Investment plan

Reeves warned about Wealth Fund’s limitations

Kickstart: Rachel Reeves and Ed Miliband at today’s meeting

Chancellor Rachel Reeves has been warned that Labour’s new National Wealth Fund risks wasting taxpayers’ money unless it sets realistic objectives.

Two key funding institutions are to be brought together as part of the government’s aim to unlock investment into the economy.

Ms Reeves and the Business Secretary, Jonathan Reynolds, have instructed officials to begin work aligning the UK Infrastructure Bank and the British Business Bank under a new National Wealth Fund.

The announcement came as Ms Reeves and Ed Miliband, Secretary for Energy Security and Net Zero, convened a meeting of the National Wealth Fund Taskforce at No 11 Downing Street.

The plan has been widely welcomed across the business spectrum, though Professor Len Shackleton, an editorial and research fellow at the Institute of Economic Affairs, adopted a more cautionary tone.

“I wish this new initiative well, but the NWF needs to be realistic about what government can do,” he said.

“Investment is important, but it needs to be sensible and analysis of potential returns needs to be hardnosed. Facile objectives – like becoming a ‘clean energy superpower’, whatever that fantasy means – should be ditched.” 

Alignment plan: Jonathan Reynolds (pic: Terry Murden)

Prof Shackleton continued: “We need to boost not just the quantity but also the quality of investment. In the past, governments have been far too influenced by fashionable boondoggles — nowadays, anything with ‘green’ in the title should ring warning bells — and have wasted vast amounts of taxpayers’ money. 

“Sometimes, pension funds and other private investors who paid too much attention to the government of the day also lost out.”

Prof Shackleton said promises of ‘policy certainty’ are nothing new, with many past governments forced to backpedal due to unforeseen events.

“When, long ago, a previous Labour administration set up the National Enterprise Board, it was justified as promoting advanced technology in profitable firms. But the wind changed, and with rising unemployment, 95% of government funds went into attempts to revive lame ducks.

“The government should always remember that it isn’t just cautious investors who hold new projects back. The mass of regulations and prohibitions, plus an increasingly unfavourable corporate tax regime, inhibit much potential investment spending.

“The government will need to attack these issues as well. But that’s inch-by-inch hand-to-hand fighting, not just making grand declarations and sticking new signs on government offices.”

The National Wealth Fund taskforce includes former Bank of England Governor Mark Carney, Barclays CEO C.S Venkatakrishnan, Aviva CEO Dame Amanda Blanc and large institutional investors. 

Mark Carney
Mark Carney: sits on taskforce

Under the Government’s plans, the fund will mobilise billions more in private investment and generate a return for taxpayers.

It will allocate £7.3bn through the UK Infrastructure Bank so investments can start being made immediately, focusing on further priority sectors and catalysing private investment at an even greater scale. This funding is in addition to existing UKIB funding.

Reforms will be made to the British Business Bank, which is overseen by the Department for Business and Trade, to generate billions of pounds of investment in the UK’s green and growth industries. 

The development of the NWF will examine the case for bringing together bodies from across the UK’s public finance institutions.

Further detail will be set out ahead of the government’s international investment Summit later in the year.

The government will bring forward new legislation when parliamentary time allows to confirm the NWF in statute, making it a permanent institution.

The NWF will also work with local partners including English mayors to bring together a finance and investment offer that supports the needs of local areas.

This morning, the Prime Minister and Deputy Prime Minister met regional mayors at 10 Downing Street to reset the relationship between central and local government, and discuss unlocking growth across the UK.

The UK’s public finance institutions have proven track records in crowding in private investment and generating returns for the taxpayer. Since it was established 3 years ago, the UK Infrastructure Bank has committed £3.3 billion and unlocked nearly £11 billion in private investment.

The British Business Bank, which supports SMEs to grow by improving their access to finance, has unlocked £12.4 billion of finance, and in 2023 alone funded over 23,000 UK businesses supporting the creation of over 39,000 jobs.

Ms Reeves said: “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.

Amanda Blanc
Closer working: Amanda Blanc

“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.”

Mark Carney, former governor of the Bank of England, said:  “This new government has rightly identified infrastructure investment as a core enabler of building high value, low carbon, competitive industries. 

“The smart use of public investment via the National Wealth Fund can kick start economic growth and crowd in private capital to vital sectors including ports, heavy industry and manufacturing.”

Aviva’s Amanda Blanc said: “At Aviva we are backing the UK and stand ready to invest even more to help boost growth, create jobs and deliver net zero.

“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.”

Paul Thwaite, CEO NatWest Group, trading north of the border as Royal Bank of Scotland, said: “The National Wealth Fund has the potential to accelerate the transition and address some of the fundamental barriers that have existed to date.

“We will continue to support the government in the development of the National Wealth Fund, and ensure it delivers on its objectives to drive the green economy whilst also supporting communities, businesses and industry across the regions and nations of the UK.”

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