Rachel Reeves’ flagship National Wealth Fund has come under scrutiny after an audit identified “weaknesses” in the multi-billion pound vehicle’s risk controls.
An audit of the National Wealth Fund (NWF) pointed to potential failures in the effectiveness of risk, management, governance and internal controls.
Whilst the findings from the report confirmed “improvements have taken place”, the head of the internal audit services’ concluding opinion on the body’s reporting was “limited”.
“Weaknesses existed, in particular reflecting the delay in moving to a longer-term investment management system and to the increased demands of a growing organisation and transition to the National Wealth Fund,” NWF audit and risk committee chair, Bridget Rosewell, said.
In its 2025 audit report, the UK’s public spending watchdog, the National Audit Office, identified five key areas in which the NWF’s practices could pose a risk to the accuracy of its financial reporting, an increase on the previous year.
This included the measurement of expected credit losses, a measure of the size of creditor defaults on loans, as well as the model, methodology and data used to value the group’s investments, which it said “remained areas of significant risk.” However, auditors said they did not identify any material misstatements.
The NWF is designed to have a high-risk investment appetite, though questions raised over controls unearth some of the problems Whitehall officials have faced in overseeing the rapid expansion of the body.
Nearly 62 per cent of the NWF’s private sector loan portfolio is currently concentrated in assets rated B+ or lower, high risk ratings which reflects the body’s mandate to engage with a more ambitious investment spectrum.
The plans for the body were a fixture of the Labour manifesto, originally aiming to consolidate the British Business Bank and UK Infrastructure Bank (UKIB).
But in October 2024, the Chancellor said the UKIB would “become” the NWF, with an expanded remit of up to £27.8bn in public capital.
NWF chiefs are paid handsomely to oversee investments and manage funding, with the former chief executive John Flint being paid £555,000 a year.
Questions around NWF
One source familiar with auditing processes said it appeared the “internal control design and systems are struggling to keep up with the fund’s expansion and risk exposure”.
The highlighted concern came amid a wider process which includes 18 considered areas.
The report also revealed that the National Wealth Fund had failed to comply fully with the government’s orange book, which is a mandatory framework that sets out the core principles and concepts for how all central government bodies, including the NWF, must manage risk.
The NWF said this reflected the “maturing of processes and controls that can be reasonably expected of the NWF at this stage of its development”.
Despite the highlighted risk, the auditor concluded no material impact had emerged.
For the last year, the body made a reported loss of £152.2m before tax, sharply rising from £85.6m in the previous year.
The NWF said a “loss was expected at this stage of growth in our portfolio” but also highlighted it was “higher than budgeted due to specific challenges affecting certain assets and market conditions in the digital infrastructure sector”.
The Treasury Committee concluded in its inquiry into the body last month that it would have to take losses in order to serve its risk appetite.
The committee’s chair Meg Hillier said MPs “remain to be convinced” whether the NWF will “meaningfully shift the dial on economic growth”.
NWF says ‘no material risks emerged’ in report
Earlier this year, City AM revealed the UKIB’s transition to the National Wealth Fund cost nearly £90,000 amid concerns the branding was a “misnomer” compared to overseas sovereign funds.
Former City minister and Treasury Committee member John Glen said: “We must be realistic that some projects will fail.
“However, since the NWF is not a conventional sovereign wealth fund – financed by borrowing and taxes rather than foreign currency reserves or natural resource revenues – it has a greater duty to be administratively prudent, demonstrating it has the right controls in place to evaluate whether investments are value added.
“To secure public confidence it must also have an eye to assess and justify the expenses it generates.”
An NWF spokesperson said: “Our Board concluded that our system of internal control continued to be effective and no material risks emerged – this reflects both the seriousness with which we treat deploying taxpayers’ money and our approach, which is to identify potential risks early and to take action.
“While we always intend to make a return for the taxpayer, that takes time, and our mission demands that we take on risks that the market can’t or won’t, meaning we will inevitably incur a loss on a proportion of our investments.
“Our objective remains to generate a positive portfolio-level financial return, and our current projections are that profitability should be achieved within this Parliament.”