Will Hutton’s article in the Guardian asks Labour’s hardest question. “How can it create long term growth in the economy to turn round the decline in Britain’s self confidence and living standards?”.

In the short term, his answer is to raise 1% of GDP by extra wealth taxes on capital gains, inheritance and capital.

In the longer term, he calls for the consolidation of DB pensions into the Pension Protection fund, a sovereign wealth vehicle funding the British Business Bank and the UK infrastructure Bank.

He is pretty brutal in his assessment of pension fund management – calling it “fossilised“, he refers to the £600bn of sub-scale DB funds identified by the Tony Blair Institute as “Zombies” and he criticises the pace of change within pensions. He is of course right.

Superfunds are the way to clean up the mess of our DB pension schemes. So far there are two- Clara and the PPF. He calls out the PPF as the natural home for at least £100bn of pension investments (up from its £33m today).

He would like the PPF to be backed with a Crown Guarantee so the tax-payer not the pensions industry, is the insurer of last resort. He would have it fund the BBB an UKIB and I am sure there are some in Croydon who see this vision as both preferable to private superfunds and practical.

I can run with Will Hutton so far. Back in the days of the last Labour Government, it was assumed that auto-enrolment would be about Nest, a similarly Government created pension scheme that was assumed to pick up the bulk of the 10m new savers and 1m new employers in workplace pensions. To a degree it was right, but it has had to share the spoils with direct and indirect competitors, Nest is – 12 years in – about the size of the PPF, but it is still only a £35bn fund and competes with several other DC workplace pensions over £20bn.

The market is distrustful of putting all its eggs in the Government’s basket, both PPF an Nest have competitive advantage, but only (currently) in the space where the private providers cannot add sustainable value.

Hutton and the Tony Blair Institute jointly share a view that the PPF should hoover up the £600bn tail of small DB schemes , most of which are inefficient, a drag on their sponsors and better managed out through general consolidators.

But he fails to spot the essential problem facing the creation of consolidators. It is the conflict of interest between the states occupational scheme quangos – PPF and The Pensions Regulator and market forces. It is not in the interests of either to consolidate other than in the most micr0-managed and unambitious way. With due regard to Clara, two deals – both targeting buy-out , does not constitute a regulatory success story – for heavens sake, the PPF has done more than 1100!

If the Labour Party wants a template for consolidation that sees the PPF and commercial consolidators making serious strides towards the goals of the Mansion House it should look to the Master Trust Assurance Framework which offers the public assurance that their pensions will be well run without an explicit crown guarantee.

In short, Will Hutton does not need the blunt club of state intervention to create a state wealth fund – a “fiscal get out of jail card” for the Labour party. The public will rightly see this as a raid on their pensions and the pensions industry will not co-operate.

A more sensible route, the route taken to make auto-enrolment happen, is to free up the ganglion of conflicting interests at TPR and PPF and accept that the old regime which put the employer covenant at the heart of regulation is over. A new regime which puts pension capital to work in the economy, depends on third party capital to guarantee pensions. Such capital is already lined up to help, it takes only a forward looking Treasury and DWP to flick switches and the original ambition of superfunds could be realised.

AE II

The creation of a benign environment for change is readily achievable. Just as the Coalition in 2010 inherited a workable system for auto-enrolment, the new Labour Government will inherit all the infrastructure needed to consolidate DB (and DC) pensions to release fossilised funds from their Zombie state.

With auto-enrolment the big win was the democratisation of workplace pensions. The big win from consolidation is economic growth, created by the release of productive finance.

AE II is into superfunds , as AE I is into master trusts. And behind both are the large insurers who have become the unexpected winners both in terms of retail retirement savings and in the buy-out of legacy DB pensions. They command the end-game and can profit from its deferral by working with the superfunds to manage assets and provide longevity cover.

Hutton’s bald vision of a state takeover of pension wealth is attractive to politicians but not to those they Govern. We have public and private pensions and that is the way things should stay.