In April, we responded to the Treasury Select Committee (TSC) call for evidence on the National Wealth Fund (NWF).
We welcomed the opportunity to respond to this call for evidence. As the UK’s “impact investor”, the NWF has a central role to play in de-risking and catalysing private capital to unlock investment into priority sectors, create jobs, drive economic growth and accelerate the transition to net zero.
The NWF will have an important role to play in funding priority domestic socioeconomic projects and will be a key vehicle for delivering the government’s Industrial Strategy, if effective in leveraging private capital investment into priority sectors. To maximise the success of the NWF and make the most effective use of its £27.8bn, it must focus on being catalytic and additional to the market. It must have a clear mandate, strategic priorities and investment approach. This is crucial to ensure it operates effectively within the UK’s public finance ecosystem and retains a focus on crowding in – not crowding out – private capital.
Highlights include:
- Role of the NWF: The National Wealth Fund (NWF) is a highly valued partner for the private sector. It will play a crucial role in de-risking and catalysing private capital to unlock investment into priority sectors and support the delivery of the government’s economic growth and clean energy missions.
- The UK public finance landscape: Public finance institutions can play an important role in providing long-term, patient capital and taking on a level of risk that private capital alone cannot. The current UK landscape for public finance institutions is fragmented. We welcome the launch of the Strategic Public Investment Forum to improve coordination and leverage the expertise of different institutions. Further action is needed to streamline the offering and provide clarity on the roles and interactions of the different institutions.
- Our response sets out four key recommendations for the NWF to effectively deliver the mandate set by government:
- It must deploy its limited public capital strategically. The NWF should ensure the most effective and value-for-money use of its £27.8bn. It should only intervene where necessary and seek to make things happen that otherwise would not be possible.
- The NWF needs to focus on being catalytic and additional to the market. It must take a different approach to risk and failure and demonstrate investment leadership, taking on additional risk to facilitate higher impact and targeting investments that support the government’s sectoral policy goals.
- It should effectively leverage private capital by applying a robust understanding of key factors that encourage and de-risk investment at scale across the different types of investment capital available.
- There must be coherence across public investment priorities, planning and skills policy, and public policy levers. There must be strategic alignment between the NWF, the Industrial Strategy and the 10-Year Infrastructure Strategy to drive investment into priority sectors and deliver the government’s missions of economic growth and clean energy by 2030.
- Supporting regional and local growth: The structures and personnel of the NWF need to connect with, and account for, the different systems and plans that both government departments and devolved leaders have in place to support growth – such as Local Growth Plans and Local Spatial Strategies currently being developed by Combined Authorities, as well as comparable initiatives in the devolved nations. Alongside this, the NWF should support local authorities in developing the right tools and expertise. Strengthening capacity in local authorities would better position them to develop a pipeline of investable propositions, navigate complex funding mechanisms and attract investment to deliver regional and local strategies.
- Lessons learnt and best practice: The NWF must learn from the UK Infrastructure Bank and implement measures to improve its effectiveness – such as undertaking pipeline preparation, ensuring maximum use of recycled capital, sharpening its guarantee activity and developing innovative blended finance solutions. The NWF should also look to leading international counterparts such as Germany’s KfW as examples of best practice. Key features attributed to KfW’s success include its close operational relationship with the government, breadth of staff expertise, and use of financing tools such as conditionalities and breadth of financial products offered.