The UK’s new Labour government has slashed the amount of taxpayer funds it plans to give its new National Wealth Fund by a fifth and scrapped a proposed merger between two state investment agencies as its ambitions collide with the country’s tough fiscal realities.
Chancellor Rachel Reeves is now planning to allocate just £5.8 billion of public money to the fund — less than the £7.3 billion she previously planned to set aside for the effort.
The decision comes as Reeves prepares to present the UK’s budget on Oct. 30. She and Prime Minister Keir Starmer have warned of “tough decisions” and have already asked departments to find at least £3 billion of savings as they seek to fill a £22 billion fiscal hole.
“The decisions which lie ahead of us will not always be easy,” Reeves said in a statement. “But by taking the right choices to grow our economy and drive investment we will create good jobs and new opportunities across every part of the country.”
Rebranding UKIB
The new National Wealth Fund is a rebranded version of the UK Infrastructure Bank.
Originally, Reeves had hoped to combine the UKIB and the British Business Bank into a single entity that offered a broad range of financing, from co-investment to guarantees. The government had said it would “bring together key institutions” to “mobilize billions more in private investment.”
Bringing them together would have been time-consuming and potentially delayed investment plans, though. Now, the National Wealth Fund will focus on climate and the BBB will remain a separate entity financing innovative young companies. Both will have abilities to deploy money from private investors.
In all, the new National Wealth Fund will have £27.8 billion to deploy, according to a statement. The remaining £22 billion will come from the UKIB — about £10 billion of which is non-cash guarantees.
Reeves said the National Wealth Fund would have a “bigger team, more freedom and an expanded suite of financial instruments, and more economic risk capital, to ensure that the national wealth fund’s investments can be even more catalytic.”
The fund “will work alongside the UK’s existing structures to better crowd in private investment”, she said. “We need innovative vehicles that go further and faster, to leverage investment from new sources, like our pension funds. We need to unlock long-term patient capital from private investors.”
The £1.5 billion that Reeves had previously planned to dedicate to the National Wealth Fund will now be “reserved to maintain flexibility in how the government can best deliver against its aims for the NWF,” according to the statement.
“All of the £7.3 billion will be spent on the 5 sectors in the manifesto; ports, gigafactories, steel, carbon capture and green hydrogen,” a spokesperson for the Treasury said in a statement. “We are simply making sure that the funding can best meet the needs of those sectors where the NWF’s might not be the best fit.”
Shrinking Ambitions
It’s the latest sign that Labour’s green ambitions have shrunk considerably since the party was in opposition, when it planned to spend £28 billion a year on green projects.
Under the new plans, the BBB will be given greater independence to raise money from pension funds for early-stage investment under a new “British Growth Partnership.” The BBB, which does not have a balance sheet of its own, has £7.9 billion of commercial programs.
Kate Bingham, managing partner of SV Health and the former chair of the UK Vaccine Taskforce during the pandemic, said the overhaul of the BBB “enables the bank to catalyze institutional investment, including from pension funds, into brilliant UK companies.”
With assistance from Joe Mayes.
Source: Mint