Whatever the investment management community may like to tell you, the economy of scale benefits are already realised & enjoyed at the investment fund management level.
    There are only so many investment opportunities that have to be investigated, tax laws needed evaluating, economic futures requiring foreseeing. They only have to be done the once, then applied across the funds managed. Since all the inky fingered ledger clerks got fired in the early 70s the cost of the mechanics of pension fund administration became trivial. Once you have the computer & software, administrating a hundred members in one scheme, a hundred members in each of a hundred schemes or any number of members in any number of schemes is much the same thing.
    The industry gets very fat & its members very wealthy on kidding the marks they get individual service.


    Out of interest, I’ve got an 8 page questionnaire here to complete for a private managed investment portfolio. It’s an investor profile & asks all manner of intrusive questions to establish client requirements. And in a typical bit of regulatory capture, there’s a note saying submission is mandatory thanks to some requirement of the FA.
    This is part of this process. Knowing what the client’s requirements were used to be what you paid stockbrokers for. Some clients knew bugger all & relied on the broker’s wisdom. Others knew a damn sight more than you did & you did what you were told.
    Now, anyone wishing to use a broker is required to provide all this data, gets fed into the number-crunchers. Most cases you could replace the asswipe in a pinstripe signs the bottom of the computer generated letters with a parrot, to little notice.

  6. I would really like to be the politician who sits in a room with the PCS, Unison and Unite and says “Len, that tax expert you keep paying to have great ideas. Well we’re going to road test one of them with your members’ pensions. And we’re going to appoint that eminent economist Howard Reed as a trustee, to apply the same intellectual rigour he applied to the Living Wage report you paid him for.”
    And then I’ll leave the room, go home, taking a train through Seaforth where Len used to work and I’ll imagine the words he is using in reply.

    And a couple of years later I’ll ponder the returns on the finance Len demanded and got (and quite right, that’s his job) and I’ll call Ritchie and Howard to the PAC to ask them whatever happened to the ‘cheap’ financing they promised us.

    Fuck off Boris you dunce.

  7. @PaulB: The Teachers’ is also pay-as-you-go. In fact, the only major, funded schemes are Local Government and Universities. The latest estimates of assets that I could easily obtain were from a BBC story in 2010, putting LGPS at £130bn and USS at £30bn. I suppose it may be possible that LGPS has put on an extra £50bn in the intervening five years, though it seems quite a strong performance, and I rather doubt they could have achieved it if the scheme were principally invested in government bonds as Johnson suggests. I think he’s probably talking out of the back of his head. Not for the first time.

    Anyway, we already have funds which invest in infrastructure both at home and abroad. I hold units in one, and I know of a few others. They’re invested in lots of PFI stuff: wasn’t the whole point of PFI to tap into pension scheme funds for infrastructure investment?

  8. Ironman,

    > I would really like to be the politician who sits in a room with the PCS, Unison and Unite and says “Len, that tax expert you keep paying to have great ideas. Well we’re going to road test one of them with your members’ pensions. And we’re going to appoint that eminent economist Howard Reed as a trustee, to apply the same intellectual rigour he applied to the Living Wage report you paid him for.”

    Wonderful. That alone would be worth going into politics for.

  9. Anyway, as Ritchie can tell us if we visit his blog today, governments don’t actually need pension funds ‘ money or anyone else’s. And that subsidy to pension funds: no problem at all. For as MMT teaches us, it issues the bombs, the central bank buys it (although his commentators seem to think it’s private investors, but hey ho) and that’s all we need. Tax is for when inflation becomes a bit of an issue.

    But then tomorrow, when War on Want of Cafod are stirring again, well ten we’ll need tax to pay for stuff and big business will be Evil trying to kill babies.

    Or maybe he just can’t remember what he said yesterday.

  10. “the only major, funded schemes are Local Government and Universities”: yeah, but USS is a private sector scheme, so you’d better take that off your list unless, gasp!, the bloody idiot wants to nationalise private schemes.

  11. As a user of roads, and a taxpayer, am I better off if (a) government borrows at 2% and builds a road, and then tolls the road/taxes me to pay for the interest; or (b) an infrastructure fund backed by pension funds builds the road and sets tolls to get a 5-7% return?

    Under (b), what I save in taxes I pay for in increased tolls. And even under (a) there’s no reason for state financed roads not to charge a toll. No one expects free rail travel.

