IN OUR new digital economic world I believe we need to start looking at a modern approach towards the creation and the redistribution of wealth for the working class and the least well off.
Many of those who talk about it and write books about it believe the ‘state ownership’ model is the main mechanism to redistribute wealth. But what is realistic and what is possible? Let’s forget all of the ‘state ownership’ talk for now and look at a new direct and decentralised ownership scheme.
I believe we need to adapt the sovereign wealth fund model – instead of the fund being state owned, the fund would be directly owned by every single British citizen between the ages of 18 and 68. Just like any normal fund where each shareholder and/or partner owns a stake and has an account with all of his or her investment positions and holdings.
I have calculated that for an annual cost of £7.8 billion a year, the UK could create an ‘ownership society’ based upon building up wealth for 11 million unemployed Britons and workers on annual wages below £30,000.
The state could finance the sovereign wealth fund each year and the returns on the invested funds would be reinvested back into the stock market (known as compounding). Since its inception the FTSE100 has returned 7.75% each year so after 30 years of state financing and compounding of returns, the fund would have an investment value of £1.13 trillion.
Across 11 million British citizens this would provide each person with a sovereign wealth portfolio of £103,000 of investments. After 50 years this increases to £626,086. Each British citizen over the age of 30 would have their investments locked up for 30 years (under-30s would have their investments locked up for 35 years) and then they can cash in 20% of their investments every year for 5 years.
Each citizen could decide not to liquidate their investments after 30 years and in return the state would still finance their wallet. At the age of 65 each citizen would no longer be eligible for state financing.
This sovereign wealth scheme should be mandatory so it is guaranteed that all future governments will finance it (financing would increase 2% every year). The fund would also become a back-up to the long-term pension crisis, and making it mandatory would create a mechanism for wealth creation among the working class and the least well-off – killing two birds with the same stone by generating wealth for those least able to save and reducing the state’s pension liabilities.
Sovereign wealth wallets
Every single British citizen would be given a digital sovereign wealth wallet by the government and this wallet would own stock in the sovereign wealth fund, which would be incorporated as a private entity. Each wallet would be accessible online and each would have a unique code, a user name and a password; the UK treasury would use these unique codes to finance each wallet every month.
I also believe we need to start adopting blockchain technology and the fund’s network of wallets could easily be run on a blockchain network and this would achieve full transparency. Certain financial services firms could become custodians; they can execute the order flows and administer the fund as a whole. But the proprietor, that being the British citizen, would own each wallet within the fund.
In simple terms a sovereign wealth wallet would basically look like a normal investment or brokerage account. Because each account (wallet) would be owned by a citizen and administered by the financial services sector, this provides assurance that no future government can dip into or exploit the fund. In essence, this is a decentralised financial model that would be isolated from government control and controlled by citizens, and this would be enshrined into law.
Sovereign wealth wallets should be tax free until the owners liquidate their investments and holdings. A liquidation tax of 5 per cent would reduce the burden on the state because the tax receipts would finance future state funding into the sovereign wealth fund. The wallets would not be to subject to any inheritance tax and if a person dies before they liquidate their investments then their investments and holdings would be distributed to their family or their persons of choice.
Eligibility
Not all sovereign wealth wallets would be eligible for state financing and this includes all wallets owned by workers on wages above £30,000 and all citizens with a net worth consisting of £750,000 or more.
Nine million people would not be eligible due to them being OAPs currently on a state pension; this is because they will not have the ability to liquidate their portfolio. Every person would be allocated a sovereign wealth wallet but not all would be eligible because the fund’s main intention is to build up wealth for the working class and the unemployed.
All British citizens unemployed or on wages below £30,000 would be eligible for financing, every single one.
Welfare and Universal Credit claimants
The UK has roughly five million universal credit claimants and citizens receiving employment and support allowance. Here are the state costs and the final investment value for each person’s wallet…
5 million sovereign wealth wallets
5m x £840 per year = £4.2bn** annual cost to the state
£70 per month per wallet, final investment value:
20 years: £48,562
30 years: £122,451
40 years: £282,701
50 years: £626,086
All investments compounded annually. Benchmark; FTSE100 annualized returns 1989-2019 @ 7.75%
**State funding to increase 2% a year in line with the BoE inflation rate target.
After 30 years the final investment value across all of these five million wallets would equate to £612 billion and after 50 years this would rise to £3.12 trillion. Over a 50-year period the total net return from the investments would be £2.77 trillion. That would represent an immense creation and redistribution of wealth.
