Rachel Reeves faces an uphill battle as she looks to use her National Wealth Fund to ramp up the government’s economic growth mission, top MPs have warned.
The Chancellor has touted the new unit as a growth-focused initiative that would unlock over £70bn in private investment.
But in a new Treasury Select Committee report, the group’s chair Meg Hillier said they “remain to be convinced” whether the National Wealth Fund (NWF) will “meaningfully shift the dial on economic growth”.
The Treasury Committee conducted a thorough analysis of the new investment vehicle’s infrastructure, finding its branding “could be misleading”.
“The NWF is not a conventional sovereign wealth fund that invests wealth generated from natural resources to benefit future generations,” the report said.
Shadow financial secretary to the Treasury Gareth Davies welcomed the added scrutiny, telling City AM: “Labour say they want to grow our economy but they’re failing with the National Wealth Fund and now they’re about to try again to tax their way to growth at the Budget”.
Davies added: “Labour have spent £7bn on this ‘new’ institution which won’t have the expanded remit, invest in new areas, or be the single engine for growth they said it would.”
When is a wealth fund not a wealth fund?
In a hearing in June, leading academics said the name was a “misnomer”.
A primary criticism of the NWF when compared to overseas wealth funds, centres on its funding model and size.
Unlike conventional sovereign wealth funds, which are financed by natural resources revenues, Labour’s National Wealth Fund relies on taxation and borrowing.
France’s Bpifrance vehicle and Germany’s KfW each invest around one per cent of national GDP, which equate to nearly four times the £27.7bn total capitalisation of the NWF.
The committee said the limited size “could limit its strategic impact on economic growth” and restricts its capacity to take risk, as unsuccessful investments could “more rapidly deplete the overall pool available for investment”.
MPs also raised concerns on the operational independence of the body from the Treasury stating the lack of posed a “clear risk that changing political priorities will dictate the NWF’s investment”. They warned this could create an incoherent, short-term approach and uncertainty for investors.
Confusion across businesses
The creation of the wealth fund was a fixture of the 2024 Labour manifesto, promising to consolidate the British Business Bank and the UK Infrastructure Bank, which launched under Rishi Sunak’s Chancellorship in 2021.
But in October 2024, Reeves declared the UKIB would “become” the National Wealth Fund.
The rebrand – which City AM revealed in March cost just short of £90,000 – was branded by Davies a “complete and utter waste”.
Questions were raised over the exclusion of the British Business Bank from the new unit after the body was included in original plans announced in July.
Louis Taylor, chief executive of the British Business Bank, told City AM in June: “A new government came in, and inevitably, they had not had their hands on the levers of all these institutions.”
He added: “They understood through the passage of a few months just what that involved and actually came up with a solution that made more sense than what was initially perhaps envisaged.”
The committee’s report noted confusion across businesses regarding the number of pubic financial institutions – something the NWF’s former boss has sounded the alarm on.
The unit’s former chief John Flint said the “proliferation of subscale public finance institutions” risks competition for the same resources and risks “wasteful duplication”.
The Treasury Committee said the “success” of the Green Investment Bank (GIB) – a UK government owned institution which was taken private in 2017 – in “stimulating the offshore wind market” suggested the NWF will deliver its investment priorities in relation to clean energy.
A spokesperson for the NWF said: “Our ability to take risk has grown alongside our remit, meaning we can better support first-of-a-kind technologies and nascent sectors, as well as established markets where there are capacity limits, unlocking further investment.
“As we develop our long-term strategic plan, we will continue to work closely with the market and fellow public finance institutions to ensure our capital is deployed effectively in support of the Government’s growth and clean energy missions.”
A Treasury spokesperson said: “The National Wealth Fund is a powerful engine for growth – unlocking investment, creating jobs, backing the industries that will power Britain’s future and boosting living standards in all parts of the country.
“In its first year alone, it has delivered £3.9 billion of investments in projects like Sizewell C, a second gigafactory in Sunderland and boosting flood defences in Wales, an additional £5.25 billion generated in private finance, and secured and created 11,500 jobs.
“We will carefully consider the report’s recommendations and respond in due course.”