So now you want to plunder my pension fund completely. Is Gordon Brown’s taxing of it not enough for you?

My company’s fund is prudently managed and i personally know the trustees. You suggestion is that my pension is given to a no-name bereaucrat not to invest, but to spend is lunacy.

Alternatively, as you say, there is a process for this already – Government bonds. Saint Vince is just up to his usual tricks – making it sound like he’s being radical, when really he’s saying nothing at all.

Pension and insurance funds are to be encouraged to invest up to £50bn in improving infrastructure, including private and social housing, power stations, super-fast broadband and motorway toll roads.

We have a word for this in English. It is privatisation. Pension funds exist to make money for their members. Insurance funds need to. So they will be encouraged to fund the construction of social housing, power stations and roads will they? How are they going to make money out of this? Either they own the asset in question or this is just one of those horrendous PFI things. A Super PFI in fact.

Instead, Balls and team should welcome Cable’s initiative.

Because those PFI deals have worked so well up to now, right?

Stuart and SMFS – as a pensioner I have a lot of sympathy with what you both say.

Two points in the other direction, however:

- it is at least arguable that the pain of this government’s economic programme has fallen on people of working age, and that pensioners have, rightly or wrongly, been largely spared;

- there is a view that it is morally wrong to invest in fixed-interest securities, as these provide income without a proportionate risk (i.e. escape moral hazard). I have been bitterly attacked on Mike Smithson’s website for putting my savings in fixed-interest products. Apparently this practice is up there with abortion and Palestinian rights as a hate issue for the right.

Stuart @1: I don’t think anyone’s suggesting plundering. I said in the OP that pension providers are bound by their fiduciary duty, so clearly they’ll only invest after full advice and scrutiny.

I agree (and say) that this is far from perfect, and I would hope over time it would be remodelled to look like more straightforwad government investment, but any move in this direction is to be welcomed.

SMFS @2: Yes, I agree totally that it has all the hallmarks of PFI 2.0 (as Sunny has termed it on twitter), and I say again that I’d prefer a different, more direct way of investing in infrastructure. However, I do think PFs getting returns for their pensioners-to-be (and no one is directly suggesting insurance funds here, it’s just that the DMO data ties them together) under PFI 2.0 may be better than the PFI 1.0 model, especially when you consider the range of PFs out there.

At a more abstract level, this is just an older generation investing in a younger generation’s future, in the expectation that lending young people to build railways etc etc will reflate the economy to everyone’s advantage.

In fact, that’s pretty well how Giles Wilkes, Vince Cable’s SpAD (previously regular writer/commenter here at LibCon), who according to Faisal Islam at BBC is the brains behind this scheme) put it when the lightbulb went on above his head in March 2010:

“In many ways, Paul C’s [that's me, that is] point here echoing Richard’s is the most important and radical of all; all we get is a shifting balance between private and public assets and debts, in the absence of a massive international imbalance. Which means we can always afford to resolve either private or public indebtedness with a political solution, if we are brave enough. But why exactly is 75% of GDP in public debts, owned by the private sector and paying just 4-5% interest, a problem – when the private sector needs such instruments? That is a question Conservatives bury under the term ‘burdening our children with debts’.

It is just as much ‘providing our pensioners with assets’.”

(http://freethinkingeconomist.com/2010/03/25/liveblogging-osbornes-budget-reaction/#comment-2636)

Just an admission that austerity has failed.

If Pip squeak Chancellor had any integrity he would resign. But as we have seen with May integrity is not something you find in tories.

Sally @5: Yes, I think it’s an important point politically, and I’d have no problem with Labour trying to drive a wedge between Osbornian ideological lunacy and Cable’s new found commonsense (or at least his new power to drive his plans forward in the face of collapsing Treasury confidence-in-its-lunacy).

However, what I’m keen to stress is that this shouldn’t overshadow explicit support (though appropriately critical as details emerge of how unwieldy/delaying the plan is) for a more Keynesian approach from the government. If Labour opposed the new plan from the right (and I don’t rule out them doing it for Dan Hodges-like stupid reasons) I would be very disappointed.