Workers on wages below the national minimum wage
The Low Pay Commission estimates 7% of the UK workforce is on or below the national minimum wage (NMW), while the Office for National Statistics estimates 3.8m workers are on less than £30,000 per year. This converts to roughly six million people. Here are the state costs and the final investment value for each person’s wallet…
6 million sovereign wealth wallets
6m x £600 per year = £3.6bn** annual cost to the state.
£50 per month per wallet, final investment value:
20 years: £34,680
30 years: £87,450
40 years: £201,899
50 years: £447,141
All investments compounded annually. Benchmark; FTSE100 annualized returns 1989-2019 @ 7.75%
**State funding to increase 2% a year in line with the BoE inflation rate target.
After 30 years the final investment value across all of these six million wallets would equate to £524 billion and after 50 years this would rise to £2.68 trillion. Over a 50-year period the total net return from the investments would equate to roughly £2.38 trillion.
Workers on wages above £30,000 per year
These sovereign wallets will not be funded by the state and the owner can fund them voluntarily. The maximum monthly investment is capped at £100. The only advantage is that these sovereign wealth portfolios are tax free other than the 5% liquidation tax solely on the ROI. If a worker’s wage falls below £30,000 per year or if they do become unemployed then they can claim the £50 or £70 per month from the state.
In total, the costs to finance 11 million sovereign wealth wallets would be £7.8 billion a year and this financing would increase 2% every year.
Whoever says this is not possible is lying: Markets 4 The Many in motion
Norway’s sovereign wealth fund is proof this system works and the fund owns 1.5% of all global publicly listed stocks.
If a British citizen turns 18 and throughout their whole life they have a job that is below the NMW, then by the time that citizen turns 70 they will have a sovereign wealth portfolio valued at £462,841.
When they liquidate their portfolio they would pay around £23,142 in liquidation taxes. This tax would fund 39 British citizens sovereign wealth wallets for a full year and this is how we could productively redistribute wealth without a growing financial burden on the state.
We redistribute returns from the markets, we don’t fund the wealth with extra taxes on the British people and this is the main key. The compounded returns reaped from the stock market would eventually fund every single sovereign wealth portfolio. Within 32 years all of the tax receipts received from liquidations would fund more than 50% of all government funding into sovereign wealth portfolios, after 47 years these tax receipts would fund every single sovereign wealth portfolio.
Britons would witness their wealth increase while at the same time the state would witness its financial burden on sovereign wealth wallets decrease. We would put ourselves in a position where the global stock market eventually finances our sovereign wealth wallets and it would serve the British people and reverse the current environment where the British people serve the stock market.
I call this the ‘flip-the-lid’ approach to building up wealth for the masses because MPs talking about building up wealth via the housing ladder are just, plainly speaking, talking up an unsustainable Ponzi scheme. The government should plant the wealth seeds (financing) and the stock market would grow them (via compounding) into a flower that produces new wealth seeds (liquidation taxes) to plant (finance).
Within five years of this scheme being rolled out, 11 million British citizens will have investment portfolios consisting of many different investments and we could then proudly say we were an ownership society. Isn’t that is something worth fighting for?
Not just wealth creation but jobs, taxes and a healthier, happier nation
Now imagine during the next year 500,000 Britons liquidate their sovereign wealth portfolios and after tax they receive £439,699 each, in total that equates to £219 billion in total liquidated capital. Imagine the amount of extra jobs and tax receipts that would be created within the British economy if 500,000 Britons in their mid-60s were to receive and spend £219 billion.
Trickle-down economics would eventually be replaced with swirl-around economics and the ultra-rich will not moan because Britons will have more money to spend in businesses they own. Everyone is a winner.
I’m on a mission
Holiday regions like Blackpool, Bournemouth and even Benidorm would turn into ‘power spots’ and cruise lines and bingo halls would be heaving with income. Parents and grandparents will have the ability to pay for their children’s housing deposits and university fees, they will be able to pay for better quality housing, buy healthier food and live happier lives. As a nation we would be economically and socially better off. So this scheme would not just be a vehicle for building up wealth but also provide us with many other positives that will more than justify its costs.
I will be heavily promoting this sovereign wealth fund model and running a promotion-based scheme for this. I am going to steal Jezza Corbyns ‘for the many’ and rehash it into my own ‘Markets 4 The Many’ slogan. This is because my intention is to help promote the creation of an ownership society through the mechanism of the global stock market. It is a proven model and is currently working in many other countries. It is financially rational, prudent and a viable solution to our pensions problem.
If someone else can show me a model or idea that costs less than £7.8 billion a year and after 30 years creates £1.13 trillion of wealth for 11 million people then I’m all ears. Until then, I will be advocating for the sovereign wealth fund model outlined above.
