What is the National Wealth Fund? Inside Labour’s less sexy, technocratic replacement for the £28bn

When Keir Starmer announced Labour no longer planned to borrow £28bn to invest in the green economy, it was hailed as one of his biggest U-turns. Now, in government, his chancellor Rachel Reeves has unveiled its slightly less sexy, almost-replacement: the National Wealth Fund.

The fund is the first indication of Labour’s plans to step up net zero investment and create green jobs, aimed at projects in green steel, green hydrogen, industrial decarbonisation, gigafactories, and ports.

Reeves hopes £7.3bn of borrowing-funded public investment, under the banner of the National Wealth Fund, will “unlock” £20bn in private investment, getting near enough to the original £28bn figure.

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Is it going to get the UK to net zero? Will it provide a wave of new jobs? Here’s what you need to know.

The basic idea is that the public money is used to take on the riskier investments business may not touch, acting as “catalyst” capital. In turn, this paves the way for private capital – investment firms, banks, and so on – to join the party.

Rather than money being handed out as grants, the National Wealth Fund will invest, and expect a return for the taxpayer.

However, £50bn of green investment is needed each year between 2030 and 2050 – beyond the initial scale of Labour’s ambitions. Keir Starmer had promised to borrow £28bn for green projects – but in February decided this was no longer viable, and U-turned.

“We’re going to need a lot more investment in the run up to 2030 and 2050 in climate in general. The £7.3bn is obviously very welcome. It’s not going to be enough in order to reach net zero, but it’s a good start,” said Daisy Jameson, a policy fellow at the London School of Economics’s Grantham Research Institute on climate change.

“If they go to plan and they invest in the right things, then we should be able to see these projects which have knock-on impacts for jobs and productivity and general growth in the UK,” added Jameson, who has previously worked for the UK Climate Change Committee.

The fund will be managed at arms-length from the government by an existing organisation: the UK Infrastructure Bank. Putting it under the control of an existing organisation, argued a taskforce reviewing the fund, will allow it to be set up quickly. Getting it right could be a “pivotal moment in the UK’s journey towards a sustainable future”, a report from the taskforce said.

Inspiration has been drawn from similar government-backed schemes such as France’s AFD, Germany’s KTF, and Canada’s CGF, while the UK Infrastructure Bank and Green Investment Bank have also invested in climate projects in recent years.

Its success will depend on picking the right projects, said Alethea Warrington, senior campaigner at climate charity Possible, said.

“To be effective, the new National Wealth Fund will need to be rigorous about focusing support on genuinely low-emissions, efficient, affordable and scalable technologies,” Warrington told the Big Issue.

The rapid growth of climate finance means this is not a simple task, said Laura Boyle, head of stakeholder engagement at Snowball Impact Investment.

“We’re in a fast-developing market with many new entrants meaning investors do not always know how to get to the heart of impact claims.

“The fund could be genuinely catalytic if it draws on learnings from the impact investment sector to equally balance impact, risk and return – there is potential to crowd more capital into impact solutions by investing in opportunities which create positive impact together with competitive financial returns.”

The Big Issue has been among organisations calling for the government to encourage private investments as a way to tackle pressing social problems. Private investment in the UK is lower than in any other G7 country, according to the IPPR think tank, and has lagged behind since the mid-1990s. While private investment has lagged, social investment has been on the rise.

“‘Blended finance’, where governments can use their money and other policy tools such as tax reliefs and guarantees to attract private investment, is an important tool for crowding in private capital for public good,” said Jovana Lalic, policy and advocacy manager at Better Society Capital, a social investment firm.

“In an era of tight fiscal constraints, the new Labour government should consider the use of blended finance across policy issues and how it can support left-behind places as part of a new Office for the Impact Economy. Establishing this new office would create a centre of excellence and bring together government knowledge and initiatives on philanthropy, social and impact investing and purpose-driven business to support the delivery of the five missions.”

In turn, funnelling money towards the right places can restore balance, said Danyal Sattar, chief executive of Big Issue Invest, the Big Issue’s social investment arm.

“There never was a golden age of a bank manager on every street corner, meeting all our financial needs. But the idea of a bank as a heart of the community comes from an almost instinctive knowledge that if finance is not localised or for a region, it stops serving our needs as a community,” said Sattar.

“That is what we need to get back – the idea that money is at our service, not as our master.

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