The most urgent problem facing the next generation is the unaffordability of housing.  Although any solution will involve several elements, a central feature must be a major increase in public investment in social housing. To be effective, changes to housing policy must be sustained over the long-term and command wide public support to ensure they will be implemented by whichever political party is in power.

In our new report, ‘Remodelling Capitalism: How Social Wealth Funds could transform Britain’, we propose a radical expansion of the role of the state to ensure that future increase in housing supply, especially of social housing. We believe the state should be primarily responsible for ensuring there is enough land available for future housing development, building on the huge reservoir of land already owned by the public estate. The aim would be to ensure that land for public housing was available across the country, and to increase the overall supply of development land so as to reduce the cost of land, now a key element in the explosive growth of house prices.

Over the past 40 years the UK has sold off public land valued at around £400bn, but still retains considerable holdings. Although exact figures are hard to come by, the best estimate is that the UK public authorities currently own about 750,000 hectares, with two thirds owned by local authorities and public bodies like the NHS and the other third owned by central government.

Our proposal aims to create a series of regional or urban land trusts, based on consolidating and professionally managing the portfolio of existing publicly owned land suitable for development. The trusts would then hold and own this land in perpetuity. The primary aim of these regional land trusts would be to ensure that society retains what is left of publically owned  land and uses it to build the next generation of social housing, as well as other suitable developments such as social infrastructure. All public sector owners could, should they choose, transfer their operational land and property assets into the trusts. This would enable the trusts to coordinate the management of all the public land.

The local trusts could acquire additional parcels of land suitable for housing by purchasing them at existing use value. Land unsuitable for social housing, or public land in regions without demand for social housing, could be leased to the market for private housing, as well as commercial and retail development. The lease arrangement (with the income accruing to the trust ) would enable the trusts to ensure that they retain control over the character of the private developments, including the provision of adequate infrastructure and inclusion of social provision. The trusts could also specify conditions regarding maximum rent levels, maximum rent increases and/or minimum levels of security of tenure.  It would also include provisions for the forfeiture of land for non-compliance with the conditions stipulated in the lease.

The trusts would also have the power to borrow in order to acquire land, secured against its existing land portfolio, and could be given powers to acquire land banks that are being held by private developers who are not currently building housing on these plots.

Any rental income from social housing and leasing income from commercial and retail development would be used by the land trust to meet the financial obligations it incurred through borrowing to build the housing. Any additional capital would be ploughed back into the trust to further assist it in meeting its prime objective of building social housing. Where the demand for social housing has been met, the money would be ring-fenced to pay for future land acquisition and housing development.

The trusts would be bound by a number of core principles. Firstly although they would be established by the state they would operate independently of it. An independent board, which would include local people, would manage the governance of the trust and ensure that it met its social purpose and protect the assets in perpetuity from misappropriation. The day-to-day management of the trust would be conducted by property management professionals.

The title to all the publicly owned land suitable for development would be transferred to the trusts at no cost to itself or the previous owner, which would be granted temporary stamp duty relief. The urban land trust would retain ownership in order to ensure that it can develop land itself, as well as leasing land at an agreed rent for development. As it expands its land and property holdings it will generate additional income through rental and leasing income.

One of the fundamental challenges with building good quality social housing is the high cost of the land. Land now makes up the largest proportion of the cost of housing in many areas (up to 70% in some areas compared to just 1% for New Town developments such as Milton Keynes or Harlow). Building on land already in public ownership will allow the regional/urban land trusts to build social housing without needing to take into account the cost of the land. This will cut the cost of building substantially and means that the development will start to generate profit faster than private developments which also need to make back the cost paid for the land.

Utilizing the existing land that the regional/urban land fund owns, together with the newly acquired land at existing use value, should result in increased availability of housing, especially social housing, as well as dramatically lowering the cost of acquiring land for the trusts.

The advantage of adopting a local approach to this type of social wealth fund is that it is likely to get local buy-in, and could be implemented on a piecemeal basis, and would show results without waiting for many years for national social wealth funds to accumulate.

