The UK Government’s National Wealth Fund: how should it be organised?
The National Wealth Fund is a central pillar of Labour’s mission to kickstart economic growth in the UK, but prior to the General Election there were unanswered questions regarding what it would do. More detail has since been announced, but the organisation’s design is still to be developed.
One of Rachel Reeves’ first acts as Chancellor was to provide some answers on the National Wealth Fund: she says it will “bring together key institutions and a compelling proposition for investors” and “work with local partners including Mayors to bring together a finance and investment offer that supports the needs of local areas and catalyses growth in all corners of the country”.
The Chancellor has asked Treasury officials to develop the NWF, including by examining “the case for bringing together bodies from across the UK’s public finance institutions (PFIs)”.More details will be announced ahead of the Government’s International Investment Summit which is expected to be in early October.
Organisational design of the National Wealth Fund
Previously, we recommended the NWF be set up in one of three ways:
- Rebrand the UK Infrastructure Bank (UKIB) as the NWF
- Establish the NWF as a subsidiary of UKIB
- Establish the NWF as a holding company, with UKIB and potential other public bodies as subsidiaries.
The Government is pursuing option 3. The NWF will not be a ‘fund’ managing public and private finance as a private sector fund would operate, it will be an umbrella under which the Government will bring together various public bodies. However, it is unclear at this stage what this would mean in practice.
We see three options the Government could pursue:
- Agent – the NWF acts as an agent, encouraging coordination between institutions within its remit and advising stakeholders on where to go, but with no shareholding or oversight responsibilities.
- Holding company – the NWF owns the relevant institutions as separate, unintegrated subsidiaries. In this model, the subsidiaries could effectively operate as standalone businesses.
- Merged and integrated company – the NWF is the vehicle through which the relevant institutions are merged, with a rationalisation of their activities to reflect current overlaps, into new NWF business lines/subsidiaries.
There are grey areas between these options. For example, in option 2 the holding company could look to standardise policies across its subsidiaries and take responsibility for back-office functions. Option 2 could also serve as a steppingstone to option 3.
Our view is that option 1 will not materially move the dial and deliver on the Government’s objective to increase investment. It would replicate part of what the Office for Investment (OFI) already does as part of its work across government to land top-tier investment into the UK. It would also add a layer of bureaucracy, potentially complicating rather than simplifying the customer journey for investors and project sponsors.
Option 3 provides the greatest benefits. Merging institutions will mean the NWF is better placed to manage the current duplication in activities, offer a simpler customer journey and ensure that any gaps in the combined customer offering are rapidly filled. Merging institutions would result in the NWF having a more diversified asset base and therefore a greater ability to manage its credit risks while generating a return for the taxpayer. It would also enable economies of scale in systems and provide an opportunity to learn from best practice across the PFIs and ensure it is replicated.
There are concerns that a rushed integration would risk diverting management attention from delivering investments. These risks may be exaggerated – mergers are commonplace in the private sector – but a sensible mitigation might be to begin with option 2 before moving to option 3 over time. In this scenario, the NWF would be established with a Chair, Board and CEO. They would then be tasked, working closely with the Treasury and UK Government Investments, with integrating the NWF’s subsidiaries at a pace they determine appropriate.
Similarly, when France merged its PFIs, it chose to do it in stages. Starting in 2012, it created and merged several PFIs into one entity – BPIFrance – over six years.
Which public bodies should be brought under the National Wealth Fund umbrella?
The table below sets out the public bodies we assess as being potentially in scope for the NWF.
View larger version of this table
As officials assess which bodies should be brought under the NWF, its organisational design will be a significant factor in their deliberations. Officials also need to consider the NWF’s objectives.
The Chancellor has outlined she wants the NWF to be a “concierge service” for investors, providing a single point of entry to government and guiding them on where to go. If the objective is to improve the customer journey for investors looking to invest in the UK, the British Business Bank (BBB), UKIB and UK Export Finance (UKEF) are the best candidates to bring under the NWF. As all three outlined in a 2023 joint statement “each of our institutions plays a central role in helping to unlock investment to meet net zero” and they will look to “drive forward our collaboration on this objective”.
Officials should also consider bringing the OFI into the NWF’s remit as it “works across government to land top-tier investment into the UK”. If this does not happen, there is a risk of duplication between the OFI and NWF, undermining the goal to have a single point of entry to government. A 2023 report from the National Audit Office found investors valued the support of the OFI and their headcount of around 25 could comfortably be absorbed by the NWF.
Officials may have other objectives for the NWF, which lead them to consider bringing other institutions within its remit. For example, the NWF presents an opportunity to rationalise PFIs across government, creating a centre of expertise and an organisation of genuine scale. In this scenario, British International Investment and Homes England could also be considered as suitable candidates.
The NWF also provides an opportunity for officials to assess how PFIs operate, with a view to improving their effectiveness. The Green Finance Institute’s report on the NWF recommended: “The launch of the NWF should be accompanied by a review of the government-owned development finance institutions with the objective of simplification, building economies of scale and reducing friction for private investors.” As part of any review, officials should assess where there are gaps within the current offering and how coordination between government departments and PFIs can be improved.