Good morning from New Economy Brief.
The National Wealth Fund is a key part of delivering the government’s missions on growth, regional inequality, and clean energy by 2030.
It’s now a year since the Fund was formally set up, so this week we’re exploring how it has developed so far, whether its ambition matches the scale of the challenges facing the UK economy, and how to increase its impact.
How is the National Wealth Fund shaping up?
Investing in the Industrial Strategy. The National Wealth Fund (NWF) is a publicly-owned policy bank that finances projects in partnership with the private sector and local authorities. Despite its name, it therefore isn’t a sovereign wealth fund, which invest countries’ export revenues (typically from oil and gas). Instead, it is funded by government borrowing, and tasked with channelling public investment into strategic priorities with the aim of stimulating further private investment.
The NWF isn’t a completely new institution – it evolved from the UK Infrastructure Bank (UKIB). As well as a name change, the Labour government made changes to “turbocharge” its impact. These included increasing its capital from £22 to £27.8 billion, and broadening its remit beyond infrastructure.
Crowding in private finance. The NWF aims to address the UK’s woeful levels of investment – the lowest in the G7 for much of the past 30 years. It also reflects a growing consensus that government investment can encourage or ‘crowd-in’ the private funds, particularly in new industries perceived as too risky for private investors. In line with this, the government has tasked the NWF to attract £3 of private money for every £1 it invests.
The NWF’s risk appetite has also been increased to roughly five times that of commercial banks – to let it invest in projects that risk-averse private finance won’t touch, but where patient investment could enable innovation or growth of new industries. Though the NWF’s investments must earn enough to cover its financing costs and overheads, it doesn’t need to maximise profits. In theory, this should give it more freedom to prioritise its growth and climate change objectives, absorbing losses if some risks don’t pay off, and investing in high-priority projects, even if they offer lower returns.
What impact has the NWF had so far? The NWF has invested £3.6bn in the last year. Most of this was in private sector projects spanning clean energy, transport, digital, manufacturing and natural capital, including £1.3bn in loan guarantees to retrofit social housing. Almost £1bn has also gone to local authorities, including a recently announced deal to fund a community wind farm in the Orkneys. The NWF is also delivering the government’s major £36.6bn loan to build the Sizewell C nuclear power station.
Can the NWF fix the UK’s investment problem?
Too small to shift the dial. The £27.8 bn that the NWF has to invest from 2021-29 is widely considered too little for the UK’s needs. A recent Treasury Select Committee inquiry concluded that “its ambitions to deliver significant regional and economic growth are likely to be very challenging, considering its size.” And the NWF doesn’t match the scale of funding previously delivered by the European Investment Bank but lost on Brexit - £8.1bn in 2016. Nor does it match peers in France and Germany, which invest around 1% of GDP each year. For the UK, this would mean quadrupling the NWF’s remaining annual capacity to around £21 billion a year.
How to scale up investment. The question is how the NWF should be scaled up. Last year’s changes to the UK’s fiscal rules mean these no longer directly prevent increasing its size through central government borrowing. This is because the fiscal framework's new target measure for debt – public sector net financial debt (PSNFD) - effectively excludes borrowing for financial investments. This includes loans, guarantees, and minority equity stakes that don’t confer significant public control, delivered through institutions like the NWF and GB Energy.
Independence is key. If the government won’t borrow to increase the NWF’s capital, it could also scale it up by letting it borrow for itself on capital markets. Economist Mariana Mazzucato told the Treasury Select Committee that financial independence is key to the large size and impact of other countries’ successful policy banks. Raising its own finance could also benefit the public finances, according to the New Economics Foundation (NEF), as bonds issued by the NWF would not run the same risk of pushing up government bond yields that scaling it up via increased central government borrowing might.
So far, the government has resisted loosening Treasury control and empowering the NWF to raise its own finance. However, the Chancellor’s aim to both halt the UK’s “chronic stop-go cycle of public investment” and reduce public debt within this parliament could strengthen the case for reform.
