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Chancellor Rachel Reeves has announced the government’s new £7.3bn flagship National Wealth Fund to decarbonise Britain’s heavy industry will start investing in areas such as green steel and gigafactories “immediately”.
She said on Tuesday the fund’s money — to be spent over five years — would be disbursed by the state-owned UK Infrastructure Bank.
Reeves said there would also be reforms to the British Business Bank, which is overseen by the Department for Business and Trade, to “ensure it can mobilise the UK’s deep pools of institutional capital” towards low-carbon investments.
“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,” she added.
The fund is a major plank in Labour’s broader “green prosperity plan”, along with the creation of a new state-owned company called GB Energy to invest in low-carbon electricity projects and provide money for insulating millions of homes.
The fund is intended to drive a further £20bn of private sector money into low-carbon investment in the UK economy.
Part of its role will be to provide “catalytic” capital to take on risks that are unattractive to infrastructure funds or unsuited to their business models.
Under the shake-up, the UK Infrastructure Bank and British Business Bank will be expected to work more closely under the umbrella branding of the National Wealth Fund, but the co-operation will stop short of a merger, according to officials.
Disbursing the fund’s money through an existing body such as the UK Infrastructure Bank was one of the recommendations in a Labour-commissioned review on how it should work, which was published on Tuesday.
The review was put together by a task force involving former Bank of England governor Mark Carney, who now chairs asset manager Brookfield, and the chief executives of financial services companies including Aviva, Legal & General and NatWest.
One of the review’s main recommendations was the National Wealth Fund should be based inside an existing organisation such as the UK Infrastructure Bank to avoid delays to its rollout.
The UK Green Investment Bank took about two years to get fully up and running after it was set up by the government in 2012, while the UK Infrastructure Bank took close to three years from formation to being fully operational, according to people briefed on the matter.
The £7.3bn coming with the National Wealth Fund is on top of UK Infrastructure Bank’s existing funding. It opened in 2021 with £12bn of capital and the ability to issue £10bn of government guarantees.
Ministers and investors have long lamented that disparate pots of public funding in various government departments and arm’s length bodies make the UK’s investment landscape more difficult for private investors to navigate than in other countries.
British Business Bank chief executive Louis Taylor said he expected the National Wealth Fund would “create a single coherent governmental offer for businesses and a compelling proposition for investors”.
Labour has previously recommended the fund’s cash should be focused on five areas: green steel, green hydrogen, industrial decarbonisation, gigafactories and ports.
The task force accepted these priorities but said the fund could also be used to shoehorn private investment into “wider sectors” of the economy.
It estimates the UK could need as much as £57bn by the end of the decade from private and public sources to achieve its industrial decarbonisation goals.
The task force called for the National Wealth Fund to “not be lossmaking” but said it should deploy a range of products — including equity, debt and guarantees such as contracts for difference — with “high levels of risk appetite”.
“There might be certain deals where concessionary products are required (eg equity) particularly to ensure competitive risk-return profiles when compared to international opportunities,” it said. “Returns will occasionally be asymmetric, favouring the private sector.”
The task force called for the fund to be run by individuals with private sector expertise, with pay to match. “Pay constraints must be relaxed to enable the calibre of appointment required,” it said.
The task force was chaired by Rhian-Mari Thomas, chief executive of the Green Finance Institute. Its members included Amanda Blanc, chief executive of Aviva; António Simões, chief executive of Legal & General; and Paul Thwaite, chief executive of NatWest Group.
