The National Wealth Fund Taskforce, chaired by Rhian-Mari Thomas – CEO of the Green Finance Institute – has published its recommendations for chancellor Rachel Reeves and Ed Miliband, secretary of state for energy security and net zero, to ensure private finance “plays a core role in mobilising capital into decarbonising the economy”.
Forming a major part of the Labour Party’s manifesto, the National Wealth Fund (NWF) will use £7.3bn in public sector funding to unlock at least another £20bn in private sector finance. This is intended to catalyse investment into infrastructure and economic transition, creating the foundations for a low-carbon economy.
Principally, the NWF should deliver for investors, government and industry to succeed. In practice, this means “operational independence” from government, but strategic alignment with government via a clear mandate and complementary economic policy. The Taskforce added it must also be “additive, flexible and have speed-to-market”.
“Our National Wealth Fund is at the heart of our approach to grow the economy and create good jobs for everyone. Working in partnership with businesses, we will make transformative investments across every part of the country in the industries of the future,” stated the chancellor in her first major speech in office.
Thomas added: “The National Wealth Fund presents a unique opportunity to design a first-of-a-kind public-private partnership that deploys catalytic capital to crowd private investment into priority net zero sectors. I look forward to chairing the taskforce and to delivering a blueprint which will outline pragmatic financial solutions and a clear implementation roadmap.”
Chris Cummings, CEO of the Investment Association, commented: “The National Wealth Fund is a clear signal from the new chancellor and business secretary of their intent to mobilise much needed capital for green investment. We’re pleased to see the government aligning the fund with existing investment bodies and welcome the recognition that investment and widening access to private markets lies at the heart of future economic growth in the UK. As the National Wealth Fund is established, we will need to see private sector partnerships embedded in culture and processes from day one.
“Critical to delivering the government’s ambitious objectives is ensuring that investors can have confidence and make long-term decisions, and we welcome proposals to ensure operational independence which will build credibility and make the NWF proposition more attractive to investors. There is also significant merit to the National Wealth Fund Taskforce’s recommendation to review and simplify the landscape of UK development investment organisations to ensure that they can deliver effectively on their shared missions. Industry and government collaboration will be critical to achieving this, and is something we strongly endorse.”
Recommendations
The five recommendations outlined by the Taskforce are as follows:
1 – The NWF “must be empowered to deploy catalytic capital with higher levels of risk appetite against a broad, strategic investment mandate, aligned with government priorities”. According to the Taskforce, this will maximise flexibility and allow the NWF to respond innovatively and with agility to the challenges and opportunities of different sectoral transitions.
2 – The NWF “must be mandated to deploy a broad range of products and financial instruments, recognising that intervention differs by sector”. Equity that is deployed at higher levels of risk appetite with a broad range of risk-adjusted returns, they noted, is paramount, as is the ability to offer concessional debt, guarantees and price assurance products, enabling the NWF to take a “swiss-army-knife approach” to deploying capital.
3 – The NWF “should crowd in private capital on a deal-by-deal basis, rather than at the fund level, to maximise its catalytic potential in the immediate term”, given the high cost and extensive maintenance required to sustain investments purely at the deal level.
4 – For speed-to-market, the NWF’s capital “should initially be managed and deployed by existing organisations in the current UK development finance architecture”, with UKIB highlighted as one potential organisation of best fit. Further, the Taskforce recommended that 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”.
5 – Finally, the Taskforce said that the NWF – or the institution that will house it – must “operate at arms-length from government, and its governance should comprise of an independent Board and independent investment committee with “credibility and track record in the market”.
