Rachel Reeves cuts National Wealth Fund budget despite UK investment drive

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Rachel Reeves has cut by a fifth the new money she is investing into the UK’s National Wealth Fund, despite the government emphasising the importance of extra investment in the green economy. 

The chancellor said on Monday that the UK Infrastructure Bank would be rebranded as the National Wealth Fund to help direct “tens of billions of pounds” of private investment into decarbonising the British economy.

But the government will put only £5.8bn of new money into the NWF, according to the Treasury’s announcement. Labour’s manifesto pledged that the NWF would be “capitalised with £7.3bn”.

A Treasury official said the missing £1.5bn would still be spent on ports, gigafactories, clean steel, carbon capture and green hydrogen — the five areas in which the NWF intends to invest — but through other ways.

“It’s important that HMG [the government] retains this flexibility so that we can best meet the needs of the sectors we want to support,” the official said.

They added that more detail would be provided in the government’s multiyear spending review in the spring. The Treasury declined to comment.

Reeves’s plan before the election was for a new freestanding wealth fund to invest in areas such as green steel and gigafactories, but it changed soon after Labour won power in July.

A review commissioned by the party, and chaired by former Bank of England governor Mark Carney, said the fund should be based inside an existing institution.

As a result the money has been given to the UKIB, which was set up by the last Conservative government in 2021, despite criticism of the lender’s slow progress in spending its existing budget of £22bn. 

Speaking at an investment summit in London, Reeves said the entire UKIB, which is based in Leeds, would be rebranded as the National Wealth Fund. The government said the renamed body would have a budget of £27.8bn, which includes UKIB’s existing £22bn pot.

John Flint, chief executive of the renamed body, which has a target of securing £3 of private investment for every £1 of government investment, said: “Building on the strong foundations we have laid as UKIB, we will hit the ground running.”

But Sir Nicholas Lyons, chair of pensions group Phoenix and former lord mayor of the City of London, said even before Reeves’s announcement that her plans for investment in the NWF were uncompetitive.

“The National Wealth Fund is, frankly, pretty small,” he told the Financial Times. “I don’t think that as you talk to the biggest asset owners from around the world, representing some of the largest sovereign wealth funds, suggesting that £7bn is competitive.

“I think it is something that people would find stretches credulity,” he said on the sidelines of the investment summit, adding that the government should look to borrow “tens of billions” to put into the wealth fund. 

The NWF will co-invest with private sector investors in low-carbon projects in the UK. But the merger of the new fund with the existing infrastructure bank has caused some confusion, with a person at one financial institution briefed on the plan saying there was “no clarity over what will change” in practice.

Separately, business secretary Jonathan Reynolds on Monday announced a new British Growth Partnership vehicle within the British Business Bank.

Reynolds said the UK’s economic development bank would seek to raise hundreds of millions of pounds of investment for the new fund, which will channel private sector money into high-growth British companies. 

His announcement came after Prime Minister Sir Keir Starmer called on global investors to unleash the “shock and awe of investment”, as he vowed to “rip up” bureaucracy and tell UK regulators to prioritise growth.

Ministers simultaneously released a new green paper setting out ideas for a new industrial strategy, which will be drawn up in the coming months in consultation with business and other stakeholders.