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Labour Leverages UK Infrastructure Bank for Swift Launch of National Wealth Fund

Chancellor Rachel Reeves confirms that the National Wealth Fund will align with existing state-backed financial institutions to enable immediate investment capabilities. The new Labour government has maintained its momentum from its first few days in office, confirming the launch of the much-anticipated £7.3bn National Wealth Fund this afternoon.

During an event at Number 11 Downing Street, Chancellor Rachel Reeves announced that the government plans to bring existing state-backed investment entities, such as the UK Infrastructure Bank (UKIB) and the British Business Bank, under the new National Wealth Fund umbrella.

She further detailed that the £7.3bn allocated to the National Wealth Fund during the parliament will initially be funneled through the existing UKIB, allowing immediate investment commencement. This funding is set to supplement the existing UKIB budget.

The new fund aims to significantly bolster green industries, with Labour dedicating £1.8bn to upgrading ports and building supply chains, £1.5bn for new gigafactories, £1bn to fast-track carbon capture technology deployment, and £500m to support green hydrogen manufacturing.

Moreover, the fund is poised to allocate £2.5bn to "rebuild the UK's steel industry," a critical investment that will influence upcoming negotiations between the government and Tata Steel concerning job cuts at the Port Talbot steel works.

Additionally, the government announced plans to reform the British Business Bank under the Department for Business and Trade's oversight to enhance its ability to mobilize more institutional capital in favor of the UK's green and growth sectors.

"This new government is getting on with the job of delivering economic growth," said Reeves. "I have been clear that there is no time to waste.

"I have previously committed to establishing a National Wealth Fund. I am now going further by bringing together key institutions. We need to go further and faster if we are to fix the foundations of our economy to rebuild Britain and make every part of our country better off. That is why, in less than a week, we are establishing a new National Wealth Fund and bringing together the key institutions that will help unlock investment in new and growing industries."

The comments were made as Reeves, alongside Energy Security and Net Zero Secretary Ed Miliband, hosted an event at Number 11 Downing Street. This event celebrated the release of a report by the National Wealth Fund Taskforce, which Labour had appointed before the election.

The Taskforce, chaired by the Green Finance Institute's Rhian-Mari Thomas, includes notable figures such as former Bank of England Governor Mark Carney, Barclays CEO C.S. Venkatakrishnan, Aviva CEO Dame Amanda Blanc, and representatives from several major institutional investors.

Thomas said the report's recommendations "set out how a combination of catalytic capital, deployed in partnership with a government delivering policy certainty, can make the UK the destination of choice for global investment."

"The National Wealth Fund will reshape the way we approach public, private risk-sharing, providing private investors with the confidence needed to fund the technologies and infrastructure needed to drive growth and create new jobs across the UK," she added.

Miliband emphasized that a significant portion of the new fund's efforts would be directed towards speeding up the UK's transition to net zero and achieving Labour's ambitious target of a clean power system by 2030.

"Our Mission to make Britain a clean energy superpower is about investing in Britain," he said. "Our National Wealth Fund will help create thousands of jobs in the clean energy industries of the future to boost our energy independence and tackle climate change. We're acting immediately, wasting no time and working in lock-step with industry to unleash private investment and grow our economy."

Blanc welcomed the launch of an institution she predicted would help to catalyse increased levels of private sector investment. "At Aviva, we are backing the UK and stand ready to invest even more to help boost growth, create jobs, and deliver net zero," she said. "We need closer working between government and business to make that happen. Today's announcement of the establishment of a new National Wealth Fund is a significant step in the right direction. We now must work at pace to turn these good ideas into investable projects which can make a difference."

Further details regarding the structure and scope of the new fund are anticipated before an International Investment Summit, which the new government intends to host later this year. In the interim, Reeves has instructed the Treasury to engage with industry stakeholders, government departments, and public finance institutions. The Treasury will also evaluate the potential for consolidating various bodies across the UK's public finance institutions to deliver the new fund effectively.

The government also plans to introduce new legislation "when parliamentary time allows to cement the National Wealth Fund in statute, making it a permanent institution at the heart of the country's long-term growth and prosperity."

The task force report outlined five key recommendations on how the National Wealth Fund should operate to maximize its impact while minimizing overlap with other public and private sector investors.

Firstly, it argued the fund should be focused on deploying 'catalytic capital' but stressed that "whilst demonstrating higher risk appetite, this won't mean only targeting first loss positions and below market rates of return. Instead, it means identifying risks the NWF is uniquely capable of managing".

Secondly, it recommended that the National Wealth Fund be mandated to deploy a wide range of financial instruments that recognize how interventions will need to differ by sector. "Equity, deployed at higher levels of risk appetite with a broad range of risk-adjusted returns to attract the broadest investor appetite, is paramount," it explained. "The ability to also offer concessional debt, guarantees, and price assurance products (potentially including contracts for difference and offtake contracts) would enable the NWF to take a 'Swiss-army-knife' approach and deploy capital in a way that most effectively mobilizes private capital."

Thirdly, the report suggested that the National Wealth Fund should aim to attract private capital on a deal-by-deal basis rather than at the fund level.

Fourth, it recommended that the fund's capital be initially managed through an existing organization such as the UKIB—a recommendation the Treasury has already accepted. It also proposed a review of government-owned development finance institutions to simplify the current ecosystem and build economies of scale.

Finally, the report emphasized that the National Wealth Fund must operate independently of the government. Its governance should include an independent Board and investment committee with market credibility and a proven track record. "The case will need to be made for a relaxation of public-sector pay and procurement constraints to attract professionals of sufficient experience and calibre," it stated. "This is key - alongside clear alignment of interests to ensure that remuneration is intrinsically linked to the success of investments."

The report concludes that "constituted correctly, with longevity and stability in mind, the creation of the National Wealth Fund could represent a pivotal moment in the UK's journey towards a sustainable future."


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