How can the UK's National Wealth Fund succeed?

Between 2023 and 2033, the UK will need up to £700 billion in infrastructure.

This investment will be crucial to meet the needs of citizens, protect essential assets against the impacts of climate change, and stay on track to reach net zero.

Half of this will need to come from the private sector.

For riskier technologies, like green hydrogen or carbon capture, the government will need to provide guarantees – or fund them itself – to encourage the private sector to invest alongside it.

To achieve this, the government recently established the National Wealth Fund (NWF), the successor to the UK Infrastructure Bank.

The House of Commons’ Treasury Committee launched an inquiry earlier this year to understand how the NWF can succeed. In May, I appeared before the committee on behalf of the ICE to discuss this important new fund.

My main message to MPs? The NWF has an important opportunity to attract investment into sectors that support economic growth and the UK’s green transition.

But its success depends on whether it’s properly supported to take on risk.

What is the National Wealth Fund?

The NWF is a public financial institution set up to partner with the private sector and local government to support projects that drive growth across the UK.

It seeks to unlock more than £70 billion in private investment to help deliver economic growth, make Britain a clean energy superpower, and strengthen the defence sector.

In practice, it will use its £27.8 billion to invest in newer or riskier sectors and technologies that private investors wouldn’t otherwise consider.

What kind of sectors and projects might it invest in?

To focus the NWF’s effort, the chancellor published a ‘strategic steer’ in March. This included:

• Two strategic objectives: supporting regional and local economic growth and tackling climate change.
• Priority sectors for investment: clean energy, digital and technologies, advanced manufacturing, and transport.
• Scope to invest in technologies and supply chain resilience, supporting defence and security and delivering on the fund’s clean energy goals.

To realise its potential, the NWF will need to focus on sectors that wouldn’t otherwise attract investment.

For example, projects where technology is still being developed and tested, but which are important for the green transition.

How is the fund different to the UK Infrastructure Bank?

The fund is an evolution of the UKIB model rather than something completely new.

Nonetheless, there are important lessons it should learn from its predecessor.

While the UKIB recognised the scale of the UK’s infrastructure investment challenge, it wasn’t given enough time to set itself up properly.

Staffing and governance gaps (including a lack of an audit and risk committee) meant the bank was unable to make the more complex and risky investments it needed to.

How should the government support the fund?

While the NWF should – and will – operate independently from HM Treasury, the government has an important role to play in helping the fund realise its potential.

Public investment in potentially loss-making projects will carry political risk. But it’s necessary to unlock the potential that some sectors and technologies wouldn’t otherwise realise.

The government should publicly communicate the purpose and importance of these investments.

The Treasury will also need to be ready to accept projects making a less-than-positive return. At the moment, financial rules and limits across government make it hard to invest in such projects.

Stability in the wider policy environment will be another critical factor in supporting the NWF.

Investors look for certainty and predictability to minimise risk. The government’s upcoming infrastructure strategy will be an important piece of this puzzle.

We need long-term thinking

This is about investing in a better future. The National Wealth Fund could help make the UK economy green, secure, and sustainable – for our children, our grandchildren, and generations to come.

In the short term, though, that means taking risks. It means investing in new sectors and untested technologies.

It would be the wrong starting position to expect the fund to make an immediate return on these investments.

The government needs to set up and support the fund for long-term impact – and measure its success with long-term expectations.

In case you missed it

• Catch up on the recording of the committee session.
• How can we close the infrastructure cost gap? Read the roundtable write-up.

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