  12. Tolls?!

    You really are a evil neoliberal aren’t you.

    Tolls are how the 1% intend to rip us off after reducing us to abject poverty with no hope.

    No! Taxes must be used to pay for it.

    So, to the question, cheap finance or a decent return on pensions. As I say, let’s run the experiment with the same union members who have been funding Ritchie and Howard for the past few years.

  13. Ironman,
    “No! Taxes must be used to pay for it.”

    I appreciate you’re being ironic. But on a vaguely serious note, are there instances where it does make sense to use the state (and state imposed taxes/tolls) to pay for things because they can borrow cheaper?

    I can see that taken to its logical extreme this means the state pays for nearly everything, which must be wrong. Just wondering how you divide good candidates for state funding from bad. I’ve no great desire to boost other people’s pensions.

  14. Ooh Luke you are so clever and of course so very funny. I just can’t imagine the game you’re trying to play here, it’s so darn clever.

    And that little trick – telling us you have no desire to boost (public sector) pensions, because that’s what us neoliberals want to hear isn’t it – brilliant, can’t see it coming. Faux naivety beats me every time.

    Can everybody please make a pact not to try to answer his false question. We don’t need to indulge him.

  15. Odd. I thought your answer was worthwhile. Oh well.

    Slightly surprised that you want a pact not to answer an ignorant question. This blog is generally pretty liberal in allowing people to make good or bad points.

  16. @dearieme: Yes, I did consider not even mentioning USS since it’s private sector, but academics are generally counted as public sector. Universities are weird beasts, and trying to corral USS in the way Johnson or Our Murph suggest would as you say be politically challenging.

    (Are you a USS member too?)

  17. Luke

    Like I’ve said a couple of times now, you’re not ignorant. You’re an arse who thinks he’s cleverer than he is and comes along with a smug certainty that he’s posing brilliant questions they can’t answer. Cheap government borrowing, how droll how very clever.

    As for liberalism, feel free to carry on. You deserve to be ignored, that’s all.

  18. “Part of the answer is to increase the returns of the pension funds, with bolder and more strategic investments,” says Boris. In short, he reckons that it’s possible to increase returns on investments simply by making investments with better returns. Who’d have thought it?

    The man really is a dimwit.

  19. Ironman,

    Why so angry? Seriously, why are you so furiously angry? I know bugger all about economics, so I am likely to be wrong, that’s why I ask questions. But you seem deranged. Please tell me why I’m wrong.

  20. “As a user of roads, and a taxpayer, am I better off if (a) government borrows at 2% and builds a road, and then tolls the road/taxes me to pay for the interest; or (b) an infrastructure fund backed by pension funds builds the road and sets tolls to get a 5-7% return?”

    I think thats a false choice you’re offering us there, because one suspects that RM wants the private sector pension funds to be forced to invest in infrastructure AND get 2%. The joke of this thread was that perhaps if that little deal was forced on the public sector pension funds first, then they might not be so keen on the idea.

  21. @ Luke
    It is true that the government can borrow cheaper *until* there is a perceived risk attaching to its level of borrowing. So if the only criterion was the interest to be paid on debt funding the capital cost of building whatever then it would indeed make more sense for it to be government-funded.
    However, that is *not* the only criterion. The people managing private sector projects are spending their own money (or that of their investors who have hired them and will hold them accountable); the people managing public-sector projects are spending someone else’s money. So it is hardly surprising that government-run projects are habitually poor value for money.
    Just look at the number of government projects where the cost over-runs have exceeded the original budget (e.g. Olympics, Jubilee Line – which never got to Thamesmead)
    Before the Wilson government re-nationalised the steel industry there was one state-owned steel company Richard Thompson & Baldwin’s, coincidentally located in Nye Bevan’s constituency. It was continuously loss-making while the Steel Company of Wales in nearby Newport was profitable and paid higher wages and invested in improvements to its plant so as to produce better-quality steel and even after paying higher wages and investing could still afford to pay dividends.
    British Rail was nationalised because Attlee claimed that the rail companies could not afford the investment needed to restore the system after the war. So why was British Fail still using slam-door carriages in the 1990s? We have had three new generations of trains in twenty years since British Rail was denationalised. I didn’t travel on Southern Region in the 90s but I am pretty sure the trains they were using in the 1980s were pre-war. Seriously inadequate investment because all the money went to overpay staff. Major ordered the private sector companies to cut fares and they invested in new rolling stock simultaneously.

