14
Examination of witness
John Flint.
Q243 The Chair: Welcome to the second session today of the Select Committee on Science and Technology. I am very pleased to welcome our witness, John Flint, who is the CEO of the National Wealth Fund.
This inquiry is concerned with the question of scaling up finance for innovative UK science and technology companies. The National Wealth Fund’s mandate has now been expanded beyond infrastructure—indeed, beyond just net-zero projects—to include a role in the whole question of scaling up for UK science and technology companies. I am sure that you will tell us more about that. How do you see your role in supporting science and technology companies to scale up? Please introduce yourself and answer that question to start with.
John Flint: I am the chief executive of the National Wealth Fund, formerly the UK Infrastructure Bank. I was the first permanent employee of the UK Infrastructure Bank four years ago, so I have seen the organisation through its build and transformation into the National Wealth Fund.
You are absolutely correct that we will have a role to play, but it is important that I do not overstate that role. I say that because our mandate has expanded from financing only the infrastructure required for net zero, or for local and regional economic growth, to supporting a much broader set of the Government’s industrial policy objectives. We now have priority sectors defined as clean energy, which have, to date, occupied more than half of our capital: transport; digital technologies; and advanced manufacturing. In addition, we have been asked to explore the role we can play in life sciences, the creative industries and dual-use technologies with defence applications. We also have permission to continue to be active in waste, water and natural capital, so there is a lot of ground to cover there.
Our organisation was originally built to finance infrastructure projects. To date, our average ticket size is more than £100 million. Our minimum ticket size is £25 million; we prefer not to consider technologies below a TRL of 7. So, we will have a role to play, but that role needs to be seen in the context of us having a very broad waterfront to cover. If anything, our minimum ticket size will not be going down; we will not be reducing that. If it is going to change, it is more likely to go up, and early-stage technologies are not where we will go.
The final thing, just to hold this in everyone’s mind, is that we are growing—we have the privilege of being asked to grow quickly—but, even when we finish this latest growth into the National Wealth Fund, we will still be an organisation of only 400 people. We will be a small organisation in the context of the broader ecosystem that we need to support.
The Chair: Thank you. We have a lot more questions for you, but that is a very helpful introduction.
Q244 Baroness Northover: I was thinking, “Oh, my—what ambition you have been given”. Following up on that expansion, making equity bets on science and technology companies will be a new area as part of this waterfront.
You talked about the limit on the number of people. How are you changing the organisation to include more science and technology experts, so that you can follow through on supporting the priority areas that the Government have set out in their industrial strategy?
John Flint: We are already committing direct equity into science and technology companies; that activity is under way. We have the equity skills inside the organisation to make equity investments. As we grow into our new mandate, we will recruit financiers with experience of the new sectors, so we will reinforce there, but there is a list of transactions and technologies that we have supported. We are already up and running in that regard.
When we think about supporting companies through their scale-up journey, as I have already said, we have a minimum ticket size of £25 million. We are also encouraged to double the rate at which we commit and deploy capital from previous levels. The only way we can do that with the resources we have is to continue to focus the majority of our activity at the larger end of the ticket spectrum, not the smaller end. If you originate a transaction for £25 million, that often takes as much origination work as a deal of £500 million.
For companies in their early stages, the post-deal management of a smaller investment is often a lot more intensive than for bigger investments. To give an example, we have recently been financing Scottish Power. It has massive grid expansion requirements; we provided some debt capital for that. I would imagine that, post origination, the amount of resource we will need to devote to that facility will be modest. If you take our earlier-stage growth capital equity investments, where we have a board seat and where, by definition, the management teams are less experienced and the institution is less mature, an awful lot more is required.
When you are in that smaller stage, one of the principal decisions you have to make, if you are deploying public finances, is whether you do it yourself as principal or you outsource it to a third party. Do you appoint a fund manager to do this for you and give them the public funds? In the main, we prefer to do things directly and will be staying at the larger end of the ticket spectrum.
Q245 Lord Ranger of Northwood: As you are now broadening into science and technology companies, how will you receive the referrals? Are they coming from the British Business Bank, DSIT or other organisations? Does this also mean having to upskill in that space to understand what is going on? How do you make your assessments as your portfolio increases, particularly in science and tech?
John Flint: Our origination activities are entirely proactive. We organise our origination teams by sector. Each of the sectors will have a managing director and a senior banker leading the team, then they will have a typical structure underneath for covering the market. That team is responsible for developing the full network across that sector. This will mean establishing relationships with the corporates that are deploying technologies consistent with the Government’s policy ambitions; and developing relationships with the banks, asset managers, insurers, private equity companies and professional services firms—the full breadth. Each sector team is proactively going out and establishing that set of relationships. Each month that the organisation matures, the external market is becoming better at knowing when to come to us and when not to; they are becoming better at using us. That is how we approach the origination of these sectors.
