Civil Service chiefs are considering using taxpayer money to create investment of £25bn in a sovereign wealth fund to buy shares in family firms across the UK.
Under plans being examined by the Government, the UK could be on course to launch its very own sovereign wealth fund. Officials are believed to be ‘seriously studying’ a £25bn taxpayer-backed fund to revive regional firms struggling in the wake of the coronavirus crisis.
As part of Prime Minister Boris Johnson’s promise to attempt to ‘level up’ the entire country once lockdown ends, the plan would involve the Government buying shares in key businesses outside London.
Eventually, the original owners, typically the families which founded the businesses, would be able to buy back the shares, meaning that the taxpayer would be refunded the original investment.
City investors are believed to have expressed a keen interest in the scheme, raising the possibility of both the private sector and the taxpayer investing in SMEs. If Ministers give the planned fund the go-ahead, it will be the first of its kind in the UK, although sovereign wealth funds are popular around the world.
Such funds invest state money in businesses and other assets in many countries in the Middle East to generate income and profits for their home economies. The funds in the region also invest huge amounts of money generated from oil fields in global stock markets and assets.
Boasting £900bn worth of investments in shares, bonds and property, Norway’s sovereign wealth fund is the largest in the world. The fund earned a record £140bn in 2019, equivalent to £26,400 for every Norwegian citizen.
Wealth fund to benefit SMEs
The current British plan is based on a proposition by Jim O’Neill, economist and supporter of former Chancellor George Osborne and his vision of a Northern Powerhouse, who has called for wide-ranging public investments.
The peer has drawn up a plan whereby the Treasury would set up a £25bn fund to invest in family-owned firms that, although struggling, have the capability to become world-class companies.
The Government could take so-called preference shares in the companies, which would mean that taxpayers would be the first to receive dividend payouts which could be targeted towards public spending projects.
Lord O’Neill said that companies would also have the opportunity to use the funding to convert any burdensome debt incurred during the pandemic to an equity stake.
He suggested that the Government should try to sell its shareholdings back to the original owners within ten years and said the scheme could encourage entrepreneurial companies to bring the country out of recession.
As Chancellor Rishi Sunak forecast last week that there would be no ‘immediate bounceback’ from the economic implosion caused by coronavirus, Lord O’Neill countered by saying that a crisis should not be allowed to go to waste. Instead, this disaster should be managed by investing in British businesses and controlling the country’s debt.
Wealth Fund would target North and Midlands
Formerly chief economist at Goldman Sachs, Lord O’Neill is now the vice chair of Osborne’s Northern Powerhouse initiative and believes the North could benefit from taxpayer investment in companies specialising in green energy, advanced engineering and life sciences.
He added that although there are many great ideas and innovations coming from universities, the UK is not proficient in transforming them into businesses that go on to create jobs and wealth in the country. Start-ups are often bought ready-made from overseas while those that are created here tend not to grow and thrive.
The wealth fund would help regions such as the North and Midlands where there is world-class engineering potential and could enable investments in companies that have the technology to help the Government meet net-zero climate targets for 2030.
After all, Mr Sunak has said that investing in different regions across the UK is a ‘critical part’ of restoring the economy to normality after the crisis.
According to the Office for Budget Responsibility, the Government’s budget deficit is set to soar to £300bn this year, while the Bank of England has warned of the worst recession in 300 years. Rolls-Royce, British Airways, JCB and P & O Ferries have already announced substantial job cuts as unemployment claims increased by more than 800,000 last month.
On Saturday, as Sky News reported that Jaguar Land Rover had begun talks concerning a £1bn state support programme, it was suggested that the Government could take an equity stake in JLR as it seeks to support key industries.