Government announces £7.3 billion National Wealth Fund

The new Chancellor of the Exchequer in the UK, Rachel Reeves, has announced the launch of a £7.3bn National Wealth Fund (NWF) for the United Kingdom. It will take a central role in the Government’s industrial strategy, invest directly in “priority sectors” and be key to delivering growth and a greener economy. The National Wealth Fund Bill, announced in the King’s Speech on 17 July 2024, will put the fund on a permanent statutory footing. Reeves believes the NWF will catalyse private sector investment in new and growing industries and provide state funding for projects such as the decarbonisation of heavy industry.

Immediate investment of public funds

The Government wants the £7.3bn to be invested immediately and will manage it at arms-length by using the existing UK Infrastructure Bank (UKIB), together with another state lender, the British Business Bank, to deploy funding. Work has begun to capitalise on the UKIB’s “strategic expertise” and align these two banks which will avoid any delays that could be caused by creating an investment vehicle from scratch. Reeves has commented there is “no time to waste” in the matter of improving economic growth in the UK and seeks to use the fund as one way to facilitate this growth.

The £7.3bn will be in addition to funds already allocated to the UKIB and the Government hopes to stimulate private investment to invest in projects alongside these public funds. The NWF aims to generate £3 of private sector investment for every £1 it invests, which would unlock a further £20bn funds for priority industries. The intention is that this should get investment closer to the £28bn figure originally pledged for investment by the Labour Party for green projects which was abandoned as a policy in February this year.

The NWF will prioritise investments in sectors that are considered the foundations of the UK’s economy, including ports, heavy industry and manufacturing. This initiative aims to establish a clear and transparent connection between private investors and a diverse range of critical projects that align with national objectives.

The Labour Government predicts that 650,000 jobs will be created through the NWF.

The NWF to be advised by the Green Finance Institute

Sustainability and ESG (environmental, social, governance) are important matters for the Government and intricately linked with the rationale for developing a new wealth fund. The Government has set up an independent taskforce for the NWF (the Taskforce) which will provide advice on how to structure and implement the creation of the NWF and support it to identify investment priority areas. This will be chaired by the Green Finance Institute’s representative, Dr Rhian-Mari Thomas OBE with Mark Carney, the Former Governor of the Bank of England, also joining the Taskforce. The NWF will also work with local partners and local mayors to identify and pair finance and investment opportunities which may be unique to that particular region.

The Green Finance Institute believes the NWF illustrates the Government’s commitment to sharing the risk of investing in long-term infrastructure projects. This should provide private investors with the confidence and encouragement needed to fund the technologies and infrastructure required to drive growth.

Energy Security and Net Zero Secretary Ed Miliband states that investing in the country is how the UK can become a “clean energy superpower”, and that investment will boost energy independence and tackle climate change. Investing in areas such as renewable energy will help achieve these goals.

Next Steps

The Government intends to bring forward new legislation to enshrine the fund in statute and make it a permanent institution.

More details on how the NWF will contribute to the UK’s investment plans and align with the commitment to achieve net-zero are expected ahead of the Government’s international investment summit, which is due to take place in Autumn 2024.

We will continue to monitor developments in this area for our investor clients and provide further updates when additional materials are published.

For an overview of the NWF Taskforce, please see here.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2024