3. Mike Killingworth

- it is at least arguable that the pain of this government’s economic programme has fallen on people of working age, and that pensioners have, rightly or wrongly, been largely spared;

So far. Whatever else happens, it looks like most people are going to suffer yet another massive round of inflation. Which will disproportionally hit pensioners. However it is hard to see what this proposal hides – is it a demand that pensioners take one for the team, or is it a demand that public assets are handed over to pension funds so they can claim full profits? If the latter, the pensioners will be profiting again.

4. Paul

I don’t think anyone’s suggesting plundering. I said in the OP that pension providers are bound by their fiduciary duty, so clearly they’ll only invest after full advice and scrutiny.

The previous poster is suggesting it. If they can make money, why would the government need to do anything? They would invest any way. It is hard to see precisely what is being proposed, but a reasonable interpretation is plunder.

At a more abstract level, this is just an older generation investing in a younger generation’s future, in the expectation that lending young people to build railways etc etc will reflate the economy to everyone’s advantage.

Except pension funds get invested anyway. So it is a demand that money is moved from the private sector to the public sector. It is a demand that instead of investing in manufacturing and houses, it is placed into the government’s main infrastructure goals. Whatever gains are brought about by the latter will be off set by the losses from the loss of the former. You cannot get fat robbing Peter to pay Paul.

But why exactly is 75% of GDP in public debts, owned by the private sector and paying just 4-5% interest, a problem – when the private sector needs such instruments? That is a question Conservatives bury under the term ‘burdening our children with debts’.

Sorry but I am not sure what you are arguing here- isn’t this an argument for the government to borrow less so that private sector investors could use that money? In that case, isn’t this an argument against forcing/encouraging pension funds to shift money from the private sector to public investments?

What we need to do is stimulate extra investment.

“fund the construction of social housing, power stations and roads will they? How are they going to make money out of this? ”

How do you think energy companies make money from power stations?

The idea is the funds are used to create assets which generate a return.

” If they can make money, why would the government need to do anything? They would invest any way”

Regulations etc.

Plus sometimes the money is made by increased tax take. So road building creates an income through increased fuel use. In order to generate a return the pension fund needs to have a legally binding mechanism that sees it get some of the increased tax take.

SMFS @7:

You say: “If they can make money, why would the government need to do anything? They would invest any way. It is hard to see precisely what is being proposed, but a reasonable interpretation is plunder.”

My point (and it’s more fully drawn out in the uncut version at my blog) is that they should invest anyway, but they’re hamstrung by fears about how the on-balance sheet debt would look to a) voters that they’ve lied to about debt; b) the ratings agencies/bond markets that should understand that on balance and off balance sheet debt is the same thing but written in a different place, but that the government thinks don’t.

All stupid, but a real driver for this indirect investment route.

You say: “Except pension funds get invested anyway. So it is a demand that money is moved from the private sector to the public sector. It is a demand that instead of investing in manufacturing and houses, it is placed into the government’s main infrastructure goals.”

I think the distinction between public and private here is grey anyway. Who gets contracted to build a new road? Govt does have public sector workers waiting in a big shed for when a road is going to be built.

Yes I agree with you that investment needs stimulating. That’s what public infrastructure investment, via whatever whacky route, should do, through supply chains, money in road builders’ pockets, renewede demand and confidence, that kind of stuff.

[Don't want to look discourteous, so just to say I'm offline now for a few hours, and will try to pick up threads later.]

So if this goes ahead will Osborne eat humble pie and admit the Tories idea is just not working?

I’m not sure you’ve entirely understood what is happening here.

The bits about pension funds, pooling and £50 billion are the least important parts.

The important part is that they’re setting up a financial system so that public infrastructure can be profitable for private sector investors.

Why don’t private investors invest in, say, roads? Yes, there’s nice lovely new infrastructure if they do, this is true, many people benefit, able to get places faster, use less fuel perhaps etc etc. But none of those gains are captured by the people who have paid for that new infrastructure. The way we’ve got it set up (roads free at the point of use) they are public goods.

That’s why private investors don’t invest in them: there’s no revenue stream from which they can make a profit.

