Investing in our future: practical solutions for the UK government to mobilise private investment for economic, environmental and social policy priorities

Investment in the UK, both public and private, is chronically low as a share of GDP compared with the country’s peers. It must increase if the UK is to see meaningful productivity growth, address regional disparities and meet its net zero climate commitments.

This report presents targeted proposals that can both redress the UK’s competitive imbalance with the United States and the European Union on private finance mobilisation, and direct greater amounts of productive investment into priority areas such as net zero and social housing. It includes 13 case studies of existing effective use of blended finance from the UK and emerging markets, to illustrate models that could be replicated at scale in the UK, and describes six regulatory or policy actions that taken together could transform the Government’s ability to mobilise private capital for public policy ends.

Summary recommendations

The report builds on current proposals by political parties, think tanks and others for an economic growth ‘super-fund’ to suggest practical and implementable ways such a fund could be focused, structured and run, and principles for how to best attract private investment into it:

• First, it recommends the creation of a venture capital fund-of-funds, the UK Growth Fund, to attract pension and other large pools of institutional capital and act as an umbrella vehicle for a portfolio of sector-specific funds. This would aim to raise £4.6 billion at launch, rising to at least £46 billion over five to 10 years.
• The sector-specific funds would address market failures in priority areas for the UK’s future prosperity and wellbeing. These funds would be designed to attract private equity investors, and the funds’ portfolio companies would be incentivised to list publicly in the UK on exit. Providing investable opportunities in the UK Growth Fund’s sector-specific funds could potentially attract £10 billion of venture capital financing, in addition to the investment in the umbrella fund-of-funds.
• Second, it proposes a new UK Community Growth Fund to build on successful initiatives that were set up to support small businesses, social enterprises and charities during the Covid-19 pandemic. The Fund would expand on precedents and target £100 million of commercial bank and social investment at launch, growing in size as additional financial institutions and investors took part.
• The two Growth Funds would be managed within the existing national finance institutions established by the UK government, and be overseen by a new unit to provide a centre of expertise on blended finance, hosted by HM Treasury in coordination with the Cabinet Office and other relevant departments.
• Both funds would be modelled on successful recent initiatives such as the work of the Green Investment Bank, and ongoing work by experienced organisations in the field, such as Social Investment Scotland.
• Three further ‘enablers’ are proposed: new guidance on fiduciary duty for institutional investors; reprioritisation of institutional mandates and incentive structures at key government-owned UK institutions; and the design of new investment incentives.

Based on the £4.6 trillion of current insurance and pension fund assets in the UK, these proposals together could potentially unlock £5 billion in private investment for public policy priorities at the time of the funds’ launch, and at least £50 billion in the next five to 10 years.