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In the last half century private wealth levels have risen from 3 to more than 6 times the level of national income. Wealth is much more unequally distributed than income, and has become ever more concentrated since the early 1980s. Today 70% of financial wealth, mostly shares, is owned by just a tenth of the population. Moreover, while the amount of personal wealth has been climbing, the amount of public net wealth (assets less liabilities) has contracted to such a degree that it is now negative, creating not just a serious public/private imbalance, but greatly weakening the national finances.

In recent months, a growing number of voices – from the IMF to former Conservative MP, David Willetts – have called for higher taxes on wealth. Yet income continues to be taxed much more heavily than wealth. The public tend to dislike such taxes, and distrust the way the revenue might be spent. But suppose the proceeds of higher taxation on wealth – household and corporate – was ring-fenced and used directly for public benefit, thus by-passing the Treasury?

This could be achieved by establishing Britain’s first citizens’ wealth fund. These are collectively-owned pools of assets – financial and physical – owned on an equal basis by citizens, with the returns shared across the population. By offering a progressive way of managing part of the national wealth, such funds would give society a powerful new policy instrument. All citizens would directly own part of the economy, creating a new ‘people’s stake’. By revolutionising the way that the gains from economic activity are shared, it would also create a powerful new pro-equality economic and social measure.

The French economist, Thomas Piketty, has argued that the present economic model has a built in systemic bias to inequality – a force, as he puts it, for ‘divergence’. Citizens’ wealth funds offer a way of creating a ‘new counter-force for convergence’ which would lock in a new bias towards greater equality.

In recent times, scores of countries (but not Britain) have pooled wealth through sovereign wealth funds, nearly all created from the proceeds of oil. Few of these act as a progressive force, with most little more than unaccountable and secretive investment arms of the state. One of the most transparent and pro-equality of these sovereign funds is the Alaskan oil-based Permanent Fund. This has been paying a highly popular citizen’s dividend – averaging £1100pa – since 1982, helping to turn Alaska into the most equal of all US states.

If the UK had used its own oil bonanza to build for the future, it would today have a fund worth in excess of £500bn, a quarter of the size of the economy. Instead of investing this windfall – described by the then Prime Minister, Jim Callaghan, as ‘God’s gift to the economy’ – the UK chose a one-off, short-term boost to personal consumption.

Building a fund therefore requires alternative sources of financing. Possibilities include the transfer of a range of existing commercial public assets into the fund (from property and land to a number of state owned enterprises); occasional one-off taxes on windfall profits (paid in shares) and the issuance of a long term bond. Another possibility would be to link such funds to higher wealth taxation. Paying revenue from reformed capital taxation directly into a fund which enjoys a high degree of public support might make reform of wealth taxation more politically palatable.

One of the most pro-equality approaches would be to establish a fund through the dilution of existing corporate ownership, with large companies making a modest annual share issue – of say 0.5% – with the new shares paid into the fund. Such an approach would gradually socialise part of the privately owned stock of capital to be used for explicit public benefit. By taking established stakes in companies, such a fund could help align the interests of society and business. A variation on this model was applied in Sweden in the 1980s through the creation of ‘wage-earner funds’ – a bold, decade-long social experiment to further develop their model of social democracy, though one that eventually came to an end in the early 1990s.

Such a fund does not offer a quick fix – jam today– but a vision for a much more secure social future, paid for by a higher rate of national saving. Fundamentally long-term, such funds would take time to establish, but in our report on the potential of such funds, we show that after a decade, a fund could grow to a level sufficient to boost key areas of social spending, including cash payments. Over time, as the size of the fund grows to command a larger share of the economy, such pay-outs could become more generous, and/or levels of payment into the fund reduced. Examples might include an annual citizen’s dividend as in Alaska, including a ‘next generation grant’ to all 25 year olds, or the extension of universal services such as child care or social care for the elderly. After a single generation, a fund could grow to a size sufficient to pay for a modest starter rate of universal basic income.

