National wealth fund could raise £100bn by issuing its own bonds

The government’s new national wealth fund (NWF) could raise £100bn over the next ten years if it was free to issue its own bonds and its liabilities were removed from the fiscal debt target, according to new analysis from the New Economics Foundation (NEF).

In her inaugural speech this summer, the Chancellor announced the development of a NWF which would use public money to unlock more private investment. The government has said for every £1 of public investment, the fund will attract £3 from private companies.

As the UK prepares to host its International Investment Summit today, new analysis from NEF suggests the government could far exceed this ratio if it followed the example of the German state development bank KfW, which is able to sell its own bonds and take out private loans, mobilising €14 for every €1 of government money.

Researchers say the £7.3bn the government has committed to the NWF could raise an additional £100bn of private investment over a five-to-ten-year period. This would also require the NWF’s liabilities to be effectively removed from the debt measure targeted in the fiscal rules.

NEF economist Theo Harris said:

“The government would be shooting itself in the foot not to follow Germany’s example and allow the NWF to raise private money by issuing bonds.

“This is a rare example of a policy no-brainer. The potential ratio of £14 of private investment for every £1 of public money blows the government’s three to one target out of the water.

“If the government is serious about revitalising British industry and investing in green infrastructure to create jobs and bring down energy bills, then this has to be reflected in the fiscal rules and the NWF’s ability to raise its own funds.”

ENDS

Contact

James Rush – james.rush@neweconomics.org

Notes

The analysis can be read in full here.

Large-scale bond-issuance would require the NWF’s liabilities to be effectively removed from the fiscal debt target. This could be through a specific exclusion that takes it out of the current measure (Public Sector Net Debt). Alternatively, if the measure was switched to Public Sector Net Worth or Public Sector Net Financial Liabilities, the NWF’s positive assets would effectively cancel out its liabilities.

In Germany, the KfW is not subject to the fiscal debt target and has the ability to sell its own bonds and take out private loans. It is jointly owned by the German national and state governments. With €38bn of government equity at the end of 2023, it has total assets of €561bn, a leverage ratio of 6.8% [figures sourced from 2023 annual report]. It has therefore leveraged €14 of private funding for every €1 of government equity – primarily through issuing bonds. Labour meanwhile identified a target ratio of £3 of private finance for every £1 of public money invested via the NWF. Bond sales happen incrementally each year hence it could take the NWF up to a decade to reach a similar ratio to the KfW.

The NWF is a key part of the government’s green industrial strategy. A report by Labour’s NWF Taskforce identified five initial priority sectors to be recipients of NWF finance: green steel, green hydrogen, decarbonising industry, gigafactories and ports. Allowing the NWF to issue its own bonds would allow a wider list of strategic sectors to benefit. It would also enable the expansion of existing programmes such as the UK Infrastructure Bank’s lending to local authorities.

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