The solution? Structure such infrastructure projects so that private investors can indeed profit from building thiese things. Make it possible for there to be a revenue stream.

Then private investors will (OK, might) invest.

The important part of this is over on the other side, not where the capital is to come from: but where is the revenue to come from?

For example, with a road, they’ll be allowed to build toll roads. That’s the important part of this announcement.

@ 1. Stuart

That was actually one of Mr Brown’s better policies. The pension funds were not plundered, they had their dividends 20% tax credit subsidy that they were dipping from the public purse removed. Because it distorted investment decisions, Norman Lamont cut the subsidy from 25% to 20% in 1993. There was no tax grab on the pension funds, they just stopped getting free money from the Treasury.

Tim @12:

Yes, you’re absolutely right that how the revenue comes is the most important part of the equation, and the devil will be in the detail. It’s interesting tho’ maybe coincidental that Osborne supports an A14 toll in the same week as this appears, and it may be that there’s a public investment (Cable) vs. tolling/public-utility-ending (Osborne) power struggle going on right up to and beyond th 29th Nov announcement.

So while Labour should welcome the general direction of investment, such a welcome should come with loads of caveats.

btw, Tim, I’m fairly thick-skinned from a couple of years on LibCon, but do you ever start a comment thread in any other way than suggesting that the OP writer simply hasn’t understood what’s really happening, and that you’re kindly offering up a dose of reality to the less informed. I just think it might foster better discussion of the type we’d all like to see if you were to, just occasionally, join the discussion a little less condescendingly. You’re clever, and make a load of good challenging points which should bring forth constructive debate, but they can get lost in the hostility your initial style arouses.

The usual line of those who reject “keynesianism” is that additional public investment “crowds out” equivalent private investment leaving a zero impact on aggregate demand – which was the regular position of HM Treasury in the 1930s in response to proposals to increase public spending on investment projects to create jobs.

The concerning aspect with the proposals here is whether this pension fund investment spending on infrastructure projects constitutes “public” or “private” investment as we need to know exactly what is supposedly crowding out what. Perhaps posters here who denounce Keynes and all his theories can illuminate. I admit to being puzzled.

Btw this ONS graph shows is what has been happening to business investment:
http://www.ons.gov.uk/ons/rel/bus-invest/business-investment/q2-2011-results/summ-bus-invest.html

“but do you ever start a comment thread in any other way than suggesting that the OP writer simply hasn’t understood what’s really happening, and that you’re kindly offering up a dose of reality to the less informed. I just think it might foster better discussion of the type we’d all like to see if you were to, just occasionally, join the discussion a little less condescendingly. You’re clever, and make a load of good challenging points which should bring forth constructive debate, but they can get lost in the hostility your initial style arouses.”

I have actually: very occasionally I admit. I’ve even, shock horror though it may be, said “Bleedin’ ‘Ell, that’s a good point”. Not perhaps in exactly those words but with that meaning.

As to my arguing like an 8 year old informing 7 year olds, well, that just proves I’m fully in touch with my inner child. As I’m told we’re all supposed to be these days, no?

The elites have decided that the solution is to take money from the poor and the middle class and give it to rich bankers. It is not working.

So now the elites have deided to put bankers and IMF lackeys in charge of various countries to push this agenda. They call it austerity, and talk about sacrifice. But the elites don’t think they should do any sacrificing.

Austerity? Just another name for the usual class war the elites like prosecute on the masses.

@ OP: “Pension and insurance funds are to be encouraged to invest up to £50bn in improving infrastructure, including … motorway toll roads.”

I read in the Birmingham Post earlier this year that the M6 Toll is working at one-third capacity, with this year’s figures showing the lowest use in the road’s history, and that it is one of the most expensive stretches of toll road in Europe. Presumably the ever-increasing charges reduce use.

@18 yes, quite. Toll roads only work when you don’t have several free alternatives. To make this work you need tolling throughout the whole motorway network. I can see how this would appeal to an environmentalist, but not a conservative government.

