Here’s a plea to Rachel Reeves, assuming she is the next chancellor: please give your new national wealth fund a different name.
The title is misleading because, whether intentionally or not, it conjures images of a Norway-style sovereign wealth fund – a vehicle to accumulate vast long-term riches for the benefit of today’s citizens and future generations.
In reality, Labour’s national wealth fund will be nothing like a sovereign wealth fund, even if it is sometimes misreported as being one. It would be a fine thing if we had such a vehicle but, sadly, the time to launch one was circa 1990, as the far-sighted Norwegians did, when North Sea oil revenues were booming. With the benefit of regular capital injections, plus the wonder of compound returns over long investment horizons, the value of the Norwegian fund is now $1.6tn. That is equivalent to half the UK’s national debt.
By contrast, the new national wealth fund will invest a mere £7.3bn over the course of the next parliament – and the cash will come from borrowing. And, unlike a sovereign wealth fund that invests around the globe to spread risk, Labour’s fund will concentrate on a narrow sector of the UK economy. The party’s manifesto details £1.8bn directed at ports, £1.5bn for gigafactories, £2.5bn to clean steel, £1bn for carbon capture and £500m to green hydrogen.
Therein lies the real purpose: this is a state-backed vehicle to co-invest alongside private sector companies in order, it is hoped, to accelerate growth in areas related to the green economy. It will be able to take equity stakes, lend directly and underwrite loans. But the core part of the mission is to attract £3 of private investment for every £1 of public investment.
That 3:1 ratio looks achievable because it is what the old “green investment bank” (also misnamed, because it wasn’t a bank) achieved before George Osborne, having set it up during the coalition years, shockingly sold it to Macquarie for £1.6bn in 2017. The national wealth fund will be bigger than the green bank but will be similarly aimed at hard-to-finance projects and should also have an arms-length investment manager to impose commercial discipline.
One practical challenge will be to ensure the investments are genuinely aimed at additional projects. There is little point in de-risking schemes for the Dubai-backed owner of the Southampton and London Gateway ports, which can stand on its own feet. But backing upgrades to smaller ports so they can handle floating offshore wind installations? Yes, on the right financial terms: that could clearly be worthwhile and have knock-on benefits for UK jobs.
A less-clear part is how the fund will avoid stepping on the toes of GB Energy, Labour’s separate creation aimed at energy generation. The lines look blurry. And it’s unclear how the national wealth fund, which won’t make grants, will handle projects that often require straightforward state subsidy – gigafactories and clean steel plants tend to fall into that camp. The advisory taskforce will be crucial in laying down the rules of engagement: it includes Mark Carney, the former governor of the Bank of England; Dame Amanda Blanc, the chief executive of the insurer Aviva; and CS Venkatakrishnan, the chief executive of Barclays.
The mood in the business world is cautiously positive, even if Reeves’s claim of hundreds of thousands of new industrial jobs is viewed sceptically. Aside from the pro-growth signal, companies tend to like the idea of a formal structure around public-private partnerships. Smoother processes can make life simpler, which is half the challenge in an era of global competition for green capital.
But the name of the fund is still a shocker. A sum of £7.3bn is not blow-the-doors-off, and some schemes may offer only borderline direct returns for the state, whatever the job-creation benefits. A “green transition fund” sounds less exciting, but would avoid anybody thinking the UK is about to be nationally wealthy.