  22. > Just look at the number of government projects where the cost over-runs have exceeded the original budget

    As an example of such a project I give you the West Coast Route Modernisation – 3 years late, under specification, and a 350% cost overrun. In the hands of Railtrack.

    Railway privatization has been a success in that it’s made it politically possible to increase rail subsidies. In every other respect it’s failed spectacularly.

    Luke: he’s angry because you’re questioning his faith.

  23. @ PaulB
    The Guardian article blames that, not on Network Rail, which did most of the work, nor on the appalling state into which British Rail had allowed its infrastructure to fall, but on an American consultancy firm *who were spending someone else’s money*.
    May I suggest that you look at passenger figures since 1996? Or compare the conditions under which commuters travel? These days I *expect* trains to run, but in the days of British Fail I always caught the train before the one I should need if I had an important appointment.
    British Rail provided a good service in the 1950s, after that it went downhill. In 1952 one could put a small child on a train in Glasgow with enough money to pay for luncheon (in those days trains served luncheon, not dried-up sandwiches) and be totally confident that he/she would be safely met at King’s Cross. In 1992 anyone who tried that would be denounced and might get referred to Social services.

  24. Of course, in 1952, the trains were still run by staff who were trained prior to nationalisation.
    The worst service, apart from Virgin, is the re-nationalised East Coast Main Line. However the DoT civil servants are trying to make that less obvious by handing contracts to the Dutch State Railways (aka Abellio).

  25. John 77, thanks.
    I see running a train service as in part being running a business, and the private sector is generally better at that. But two points:
    1. What about my road example? I chose it as it’s easier to run than a railway (particularly without a toll).
    2. I agree that the cost of gov’t borrowing could go up, but if HM govt’s cost of capital goes up, surely the private sector’s goes up as well?

  26. @ Luke
    If a private sector corporation is over-borrowed its cost of borrowing goes up but that of the government or other corporations does not. If the lender thinks he/she is more likely to be repaid by a private company why should its interest rate rise in line with that of the government. When Denis Healey was Chancellor of the Exchequer he had to issue gilt-edged stock with a 15% coupon.
    The cost of borrowing by the Argentinean government has gone up; Repsol’s cost of its borrowing has not. I can remember newspaper coverage of the fact that Shell could borrow at a lower rate than banks were paying on deposits and a lot less than the government.
    Your example is not an example because pension funds do not build roads: they have no competence in road-building. There is one toll road operated by the private sector, the M6 Toll. I always use it on the rare occasions when I have to drive up the M6 as drivers do not suffer the frequent and occasionally horrendous (an hour or so) delays that we get on the Dartford Crossing/Tunnel and I feel the toll is good value compared to suffering Spaghetti Junction. The concessionnaire is not getting a 5% return.
    What if the moon was made of blue cheese?

  27. > in the days of British Fail I always caught the train before the one I should need if I had an important appointment.

    I commuted to London for the first ten years of this millennium, and I always caught the train before the one I would have needed to if they had been reliable.

  28. Questioning my faith whilst simultaneously claiming to know nothing! Liar, simple. And you think it’s funny.

  29. @ Paul B
    You are on a different line to mine. When I was commuting regularly in the first decade of this millennium I caught the train I needed.

  30. John

    Your explanation was excellent, but wasted.

    PaulB knows very well the improvements that have occurred since rail privatisation and he remembers just how bad BR was.
    Just as Luke knows damn well how and when gov’t borrowing stops being cheap. Don’t indulge him.

    As I say though; excellent explanation. You should offer it to somebody worthwhile one day.

  31. @ Luke
    It seems that I was wrong. The morning paper had a paragraph about some guy in Somerset who has built a toll-road in two fields to by-pass roadworks that completely blocked the road. He started *after* he got fed up with the hour-long delay and will break-even if 150,000 motorists use it before the public sector finish repairing that piece of road. His piece of road *must* be longer than the bit it is detouring around. He started way after they did and finished four months earlier.
    Interest cost: barely relevant. Efficiency: no comparison.
    Actually there is a comparison but we’re looking at an order of magnitude difference.

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