Labour’s National Wealth Fund:
what it can (and can’t) do ...
Steve Wardlaw, June 2024
Today Labour is going to talk about its National Wealth Fund, where a state investment of around £1.5bn is hopefully going to unlock a total of £7.3bn of public and private capital over the term of a Labour government.
Within the Fund, Labour is looking to invest in ports, green energy, the steel sector and supply chains.
This is broader than just energy but I note (from Radio 4 this morning) that there are some misconceptions about how this might work, and what it is designed to achieve. So here’s the summary of points to bear in mind:
It is clear that the country needs massive investment in those sectors and public money alone is insufficient. In fact, private money also adds in a discipline that I think it useful.
The fund must not suffer mission creep (as we can see a little with GB Energy)/ Labour will need to pick its champions and stick with them.
It is wrong (as some allege) that public money ‘crowds out’ private investment. Quite the opposite. Properly structured, this framework gives private investment a stable structure and can de-risk investment, making it more attractive that a purely private project. The caveat is that the state needs to strike a good deal for itself and not give away the family silver (as this government has done with GB Nuclear – offering contracts and investment without getting anything in return in terms of a stake or any IP rights).
A big question is what are the goals of the wealth fund. What is success here? For example, Radio 4 pointed out this morning that the British Business Bank has lost money. Clearly that is not as great as making money - but there are two points. The first is that there are ways to maximise the chance of profit. Each deal needs to be structured individually, but usually can be done better. The second related point is that one needs to look at the projects as a whole. Suppose the fund lost £10m but revitalised a sector, developed new tech and created 3,000 jobs. The fact is that the benefit to the economy is probably then greater than £10m. In a nutshell this is the advantage of a state fund. It can take a more holistic view and invest for national benefit (like Chinese banks for example).
Penultimate point – I am a great fan of detail but let’s not get bogged down. On the radio this morning there was a long discussion about the number of jobs created, and how much energy bills would come down. This is fruitless. Labour could spend time and resources on an analysis that will always be wrong as it’s just a forecast. The media needs to focus on the principle that has been adopted successfully elsewhere but has been slated by free marketers. It is NOT a radically socialist idea!
Lastly, again we need to take a step back. There are other ways to help this fund succeed in its goals. We can see one of them today, where Rachel Reeves has promised a better deal with the EU. This makes the UK more attractive for investment, and encourages the co-investment that this country so desperately needs.
June 2024.
Cover: stock