Should public finance do more than fill gaps? A more immediate question, however, is how the NWF can rapidly make use of its existing firepower. Though investment has sped up, it is still underspending, getting just £3.6bn of a potential £5.5bn out the door in the past year. NEF’s Jaya Sood argues the NWF should be proactively financing more mature green technologies like offshore wind and housing retrofits, including offering cheaper financing where high capital costs threaten the UK’s climate and energy targets by delaying projects.
What to look out for
Will a new CEO shift the dial? This month Oliver Holbourn became NWF CEO, after John Flint stepped down earlier this year. Flint, who has vocally criticised the UK financial sector’s lack of risk taking and failure to deliver green investment, has said the incoming CEO will need a “spine, thick skin, and self-confidence” to succeed. Holbourn’s first task will be to deliver a comprehensive investment strategy that reflects the NWF’s broadened remit and risk appetite, due early 2026.
Avoiding the pitfalls of de-risking. The strategy needs to balance rapidly ramping up investment and taking greater risks with ensuring the NWF gets a fair share of the rewards when risks pay off. This could mean prioritising equity investments – where the state gets a share in projects - over loans and guarantees, where the public still loses money if things don’t work out, but gets less of the benefits if a project does well. It could also mean attaching conditions to NWF financing, such as creating a certain number of high-quality jobs - similarly, the Trades Union Congress (TUC) has proposed that companies in high carbon industries that get financing from the NWF to help cut emissions should be required to have ‘Just Transition Agreements’ that protect workers from job losses. (Read our previous deep-dive on de-risking private finance for more).
Will legislation increase the NWF’s ambition? Jesse Griffiths, CEO of the Finance Innovation Lab, says that forthcoming legislation formally renaming the NWF will be a key battleground for those looking to increase its climate ambition and financial firepower. Campaigners are also likely to argue for governance reforms, with the NWF’s board currently lacking formal representation from unions, regional authorities or key industries it is intended to invest in.
As the Fund marks its first year, its prospects for success in driving growth, reducing regional inequalities, and accelerating the clean energy transition will depend on whether it is given the scale and independence to match its ambitions. The case for expanding its firepower – either through more government funding or new powers to finance itself – is getting harder to ignore.
The Bank of England in a warming world. A new report from WWF assesses how climate change and nature loss are impacting the UK economy and financial system, and what this means for the Bank of England’s monetary and financial policymakers. It argues that an era of environmentally driven economic instability means the Bank must use its own tools to support the green transition, but also requires greater coordination between the central bank and government to address risks to the economy.
Finance continues to fuel forest loss. Ahead of COP30 kicking off this week, Forests and Finance totted up how much banks and investors have funnelled towards deforestation since the Paris Agreement. Banks alone have poured over $429 billion into sectors that produce “forest-risk” commodities. Over a fifth of this was in 2024 – a year in which the world lost 6.7 million hectares of primary rainforest. The authors argue this is the “result of a political choice to let finance govern itself”.
A right-left tax consensus. Nine think-tanks across the political spectrum, from the New Economics Foundation to the Adam Smith Institute, have jointly proposed a set of tax reforms ahead of this month’s budget. They say that the measures, which include reforms to VAT, property taxes, and taxation of landlord profits, would make the UK’s tax system fairer, more effective and more pro-growth.
How employment rights can boost the economy. IPPR analysis of the Employment Rights Bill suggests that the array of measures to strengthen the hand of Trade Unions and provide new rights to employees could boost workers productivity and do more for the economy than government analysis suggests.
The G20 at a crossroads. An international collaboration between the New Economics Foundation, the Institute for Economic Justice, the Institute for Policy Studies, Transforma, and the Centre for Economic and Social Rights assesses the record of the G20 in delivering economic justice. It states that the G20 “has consistently failed to address the systemic inequities driving debt burdens, ecological collapse, and widening social insecurity“, and outlines five lessons to “move it from a forum that prevents the collapse of the financial system to one that fosters human and planetary wellbeing”.
