Osborne steals Labour’s ‘made in Birmingham’ pension wealth fund plan
George Osborne has adopted proposals devised by a Labour councillor in Birmingham to use £250 billion of assets sitting in local government pension funds to build new homes and public infrastructure.
In the latest example of the Chancellor “stealing Labour’s clothes”, Mr Osborne said he would work with councils to merge 89 different town hall pension funds into six British Wealth Funds that would be able to invest in building schemes.
The proposal is identical to a strategy set out a year ago by Cllr John Clancy in a book called The Secret Wealth Garden, which exposed the “scandal” of councils paying almost £500 million a year to City ‘experts’ for investment advice that has typically produced returns little better than could have been achieved by placing pension funds in a high street bank deposit account.
The West Midlands Local Government Pension Scheme paid £64 million to investment managers between 2007 and 2013 in an attempt to get better returns than the market average.
But the scheme gained just 4.3 per cent more over the period than would have been obtained had the fund been placed in an interest-bearing deposit account – an average additional return of less than one per cent a year for £64 million.
Clancy argued that almost 100 local government pension schemes should be amalgamated into a very small number of super-schemes, thereby saving millions of pounds on fees. The super-schemes would drive unprecedented investment in public housing and other infrastructure projects.
Mr Osborne told the Conservative conference in Manchester:
We are going to find new ways to fund the British infrastructure that drives our productivity.
At the moment, we have 89 different local government pension funds with 89 sets of fees and costs. It’s expensive and they invest little or nothing in our infrastructure.
So I can tell you today we’re going to work with councils to create instead half a dozen British Wealth Funds spread across the country.
It will save hundreds of millions in costs, and crucially they’ll invest billions in the infrastructure of their regions.
Clancy’s proposals were sent to former shadow chancellor Ed Balls and his team before the 2015 General Election, but never appeared in the party’s manifesto.
Mr Osborne has made a habit of taking policy from Labour, when it suits him.
- The Living wage of £9 an hour by 2020. Labour proposed £8 an hour.
- Local business rates. Labour wanted to allow councils to keep the cash they raise from businesses. Mr Osborne will implement the policy and allow cities with mayors to increase business rates.
- Infrastructure commission to devise long term plans for new roads, railways and housing. This was Ed Miliband’s idea, but Mr Osborne has adopted it and appointed former Labour peer Lord Adonis to head the body.
Cllr Clancy said he welcomed Mr Osborne’s “conversion to Clancynomics” but wanted to see the detail of what was actually being proposed because the Chancellor was “a bit light on specifics at the moment”.
Using the Local Government Pension Scheme to create regional wealth funds is clearly at the radical end of my proposals: let’s see if he goes that far. But it should supplement national infrastructure investment, not replace it.
And I think the housing crisis we have means that housebuilding should be the new first port of call for the regional wealth funds, then infrastructure. Both are wise, responsible investments.
The funds have £250 billion of assets in investment now, mainly abroad. But the reality is that councils and pension funds can already choose responsibly to rewire investment assets back into local economies for housebuilding, business investment and infrastructure investment.
Councils need to provide the investment opportunities and financial vehicles to allow it to happen.
Labour isn’t powerless on this now. It doesn’t need to wait til 2020 to effect radical change. The biggest funds are mainly in Labour council areas up and down the country. They could and should start to do this now.
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