In an ideal world, we would love to recruit bankers who have decades of experience in the technologies that are important to us. That might not always be a realistic ambition and we might not always be able to do that, so we just make sure that we have enough senior financiers—people who know how to structure and manage risk—then we go to external parties for technical assistance. We have done that already; there is a great deal of technical knowledge in government departments, in DSIT, in Innovate UK, et cetera. Occasionally, when we get into the due diligence phase, we procure professional services to give us an expert view on things. We have an entirely proactive outreach by sector level. Ideally, we will recruit technical depth into the teams as well and, where we cannot, we will get it from the market.
Q246 Lord Berkeley: Infrastructure projects in this country have a pretty poor reputation for being on time and within budget; some are worse than others, but they are all pretty bad. What do you do to monitor what is happening with the investment you have put in? What action can you take to improve the situation?
John Flint: That is a great question. For most of the project financing that we have done to date, we are providing debt. The debt facilities will have all of the typical covenants and protections for the lenders that you would expect. We also have all the relevant monitoring of the projects on a monthly, quarterly and semi-annual basis, often including milestones that need to be hit before financing can be further advanced; for instance, that the portfolio is beginning to perform, for better or for worse, and to mature.
There is an example in the portfolio where the project was drawstopped because, when we provided the facility, there was an expectation that our money would be used in a particular way to build into a particular geography. Those conditions were not met, so they got part but not all of their money. There are some controls, but we do not manage the projects.
Lord Berkeley: Sorry—you say that the conditions were not met, but what did you do about it? Whether it was equity or debt, it was still a loss for somebody, and people need to know about it.
John Flint: There has been no loss to date on these facilities. We are a young—
Lord Berkeley: What about in water?
John Flint: We have not been party to that; it predates the organisation.
Q247 Lord Stern of Brentford: It is nice to see you again, John. Thanks for coming. As you know from our discussions when you were setting up the National Infrastructure Bank, I was involved, as the chief economist of the two development banks: the EBRD and the World Bank.
I want to pick up on what you said about the scale of the institution in terms of funding and the scope of the remit; you have already referred directly to that. You may agree that it is not odd that you have a broad scope, because you are a national wealth fund; even infrastructure is broad in scope. That seems fine; I just want to check that it is fine with you.
You have gone through the list of issues, so I will not repeat them. Each one has its characteristics and difficulties, but they also overlap very strongly. The drive to net zero and the desire to encourage UK companies overlap, obviously; part of the question is how to exploit that overlap. I want to begin with the issue of scale. Investment in the UK is at 18% of GDP, which is a ballpark figure of £500 billion. That is the lowest in the G7 as a fraction of GDP—so there probably should be another £100 billion on top of that—but, one way or the other, you are looking at £500 billion to £600 billion and a specific desire to increase that. In relation to that, having total assets in the single figures of billions is obviously extremely small.
Given the remit and the scale of the problem, my first question is: should not you and we be pushing the Government to make this much bigger? Capitalising on this is a fairly cheap way to scale up if you have the big multipliers in there, with the private sector being in the vanguard and so on, but the first thing is pressing to be much bigger. Secondly, how do you exploit the synergies—it is a slightly ugly word—between the different missions? Do you see this as something that you do explicitly, or do you just go after clean energy then say, “Look, do it as cheaply as possible, source where you may”? Do you bring in the challenge to support UK companies directly?
The last part of my question is about innovation. You raised the issue of putting money into funds that can get further down the supply chain and the pecking order to smaller firms. That seems to be a way forward. It would be interesting to see whether you think that, although you have not done much of it in the past, you should perhaps do more of it in future.
I am sorry—there are at least three questions in there.
John Flint: I have five. Let me have a go at answering them—maybe not in the order they came in, if that is okay.
With respect to synergies, it would not be accurate for us to say that we actively go looking for them. The orientation of the organisation is to understand the Government’s policy priorities and ambition, then to go looking for problems and gaps—such as financing gaps and risk gaps—where the Government’s policy ambition will be impaired unless we get involved. That is what we do.
I often get asked questions like, “You have been given £27.8 billion. How are you going to allocate it?” I always have a view as to how it might be allocated but, in practice, we go where the problems are. Markets ebb and flow, and risk appetite ebbs and flows. Sometimes, we think that we will be needed but we are not; sometimes, an emergency need arises. I do not want to suggest that we are being clever about looking for synergies—we just go wherever the problem is. I would say, though, that the overlap between the climate transition, the transition to net zero, clean energy and much of everything else is vast, so you often find helpful synergies.