The case for such funds are now being more widely acknowledged. ‘Future funds’ have been established in Norway, Australia and New Zealand as well as Alaska. In the UK there is growing political interest in their potential. While the overseas models mostly differ significantly from the model we are proposing, the independent RSA and the IPPR think tank have proposed variants closer to the model presented here.

The overseas evidence is that such a fund could gain significant public buy-in. By rebuilding the nation’s stock of depleted ‘family silver’, it would re-establish the importance of social wealth, boost the ratio of public to private capital, and tackle extreme wealth concentration. Legally ring-fenced to prevent a Treasury ‘raid’, it would grow over time to play a significant social role.

While the model being advanced here is at the radical end of the possible range of proposals, it would offer a progressive way of managing part of the national wealth, provide a powerful new economic and social instrument that could command public support, and build in a pro-equality bias that could transform the way we run the economy and society.

Stewart Lansley, Duncan McCann and Steve Schifferes are members of the citizens’ wealth fund team at London’s City University. They will be launching their new report on citizens’ wealth funds at an event in central London on 10 May 2018. Tickets and further information are available here. 

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“The modern joint stock company is a British invention… but the rules need to change as the world changes. Boards should take account of the interests not just of shareholders but employees, suppliers and the wider community.”

Which revolutionary firebrand said that? Who dared to question the fundamental correctness of modern shareholder capitalism?

You may be surprised to learn that the above passage is taken from the 2017 Conservative Party manifesto. In fact, the party joins a list of unusual suspects voicing concerns about the nature of modern corporate behaviour. Dominic Barton, the global managing director of McKinsey, has argued for years that capitalism needs to take a longer view. Andy Haldane, Chief Economist of the Bank of England, recently suggested that businesses ‘are eating themselves’. Even the Chief Executive of BlackRock, the world’s largest asset manager, has admitted that pressure to keep the share price high means corporate leaders are ‘underinvesting in innovation, skilled workforces or essential capital expenditures’.

They are right. Our current, highly financialised form of shareholder capitalism is not just failing to provide new capital for investment; it is actively undermining the ability of listed companies to reinvest their own profits. The stock market has become a vehicle for extracting value from companies, not for injecting it.

Corporate governance has become dominated by the need to maximise short-term shareholder returns. At the same time, financial markets have grown more complex, highly intermediated, and similarly short-termist, with shares increasingly seen as paper assets to be traded rather than long-term investments in sound businesses. This kind of trading is a zero-sum game with no new wealth, let alone social value, created. For one person to win, another must lose – and increasingly, the only real winners appear to be the army of financial intermediaries who control and perpetuate the merry-go-round.

There is nothing natural or inevitable about the shareholder-owned corporation as it currently exists. Like all economic institutions, it is a product of political and economic choices which can and should be remade if they no longer serve our economy, society, or environment.

The shareholder model is harming the economy by actively holding back investment. It is harming society by increasing inequality through ballooning executive pay. And it is harming the environment by encouraging risky short-term behaviour such as fossil fuel extraction. So why keep it?

Reforming shareholder capitalism is not as hard as it sounds. In a new report for the New Economics Foundation, we set out what needs to be done to take the first steps towards a better economic model.

For instance, corporations could be required to state their public purpose openly and regularly report on how they are fulfilling it. That would start to move companies from focusing entirely on shareholder returns towards thinking about their stakeholders as well.

At the same time, shareholders could be required to make longer-term commitments to their companies by making their voting rights dependent on the length of their commitment.

And we should restrict some of the damaging forms of speculation which drive short-termism. For instance, predatory high-frequency trading could be restrained without destroying their benefits.

For most people, our economy simply is not working, and the way corporations are structured is at least in part responsible. Reforming shareholder capitalism must not be dismissed as too difficult – the crisis is too urgent for that. We can take the first steps towards a better model right now. It’s time to act.

This article was originally published by the New Economics Foundation. The full report ‘Shareholder capitalism: A system in crisis’ can be downloaded here.

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