Managers of a pension fund for thousands of Norfolk County Council workers are recommending they keep investing in tobacco companies, even though the authority will take on responsibility for public health from next year.

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The Norfolk Pension Fund, which has more than 66,000 members and covers Norfolk County Council workers and 134 other employers, including Norwich City Council, has a total exposure to the tobacco sector of £44m.

While that is only a small amount of the £2.1bn assets of the fund, the fact the county council will, from next April, take on responsibility for public health, including encouraging people to quit smoking, has sparked a debate over whether it should invest in tobacco firms.

It emerged in the summer that the county council had £25.9m invested directly in cigarette companies, which led Norfolk County Council leader Derrick Murphy, chairman of the pension fund committee, to request a review as to whether it was the right thing to do.

That review has been carried out, showing millions more is tied up in other investments which have links to tobacco companies and, at a meeting tomorrow, members of the pension committee will be advised not to pull out of investing in such assets.

Fund managers will warn them that the law is unclear on the issue and excluding them could lead to a costly legal challenge.

And the report adds: “The financial impact of excluding any stock or sector would fall on the employers that participate in the scheme, and in the case of the local authorities who participate may ultimately fall on the local taxpayer.”

Members of the pensions committee are recommended not to exclude tobacco holdings, but to review the situation when the legal position becomes clearer.

The committee is also advised to inform the Department for Communities and Local Government, as regulator of the Local Government Pension Scheme, that it has considered the matter due to the potential conflict between the council’s public health responsibilities.

Mr Murphy said: “I wouldn’t prejudge in anyway, what we are going to decide. This committee is one of the most independent minded of all the committees, so I don’t think you can second guess what they are going to decide.

“I had asked for this review because I wanted the committee to be able to look at the pros and cons as to what we can and can’t do.

“I don’t smoke and, as far as I am concerned on the public health side, we want smoking cessation to be a key target because of the public health ramifications.

“But if you are worried about public health, one of the biggest public health issues is obesity, so should we not invest in any food companies?”

Alan Waters, deputy leader of Norwich City Council, and another member of the pensions committee, said: “We are always careful to look at good governance of the pension scheme and it is right and legitimate that we discuss this issue.

“It does demonstrate the tension between ethical investments and the financial need to get the best return for the people in the pension scheme.”

But anti-smoking group ASH said questioned the ethics of investing in tobacco at the same time as councils promote promote public health.

And Martin Dockrell, director of research and policy at the campaign group said the long-term future of the tobacco industry may mean it is no longer such a sound investment.

He said: “Although the tobacco industry has been making fantastic returns for pension funds, there is no guarantee it will continue to do so, with tax on cigarettes going up, tighter regulation and the European Union looking at introducing plain packaging.

“Pension fund managers will say they have a financial duty to get the best return for pension holders, but in fact they have to act in the best interests of the pension holders and the taxpayers, which is not quite the same thing. They have no obligation to invest in tobacco companies.”

The meeting of the pension committee will take place at County Hall at 10am tomorrow.

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