15 – the issue I have with Keynesianism that when the public funding is eventually cut off there is no guarantee that private spending will then flow into the same channels. For example, a government could borrow and spend on expanding the steel industry – lots of new jobs created, hurray! But when the economy recovers and spending is cut the private demand for said expanded industry won’t necessarily be there – perhaps people and firms prefer to buy from overseas or invest in other industries. Hence unemployment and contraction.

@18 – Indeed, I do wonder why the greens don’t back them more. (Heh)

@20 Richard: “the issue I have with Keynesianism that when the public funding is eventually cut off there is no guarantee that private spending will then flow into the same channels. ”

True enough but business is more likely to invest in a buoyant economy than in a depressed one. The direction and magnitiude of public investment is susceptible to political pressures and it’s probably significant that the Cable suggestion of pension fund investments relates to infrastructure projects for which there is a broad public consensus.

8. Planeshift

The idea is the funds are used to create assets which generate a return.

So essentially it is a massive sell off of state assets? I am all in favour of this on practical and political grounds, I suppose, but it is odd to see it endorsed on LC.

9. Planeshift

Regulations etc.

So the Tory claims that regulations cost jobs etc etc are true?

Plus sometimes the money is made by increased tax take. So road building creates an income through increased fuel use. In order to generate a return the pension fund needs to have a legally binding mechanism that sees it get some of the increased tax take.

So we are privatising more and more government services? I tend to support the idea of privatisation, but I do think that the government should run efficient and competent services when it does run them. This seems more like the State giving up in despair. Again, it is just a weird thing for LC to endorse. I mean, social housing? Really guys? As I have pointed out any number of times, the State has never once managed to build in a single year as many homes as the private sector was building the year before they took over. Is that massive and comprehensive failure finally getting through?

10. Paul

I think the distinction between public and private here is grey anyway. Who gets contracted to build a new road? Govt does have public sector workers waiting in a big shed for when a road is going to be built.

Yes, but it is still juggling the same amount of investment. It is not any new investment. It is to be supported, probably, but what we really need to do is to encourage people to save more.

Yes I agree with you that investment needs stimulating. That’s what public infrastructure investment, via whatever whacky route, should do, through supply chains, money in road builders’ pockets, renewede demand and confidence, that kind of stuff.

Except pension money has to be invested. Pension funds can’t really sit on it for a decade. They would have invested it anyway. The advantage of borrowing in downturns is that business does not want to borrow. So the government will do so instead. Thus creating more demand that did not exist. Are they doing this here or are they just taking money that would have been lent to private business men and investing it in pointless things like social housing?

I think a better solution would be to look at Australia’s Super Annuation reforms of the 1990s. Most Australians now save something for their own retirement because they got tax breaks to do so. That way we would encourage people to save more, more would be available to invest and everyone would be better off in the longer term.

11. Steve

So if this goes ahead will Osborne eat humble pie and admit the Tories idea is just not working?

What Tory idea? The idea that the private sector ought to be involved in owning and managing infrastructure projects? Isn’t this the last death of the Left?

SMFS @23: Ta for reply

There’s a minsterial statement on what may become known as PFI 2.0 later today, Jesse Norman tells me (via twitter) https://twitter.com/#!/Jesse_Norman/status/136350451665866752

Sounds like there may be more detail then, though he was v light (i.e. absent) on detail on R$ just now, saying only that we should learn from Canada and that PFI 2.0 (not his term) would be better than PFI 1.0. Clearly he’s given up on his campaign to renegotiate existing PFI contracts and is now focused on this.

The extent to which this statement will link to Cable’s plan is anyone’s guess – suspect Treas and BIS still haggling. Interestingly Jesse Norman refers to it all being a ‘consultation’, though it’s not one formally.

All evolving, I think.

Perhaps in the meantime you might explain why investment in social housing (as opposed to other types?) is “pointless”?

@24 – I’ll answer that: Because it’s a long term soloution to a short term problem, and government rules mean they’re now not housing for anyone but the relatively well-off. Unless you sort the short term problems, they’re just subsidised houses for those who can afford them anyway.

So, we need rent caps, a tax on unoccupied housing (and brownfield land) and a reversal of the government policy of pushing council house rents to levels ABOVE those of housing benefit.