The new Labour government has continued the flurry of activity that has characterised its first few days in office, as it this afternoon confirmed plans to launch its promised £7.3bn National Wealth Fund.
Speaking at an event at Number 11 Downing Street, Chancellor Rachel Reeves revealed the government planned to align existing state-backed investment vehicles, such as the UK Infrastructure Bank (UKIB) and the British Business Bank, under the new National Wealth Fund.
She also announced the £7.3bn of funding that is to be made available to the National Wealth Fund over the course of the parliament will initially be allocated through the existing UKIB, which means investment could start to be made immediately. The funding will be in addition to the budget already assigned to the UKIB.
The new fund is expected to provide a major boost for green industries, with Labour having earmarked £1.8bn to upgrade ports and build supply chains, £1.5bn for new gigafactories, £1bn to accelerate the deployment of carbon capture technologies, and £500m to support green hydrogen manufacturing.
Significantly, the fund is also set to assign £2.5bn to “rebuild the UK’s steel industry” – a funding boost that is likely to shape imminent talks between the government and Tata Steel over planned job cuts at the Port Talbot steel works.
In addition, the government said reforms would be made to the British Business Bank, which is overseen by the Department for Business and Trade, to ensure it can mobilise more institutional capital in support of the UK’s green and growth industries.
“This new government is getting on with the job of delivering economic growth,” said Reeves. “I have been clear that there is no time to waste.
“I have previously committed to establishing a National Wealth Fund. I am now going further by bringing together key institutions. We need to go further and faster if we are to fix the foundations of our economy to rebuild Britain and make every part of our country better off. That is why in less than a week we are establishing a new National Wealth Fund and bringing together the key institutions that will help unlock investment in new and growing industries.”
The comments came as Reeves hosted an event at Number 11 Downing Street alongside Energy Security and Net Zero Secretary Ed Miliband to mark the publication of a report from the National Wealth Fund Taskforce, which Labour appointed ahead of the election.
Chaired by the Green Finance Institute’s Rhian-Mari Thomas, the Taskforce includes former Bank of England Governor Mark Carney, Barclays CEO C.S Venkatakrishnan, Aviva CEO Dame Amanda Blanc, and representatives from a number of large institutional investors.
Thomas said the report’s recommendations “set out how a combination of catalytic capital, deployed in partnership with a government delivering policy certainty, can make the UK the destination of choice for global investment”.
“The National Wealth Fund will reshape the way we approach public, private risk-sharing, providing private investors with the confidence needed to fund the technologies and infrastructure needed to drive growth and create new jobs across the UK,” she added.
Miliband stressed that much of the new fund’s activity would be focused on accelerating the UK’s net zero transition and delivering on Labour’s goal of a clean power system by 2030.
“Our Mission to make Britain a clean energy superpower is about investing in Britain,” he said. “Our National Wealth Fund will help create thousands of jobs in the clean energy industries of the future to boost our energy independence and tackle climate change. We’re acting immediately, wasting no time and working in lock-step with industry to unleash private investment and grow our economy.”
Blanc welcomed the launch of an institution she predicted would help to catalyse increased levels of private sector investment. “At Aviva we are backing the UK and stand ready to invest even more to help boost growth, create jobs and deliver net zero,” she said. “We need closer working between government and business to make that happen. Today’s announcement of the establishment of a new National Wealth Fund is a significant step in the right direction. We now must work at pace to turn these good ideas into investable projects which can make a difference.”
Further details on the structure and remit of the new fund are expected ahead of an International Investment Summit that the new government plans to host later this year. But in the meantime, Reeves has tasked the Treasury with engaging with industry, government departments, and the UK’s public finance institutions and examining the case for bringing together bodies from across the UK’s public finance institutions to deliver the new fund.
The government said it also plans to bring forward new legislation “when parliamentary time allows to cement the National Wealth Fund in statute, making it a permanent institution at the heart of the country’s long-term growth and prosperity”.
The report from the taskforce set out five recommendations for how the National Wealth Fund should operate so as to maximise its impact and minimise overlap with other public and private sector investors.
Firstly, it argued the fund should be focused on deploying ‘catalytic capital’, but stressed that “whilst demonstrating higher risk appetite, this won’t mean only targeting first loss positions and below market rates of return. Instead, it means identifying risks the NWF is uniquely capable of managing”.
Secondly, it recommended the National Wealth Fund should be mandated to deploy a wide range of financial instruments that recognises how interventions will need to differ by sector. “Equity, deployed at higher levels of risk appetite with a broad range of risk-adjusted returns to attract the broadest investor appetite, is paramount,” it explained. “The ability to also offer concessional debt, guarantees and price assurance products (potentially including contracts for difference and offtake contracts) would enable the NWF to take a ‘Swiss-army-knife’ approach, and deploy capital in a way that most effectively mobilises private capital.”
Thirdly it argued the National Wealth Fund should look to crowd in private capital on a deal-by-deal basis, rather than at the fund level.
And fourth, it called for the fund’s capital to be initially and managed through an existing organisation such as the UKIB – a recommendation the Treasury has already accepted – and proposes a review of government-owned development finance institutions with the objective of simplifying the current ecosystem and building economies of scale.
Finally, the report stresses that the National Wealth Fund must operate at arms-length from government and its governance should comprise an independent Board and independent investment committee with credibility and track record in the market. “The case will need to be made for a relaxation of public-sector pay and procurement constraints to attract professionals of sufficient experience and calibre,” it stated. “This is key – alongside clear alignment of interests to ensure that remuneration is intrinsically linked to the success of investments.”
The report concludes that “constituted correctly, with longevity and stability in mind, the creation of the National Wealth Fund could represent a pivotal moment in the UK’s journey towards a sustainable future”.
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