The National Wealth Fund: more than a rebrand?

As we’ve argued, the National Wealth Fund - if empowered to maximise its financing capacity and prioritise climate goals and workers - could be a cornerstone institution for financing and coordinating a just green transition. This week the government published further details on how the fund will operate.

The UK Infrastructure Bank has been rebranded as the National Wealth Fund

The government previously announced that the existing UK Infrastructure Bank (UKIB) and the British Business Bank (BBB) would be ‘aligned’ under the new National Wealth Fund, but it was unclear what this meant in practice. It has now been announced that the UKIB has been renamed the National Wealth Fund, operating ‘alongside’ the BBB. The newly named National Wealth Fund will be given a revised mandate - broadened beyond UKIB’s infrastructure focus - with a new set of strategic priorities and investment principles to be outlined by the Chancellor. A package of reforms to the BBB has also been announced, including putting the Bank’s funding on a permanent basis, and the establishment of new investment vehicles for tech and life sciences. 

Building on the expertise, experience and infrastructure of an existing institution offers benefits, yet runs the risk that one of the new Government’s key manifesto pledges simply becomes a rebranding exercise. More importantly, it risks being one that does not materially shift the dial in terms of scale, pace or type of public investment required for a fair and green transition. 

A cut to funding, and no powers yet announced for the fund to issue its own bonds

Increasing the risk that the new fund becomes simply a rebranding exercise is the reduction of the initially announced £7.3 billion in funding to £5.8bn. Combined with UKIB’s existing financial capacity of £22 billion, this gives the fund a total capitalisation of £27.8 billion. 

Such capitalisation does not come close to the scale of financing required for investment in climate mitigation, adaptation and the UK’s infrastructure needs. An obvious way to scale up the fund’s financial capacity is to give it the power to issue its own bonds, which should be exempted from chosen rules around central government spending - both of which are the international norm for public banks. Following the level of leverage of Germany’s public development bank KfW, the National Wealth Fund could still channel almost £160 billion of investment over the next parliament, if the £5.8 billion were to be given as equity capital. 

As well as increasing capacity, issuing bonds is an effective way to mobilise private finance by giving private financial institutions (like pension funds and insurance companies) a secure and safe asset to invest in, that the fund could channel according to policy priorities - allocating capital to where it is most needed.  

Will the National Wealth Fund fuel financialisation and private profit, or public good?

Without the ability to issue its own liabilities, the small capacity leaves the institution particularly reliant upon using its capital to ‘crowd in’ private investment through de-risking approaches that if poorly designed, risk becoming simply subsidies to the private sector.

As part of UKIBs rebrand, the existing financial products it offers will be broadened out - including amongst other mechanisms, fund investments, which entails ‘outsourcing management of NWF capital to third party managers’. It’s not difficult to envision this looking like private asset managers being handed public capital to invest, whilst receiving a lucrative sum for their services as well as decision-making power over the use of public funds. Labour’s National Wealth Fund taskforce itself stated that such options would require carefully, ‘carefully messaging the benefits of this approach will be important to mitigate potential negative sentiment around the management of public money by private actors for commercial gain’.

A National Wealth Fund bill will update UKIB’s mandate

The Chancellor will revise UKIB’s existing mandate in legislation, and will set out a new statement of strategic priorities. It will be critical to ensure that UKIB’s existing mandate is strengthened so that it meaningfully cements environmental and just transition principles while supporting the government’s new industrial strategy and stated ambition that the fund ‘supports the needs of local areas and catalyses growth in all corners of the country’. 

The government has announced that the fund will inherit the existing UKIB board, but a more democratic governing structure is needed to deliver on such ambitions and hold the institution accountable against a backdrop of growing concerns that its investment strategy risks repeating the deeply damaging Private Finance Initiatives of the last Labour government. 

Ideally, the makeup of such a board should be embedded in legislation. At a minimum, the board ought to be reformed to include broader representation, which could be envisioned to include trade unions, local authorities or regional mayors, key government ministers, mission-delivery and industrial strategy officials and the Climate Change Committee.