Two new public bodies – a National Wealth Fund and Great British Energy – are at the core of Labour’s plans for the economy and net zero. Daisy Jameson and Mark Howat set out what policymakers would need to consider when setting up both bodies to maximise their effectiveness.

Labour announced the creation of a National Wealth Fund (NWF) and Great British Energy (GBE) at the 2022 Labour Party Conference. At the time, there was some uncertainty over what each would do. Although some questions remain unanswered, Labour’s manifesto provides more detail, stating the NWF would “invest in the jobs that can rebuild Britain’s industrial strength, and crowd in private investment in our ports, giga-factories, hydrogen, and protect our steel industry”, while GBE would “partner with industry and trade unions to deliver clean power by co-investing in leading technologies; … help support capital intensive projects; and … deploy local energy production to benefit communities across the .”

But given that the aims of these new bodies overlap with those of of existing organisations, policy makers should consider how the National Wealth Fund and Great British Energy interact with them to ensure they are as effective as possible in delivering key net zero outcomes.

National Wealth Fund – avoiding competition with the UK Infrastructure Bank

Despite what one might think judging by its name, the manifesto clarifies that the National Wealth Fund is not a sovereign wealth fund – which would invest budget surpluses for the benefit of future generations (like those used by Australia and Norway). Instead, it is a policy bank – a government-owned financial institution, that would invest to help deliver government policy and be financed through government borrowing or taxation.

Capitalised with £7.3 billion, the NWF would prioritise investing in ports, giga-factories, the steel industry, carbon capture and hydrogen. Therefore, it could play an important role in helping to deliver the £50-60 billion of additional annual investment required to meet the UK’s net zero and adaptation requirements.

However, it is striking how closely its priorities match the investment focus of an existing policy bank – the UK Infrastructure Bank (UKIB). UKIB was launched in 2021 and invests in infrastructure to “tackle climate change and support regional and local economic growth”.

Given this overlap, it’s unclear what policymakers should do. Our view is that it would be a mistake to establish the NWF as a separate institution. Instead, policymakers should pursue one of the following options: rebrand UKIB as the NWF; establish NWF as a subsidiary of UKIB; or establish NWF as a holding company, with UKIB and potential other public bodies (e.g. the British Business Bank (BBB)) as subsidiaries.

There is a risk the National Wealth Fund and UK Infrastructure Bank might compete to invest in assets that overlap in their remits.

Setting up a new public body – particularly one that invests public money – is a time-consuming process. The UK public sector’s current fiscal framework and governance process are more suited to managing grant giving organisations. By not creating a new, separate body, the government would avoid this long process – enabling the NWF to have an impact quickly. It would also provide better value for money if two or more organisations can share resources.

If policymakers did pursue one of the above options, they would need to clarify where, if at all, the NWF can invest that UKIB (and potentially the BBB) currently cannot. For example, UKIB only invests in economic infrastructure assets, networks and technology, which excludes social and cultural infrastructure. There is a risk the NWF and UKIB might compete to invest in assets that overlap in their remits. Competition should be prevented to avoid inefficiencies and confusion for co-investors.

Great British Energy – clarifying its short and long-term role in the UK energy system

GBE would be capitalised with £8.3 billion and its three initial priorities would be: (i) co-investing in new technologies; (ii) scaling up and accelerating mature technologies; and (iii) scaling up municipal and community energy. Labour highlights a long-term ambition for GBE to “emulate the success of public ownership of energy that already exists in Britain”, with some commentators suggesting the goal is to create a UK version of Ørsted or Equinor: that is, a world-leading state-owned multinational energy company.

GBE’s initial activities suggest an organisation, at least in the short term, not too different from the NWF and UKIB, with the first two initial priorities appearing to be very similar to theirs, albeit with a sole focus on energy and net zero. Policymakers would need to be clear how GBE, NWF and UKIB complement each other, to avoid a scenario where multiple public bodies were competing for the same projects and staff.

Labour’s long-term ambition for GBE is laudable and it may help to address some of the additional challenges in project development and market coordination that exist in the UK’s energy market, but it would require patience and strategic clarity.

Given the long-term ambition for GBE, it would make sense for it to be set up as a separate company. However, policymakers should explore how it could leverage the expertise and operational resources of UKIB in the short term.

The third initial priority does not make it clear if the funding provided would be in the form of grants or loans. If grants, consideration would need to be given to how another funding pot would only further complicate the bitty funding landscape local authorities must navigate. If loans, it is not clear how this finance would be different from what local authorities can already access – through the Public Works Loan Board (PWLB) and UKIB’s local authority lending arm.

Labour’s long-term ambition for GBE is laudable and it may help to address some of the additional challenges in project development and market coordination that exist in the UK’s energy market, but it would require patience and strategic clarity. It is unclear what Labour means by “public ownership of energy” – is it one or more of developing, financing, owning or operating green assets? Each of these activities requires a specific skillset and presents specific delivery challenges.

Policymakers do not need to answer everything at the outset. But they should be clear on what GBE would do on Day One and on their ultimate vision for GBE.

A National Wealth Fund and Great British Energy could play a critical role in delivering some of the public investment required for the UK’s net zero transition. Careful consideration is required to determine how the two organisations would interact with each other and existing organisations to maximise their value and impact.

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

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