Firing up the fund
Empowering the National Wealth Fund to meet the UK's needs
19 March 2025
The upcoming publication of the National Wealth Fund’s (NWF) framework document offers the opportunity to shift the policy bank into a new era of high impact.
To deliver on the government’s industrial strategy, growth and net-zero objectives require a massive ramp up of investment that will not be delivered by private finance alone. The NWF is central to meeting this investment gap, yet the NWF’s forebear, the UK Infrastucture Bank (UKIB), has struggled to get money out of the door, not once investing its full yearly budget.
This working paper explores how the NWF can be empowered to do more. Drawing on illustrative case studies and international comparisons, we propose three fundamental principles that must be embedded throughout the NWF’s new framework to ensure that it delivers to its full catalytic potential.
Recommendation 1: A more proactive approach to investment
Despite having a powerful mission in the form of its dual mandate (to help tackle climate change and to support regional and local economic growth) UKIB was held back by an excessively narrow and passive approach to investment. The NWF should take a more proactive approach to seeking out and originating investments in order to meet the goals of its mandate.
It should be less tied to proving stringent additionality criteria on a deal-by-deal basis, and instead take a bigger-picture, more strategic view of how its investments contribute to national economic objectives. The NWF framework document must include a clear definition and guidance that support this broader and more proactive interpretation of additionality. The NWF should aim not only to ensure sufficient quantities of investment in key sectors to meet investment gaps, but also target a reduction in financing costs where these would otherwise lead to undesirably high output prices, for example in renewable electricity generation. The government’s commitment to broadening the NWF’s mandate beyond infrastructure should help it to proactively venture into other sectors, as it is already doing though its social housing retrofit financing.
Recommendation 2: Fair risk-reward balance and strategic conditionalities
The NWF should maximise public value for money from its investments by ensuring: fair public/private profit-sharing and risk-taking in the sectors and technologies of the future; and that strategic conditionalities are placed on companies and co-financiers to enhance the public value of projects, where possible.
Given the NWF will be investing large sums of public money into private projects, it is important to leverage the impact of these investments by ensuring that the public finances see their fair share of the reward, via the NWF more regularly taking equity stakes or using convertible instruments. Getting full value from the investments also means ensuring that funded projects align coherently with the government’s other economic goals. This might involve applying minimum environmental standards for recipient companies, and requirements for the creation of high-quality jobs and the use of local supply chains.
Recommendation 3: Flexibility for increased future financing capacity
The ambition for a future scale-up of financing capacity must be embedded in the framework and governance of the NWF. This is critical if the NWF is to have a truly transformative impact on driving forward growth, net zero, and industrial strategy. It can also guard against the risk that new investment requirements to address new political priorities/challenges are traded off against existing ones which require long-term commitment.
Currently, the NWF’s total planned investment capacity of £27.8bn over nine years is trifling compared to the volumes invested by policy banks in comparable countries. The french Banque Publique d’Investissement (Bpifrance) and german Kreditanstalt für Wiederaufbau (KfW) each invest roughly 1% of their country’s gross domestic product (GDP) annually. If the UK did the same, that would imply the NWF investing £21bn per year by 2028 – 29, almost four times its current investment limit.
Of course, as a young institution, it is unrealistic for the NWF to reach this kind of scale so quickly. Initially, it must demonstrate that it can fully invest its current budget and show success in driving forward the government’s economic goals. But the ambition for future scale-up, whether financed by the NWF’s own bond issuance (our recommendation) or via general government borrowing, must be reflected in the NWF’s founding documents. This would take advantage of the fact that the NWF can be ramped up without impacting the fiscal debt rule: the switch to measuring debt as “public sector net financial liabilities” renders the majority of NWF investments fiscally neutral, regardless of how much is borrowed to finance them.
Collectively these recommendations outline a vision of an NWF that is able to invest its full endowment, able to leverage maximum public value from each investment, and able to grow in scale to achieve a genuinely transformative impact. A proactive NWF of this kind could play a central role in driving forward the UK’s economic goals, when aligned with an industrial strategy that holistically assesses the requisite policy and financial support for each target sector.
Image: iStock
