by Stewart Lansley
Politicians huff and puff, declare their principled opposition to the widening income gap but take no action. UK inequality levels are much higher than in the 1970s, while the UK remains the second most unequal country in Europe. As Thomas Pickety agrues, the present economic model operates as a force for ‘divergence‘. So is there a way of locking in a new bias to equality to replace the current systemic bias to inequality?
A potentially powerful new pro-equality instrument would be the creation of citizens’ wealth funds. These are socially owned funds, established initially by the state but wholly owned — on an equal basis — by citizens. These offer a progressive way of managing part of the national wealth independently of government for the public good. All citizens would directly own part of the economy, thus raising their stake in economic success. With such a model, at least part of the gains from economic activity would be shared, including across generations, creating a new counterforce for convergence, one that would continue to grow over time to become a permanent and larger constituent part of the economy.
A model fund for the UK
Such funds would differ in a number of significant respects from the sovereign wealth funds established by dozens of countries across the globe, mostly from oil bonanzas. A model fund — operating like a giant community owned unit trust — would be managed by a Board of Guardians, with the returns distributed to its owners: all citizens. It would build the public asset base, thus strengthening the public finances, and mobilise part of the national wealth for the common good. An alternative to the statism of old-style nationalisation, as well as a counter to privatisation and uncontrolled markets, they would contribute to the ‘rolling back’ of neo-liberalism and act as instruments for a renewed social democracy.
Although most existing ‘sovereign wealth funds’ operate with little transparency, as little more than the investment arm of states, there are a number of overseas models which offer important lessons for a UK fund. These include the giant oil-financed Norwegian sovereign wealth fund — now worth $1 trillion; Alaska’s oil-based ‘Permanent Fund’, which has paid a pioneering and highly popular annual citizen’s dividend since 1982, and Australia’s Futures Fund, financed in part by the sale of Telstra, the publicly owned telecoms giant. All these funds enjoy significant public buy-in.
Britain missed the 1980s opportunity to establish a fund from oil revenues. If it had done so, it would today have a fund close to the size of the Norwegian Fund. Instead of investing the oil bonanza in more sustained future prosperity, the UK chose a one-off, short-term boost to personal consumption. Today there is much lamenting over this historic failure.
One possible source of funding would be by new levies on capital and privately owned wealth aimed at transferring, over time, a small part of the current national wealth pool – some £12 trillion – into the fund. Wealth, much of it unearned, is hugely undertaxed compared with income. The combined revenue from existing capital taxes accounts for less than two per cent of total economic output. Paying revenue from revised capital taxation directly into funds which have a high degree of public support and which finance popular social benefits might make reform of wealth taxation more politically palatable.
Should the UK replicate Sweden’s wage-earner fund?
One of the most pro-equality approaches would be to source the fund in part through the dilution of existing capital ownership — through a new modest scrip tax with larger companies paying an annual 0.5 per cent share issue into the fund (raising £12bn a year). This would gradually socialise part of the privately owned stock of capital (perhaps up to a maximum of say, 10 per cent). By taking established stakes in companies, such a fund could help align the interests of society and business. A variation on this model was applied in Sweden in the 1980s through the creation of ‘wage-earner funds’, a bold, decade-long social experiment to further develop their model of social democracy. Other potential sources of finance include the transfer of remaining commercial public assets and occasional one-off taxes (paid in shares) on windfall profits.
Fundamentally long-term, such funds would take time to establish, but once they are large enough, the returns could be used to boost key areas of social spending. Examples might include an annual citizen’s dividend, as in Alaska, the extension of universal services such as child care or social care for the elderly, or regeneration programmes.
A powerful new policy instrument, a UK citizen’s fund would help rebalance the ratio of public to private capital and contribute to the de-concentration of wealth. Legally ring-fenced to prevent a Treasury ‘raid’, it would grow over time to play a significant social role. By turning anti-inequality rhetoric into a strategy for change, such a fund should be central to any plan to reform Britain’s inequality-driving and innovation-sapping economic model.
Stewart Lansley is a visiting fellow at the University of Bristol. He is co-editor (with Amy Downes) of It’s Basic Income: the global debate, Policy Press, 2018 and author of a Sharing Economy: How Social Wealth Funds Can Reduce Inequality and Help Balance the Books, Policy Press, 2016. He Tweets @StewartLansley.
An event on how to set up a UK citizens’ wealth fund will be held in central London on 10 May 2018. Click here for details.