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.

The committee has since reported back on its findings.

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.

It's encouraging to see that this message has been picked up in the committee's final report.

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.

What are the next steps for the fund?

One of the central points I made to the committee in May was that the Treasury will need to accept that some projects will make a less-than-positive return.

It was encouraging to see the committee recognise that not all of the NWF’s investments will succeed in commercial terms.

The role of the fund is to invest in riskier projects and technologies, and to crowd in private investment as a result. The fund’s risk appetite will be central to its success.

But the committee could've gone further, as it insists that the NWF should make an overall positive rate of return across its portfolio. 

I pointed out to the committee that the Canada Infrastructure Bank has a negative return target, which enables it to invest in riskier projects.

Clarifying the fund's role in the investment ecosystem

As in the ICE's response to the inquiry, the group of MPs agreed that the NWF needs to be clear about its role in relation to other government funds like the British Business Bank and Great British Energy.

The NWF will need to establish its specific function in this investment landscape to avoid duplicating what others have done.

Taking the politics out of it

It was encouraging to hear from former NWF chief executive, John Flint, about the lack of political interference the fund has faced so far.

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.

It will be up to the government to publicly communicate the purpose and importance of these investments.

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.

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

• Read the ICE's written submission to the inquiry.
• Catch up on the recording of the committee session.
• How can we close the infrastructure cost gap? Read the roundtable write-up.

*The ICE welcomes guests to share their views about infrastructure policy issues on the Infrastructure Blog. These views are the views of the individual.

If you're interested in writing for the Infrastructure Blog, please email [email protected]. The ICE reserves the right not to publish articles that have been submitted.