{"id":13075,"date":"2011-12-01T06:59:18","date_gmt":"2011-12-01T06:59:18","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=13075"},"modified":"2011-12-01T06:59:18","modified_gmt":"2011-12-01T06:59:18","slug":"peoples-pensions-the-way-to-fund-infrastructure-spending-and-eliminate-pfi","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2011\/12\/01\/peoples-pensions-the-way-to-fund-infrastructure-spending-and-eliminate-pfi\/","title":{"rendered":"People’s Pensions – the way to fund infrastructure spending and eliminate PFI"},"content":{"rendered":"

Martin Wolf stated\u00a0something\u00a0obvious in yesterday's FT<\/a>. I've made the same point, but he made it in his own direct style that is now so effective:<\/p>\n

Instead of such action, we get the gimmicks characteristic of all chancellors under stress. I am strongly in favour of\u00a0additional spending on infrastructure<\/a>. But it must be evident, even to the Treasury, that if the government borrows from pension funds to fund infrastructure, the impact on national balance sheets will be exactly the same as if the latter fund the same infrastructure directly, as is now proposed \u2014 except that the infrastructure will cost more. This is another in a line of wheezes to get round self-inflicted constraints, themselves partly reflecting ludicrous public sector accounting practices.<\/p><\/blockquote>\n

What we need - as I've argued for almost a decade -are pension funds set up to fund\u00a0infrastructure\u00a0spending in the UK. I put the case in People's Pensions in 2003 <\/a>and I don't think it's changed since:<\/p>\n

People\u2019s Pension will be\u00a0backed by People\u2019s Pension Funds. These entirely new\u00a0funds will be created to provide a way in which pension\u00a0contributions can be invested in the building of new public\u00a0infrastructure projects such as:<\/p>\n

- \u00a0schools and universities<\/p>\n

- \u00a0hospitals and other health facilities<\/p>\n

- \u00a0transport systems (including railways, trams and bus \u00a0\u00a0networks)<\/p>\n

- \u00a0social housing<\/p>\n

- \u00a0sustainable energy systems<\/p>\n

It is not possible for pension contributions to be specifically\u00a0directed in this way at present. Instead the \u00a3750 billion in\u00a0UK pensions funds at present are invested in (with the\u00a0proportion in each shown in brackets):<\/p>\n

1. \u00a0shares issued by private companies (71%)<\/p>\n

2. \u00a0commercial land and buildings (6%)<\/p>\n

3. \u00a0cash and bank accounts (3%)<\/p>\n

4. \u00a0UK government bonds (17%)<\/p>\n

5. \u00a0other bonds (3%)<\/p>\n

In 1962 51%\u00a0\u00a0of total pension fund assets were invested\u00a0in UK government bonds. In 1993 it was just 7%. The\u00a0figures for 2002 quoted above reflect a move out of\u00a0equities as a result of falling share prices. Even so the\u00a0amount of cash in pension funds used to help public\u00a0investment in the UK remains very low. This is because:<\/p>\n

- \u00a0government bonds are an investment option usually\u00a0only selected by pension fund managers for those\u00a0approaching retirement<\/p>\n

- \u00a0those with a choice as to where their funds are\u00a0invested are usually advised against investing in\u00a0government bonds on the grounds that they are \u201ctoo\u00a0safe to provide a useful return\u201d<\/p>\n

- \u00a0people are normally guided towards share based\u00a0investments.\u00a0The degree of irrationality in this is\u00a0detailed below.<\/p>\n

The creation of People\u2019s Pension Funds would change this\u00a0to create an investment model that is:<\/p>\n

- \u00a0sustainable<\/p>\n

- \u00a0secure<\/p>\n

- \u00a0rational, and<\/p>\n

- \u00a0desirable<\/p>\n

As a result it would benefit the pension fund, the pensioner\u00a0and society at large. It will also, from a national\u00a0perspective, re-balance the availability of investment\u00a0funds. It has been illogical that the public sector, which\u00a0generates over 40% of gross domestic product, has not\u00a0had direct access to pension funds, the largest source of\u00a0savings cash in the UK.<\/p><\/blockquote>\n

But I didn't argue then, and along with Wolf I don't argue now for such funds to invest directly in the\u00a0infrastructure\u00a0and then let it to the\u00a0government. I argued that it was up\u00a0to the\u00a0government\u00a0to manage and run such\u00a0projects\u00a0and issue a bond to the\u00a0pension\u00a0fund to represent its\u00a0investment.<\/p>\n

And as I (and my co-authors of the time) pointed out:<\/p>\n

What a People\u2019s Pension Fund will never do is undertake\u00a0the work of the sponsoring organisation. So, if a People\u2019s\u00a0Pension Fund was sponsored by an NHS trust to build\u00a0hospitals in its area then that is what the People\u2019s Pension\u00a0Fund would do, and the contributors to the Fund would\u00a0have the satisfaction of knowing that they had helped build\u00a0that facility. It would not, however:<\/p>\n

1. \u00a0provide medical services<\/p>\n

2. \u00a0employ medical staff<\/p>\n

3. \u00a0own the supply of the medical services<\/p>\n

All these tasks would remain firmly with the NHS. There is\u00a0no element of privatisation in the proposal that is being\u00a0made. In fact, if anything the reverse is true. What a\u00a0People\u2019s Pension Fund would do is demonstrate the\u00a0support the public have for state provision of public\u00a0services by investing in that process. And it will involve\u00a0people in that process as each People\u2019s Pension Fund will\u00a0be managed democratically by its members on a mutual,\u00a0not for profit basis.<\/p><\/blockquote>\n

I'd\u00a0tweak\u00a0a few bits now, but not by much. And I'd also suggest that the funds should be regional e.g a fund for East Anglia, or the North West, and so on, or maybe sector linked e.g. health or education, but the point remains: this is a cheap source of funds for the\u00a0government.<\/p>\n

But it's also something much more than that. The crisis in pensions is not in the state sector.The crisis is in the private sector, and People's Pension Funds are a way to overcome that crisis too. It's an issue I'll turn to in my next blog.<\/p>\n","protected":false},"excerpt":{"rendered":"

Martin Wolf stated\u00a0something\u00a0obvious in yesterday’s FT. I’ve made the same point, but he made it in his own direct style that is now so effective:
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35,29],"tags":[],"class_list":["post-13075","post","type-post","status-publish","format-standard","hentry","category-economics","category-pensions"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/13075","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=13075"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/13075\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=13075"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=13075"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=13075"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}