The Chancellor Rachel Reeves announced that the new flagship National Wealth Fund of £7.3bn to decarbonise Britain’s heavy industry would start investing “immediately” in areas like green steel and megafactories.
She announced on Tuesday that the money from the fund, which will be spent over a five-year period, would be distributed by the UK Infrastructure Bank.
Reeves also said that the British Business Bank would be undergoing reforms, under the supervision of the Department for Business and Trade. This is to “ensure the British Business Bank can mobilize the UK’s deep pools” of institutional capital towards low-carbon investment.
She added, “In less that a week, we will establish a National Wealth Fund. We’ll bring together key institutions to unlock investment for new and growing industries.”
The fund is a key plank of Labour’s broader green prosperity plan, along with the creation a new government-owned company named GB Energy that will invest in low carbon electricity projects and provide funds for insulating million of homes.
The fund aims to channel an additional £20bn from the private sector into low-carbon investments in the UK’s economy.
Its role will include providing “catalytical” capital for taking on risks which are not attractive to infrastructure funds, or that do not fit their business model.
Officials say that the UK Infrastructure Bank, British Business Bank, and the National Wealth Fund will work together more closely, but not merge.
The Labour review of how the fund should be run, published on Tuesday, recommended that the money from the fund be disbursed through an existing institution such as the UK Infrastructure Bank.
A task force, including former Bank of England Governor Mark Carney (who now chairs asset manager Brookfield) and chief executives of financial service companies such as Aviva, Legal & General, and NatWest, compiled the review.
The review made the recommendation that the National Wealth Fund be housed within an existing organization, such as the UK Infrastructure Bank, to avoid any delays in its implementation.
According to those briefed about the issue, it took the UK Green Investment Bank two years to become fully operational after the government set it up in 2012. The UK Infrastructure Bank also took three years to be fully operational from its formation.
The UK Infrastructure Bank already has funding in place. The National Wealth Fund opened its doors in 2021, with a capital of £12bn and the capacity to issue £10bn government guarantees.
Investors and ministers have complained for years that the UK investment landscape is more difficult to navigate because of the disparate public funding pots in different government departments and independent bodies.
British Business Bank CEO Louis Taylor stated that he expected National Wealth Fund to “create a coherent government offer for businesses, and a compelling proposal for investors”.
Labour had previously suggested that the money allocated to this fund should be spent on five areas, namely green steel, hydrogen green, industrial decarbonisation and ports.
The task force agreed with these priorities, but also said that the fund could be used to smuggle private investment into “wider” sectors of the economy.
Estimates suggest that the UK may need up to £57bn from both public and private sources by the end decade in order to meet its industrial decarbonisation targets.
The task force urged the National Wealth Fund “not to be lossmaking”, but suggested it deploy a variety of products, including equity, bonds and guarantees like contracts for differences — with “high risk appetite”.
It said that “concessionary products (eg equity), may be required in certain deals to achieve competitive risk-return profiles compared with international opportunities.” The private sector will sometimes benefit from asymmetric returns.
The task force urged that the fund be managed by people with experience in the private sector, and pay them commensurately. The task force said that “pay constraints must be eased to allow the calibre required of appointments.”
Rhian-Mari Thomas was the chief executive of Green Finance Institute. The task force was chaired by Rhian-Mari Thomas, CEO of the Green Finance Institute.
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