On the scale question, it is worth remembering that we still have not quite finished proving that this organisation works. It is only four years old; we are entering our fifth year. We have proven that we can establish an organisation to do what the Government have asked us to do, and that we can commit risk capital in the proportions that the Government want us to commit. We have a significantly different risk appetite to the commercial sector—we are taking roughly four times as much risk as the banks right now—but we also need to get to a point where we are modestly profitable, and we are not there yet. There is no shortcut; it will take more years of building the balance sheet and proving that we can do this. The National Wealth Fund is being asked to grow quickly. We will do that. Assuming that we can finish proving the model, there is every reason why it should get bigger.
However, it is also worth reflecting that the public finance landscape is very complicated. It is not just us; many other organisations are deploying public money. When we think about scale, I would encourage the committee not just to think about the National Wealth Fund but to look at everything in its totality. The change in the fiscal rules that happened towards the end of last year has enormous potential; it created space for financial transactions to play a much more meaningful role in the way the Government allocate resources and intervene in the economy. Everything I have learned about the climate transition suggests that the Government are going to have to continue to be overly involved in helping finance it. So, the fiscal rules have changed; that sets the scene for financial transactions to play a much bigger role. We are a part of that, but there is a very complicated ecosystem around it that could be made to work better.
Have I covered everything?
Lord Stern of Brentford: More or less. There was one question at the end: is it not a good idea to get further down the supply chain with smaller firms? You cannot do everything yourself—you made that point clearly and persuasively—but, in principle, you could put money into funds that do this.
John Flint: We have done a bit of that; perhaps 5% of our work to date has been dedicated to it. The circumstance in which we would do it is where we recognise a problem—we recognise that we do not have either the bandwidth or technical skills to deploy capital—so we find a qualified private sector partner. Our role at that point is to define the mandate, say to a fund manager, “This is the basis on which we want you to invest this public money”, and agree fees, but we outsource the investment decisions to them. That is a completely legitimate way to do it, but it is fundamentally different to outsourcing the investment of public money to a third party. We have built an organisation full of public servants who are making decisions, and I am the accounting officer for all of the investment decisions that we make.
Lord Stern of Brentford: You are given a mandate and a remit, right?
John Flint: Absolutely. You design the mandate, and you have good control over what they are and are not allowed to invest in, but the judgment on whether to back this technology or company is outsourced.
Q248 Lord Lucas: Will you publish an annual report showing how capital is being allocated across these different missions to different technologies through equity holdings and company-level data? In particular, how do you see yourself fulfilling the role of supporting local authorities for regional growth? Are they acting as retailers for you? How do you see that working?
John Flint: On the information that is available, every time we commit capital, we do a transaction. That is a matter of public record; there will be a deal announcement and an impact statement that describes what we think the impact of the investment will be. We have published a growing library of transactions. In addition, there is an annual report, which gives detailed information on the portfolio and where we have committed capital. This autumn, for the first time, we will also publish an impact report, so there is plenty of information to see what we are doing and how capital is being deployed.
Local authorities are a significant piece of the National Wealth Fund; they are a discrete division. In our old form, as the UK Infrastructure Bank, we were tasked with doing two things: first, to provide very low-cost lending, cheaper than the Public Works Loan Board, to local authorities for their projects; and, secondly, to set up an advisory function to help local authorities get more projects to the point where they could be financed. Both of those pieces are working well. We have made eight financings in the local authority space and done something like 67 different pieces of advisory work. The advisory work is delivered free to local authorities.
The new Government have also asked us to add two new dimensions. First, we are standing up four strategic partnerships with some of the bigger combined authorities: Manchester; West Midlands; West Yorkshire; and Glasgow City. It is about demonstrating that these strategic partnerships should be seen as pilots because, once we have figured out how to do this with those bigger regions, we will cascade it further out.
Secondly, there is a final piece of work—it is currently in flight from a design perspective—to work specifically on standing up resource in the National Wealth Fund to help local authorities with their early-stage project development. One of the problems that has been recognised for a long time across the LA landscape is that, even if the leaders have a good vision and good ideas, there is an awful lot of work to do in the process of translating that vision to the point where it is financeable. Many of the authorities do not have the resources in-house anymore. So the ask is: can we develop a central resource that they can use to help with that? That is a work in progress at the moment.
Q249 Baroness Walmsley: Do you have targets for this asset allocation across all of the different missions that you have? Or does it depend on what pops up when you do that searching for gaps you mentioned to Lord Stern?
John Flint: We have a range of targets. The first big target is the amount of capital the Treasury would like us to commit in a financial year. For the current financial year, which we are now a quarter of the way through, we have been asked to double the commitments that we made in the previous year, which, in turn, had doubled from the year prior to that.
Baroness Walmsley: Do you have the money to do that?
John Flint: We have the resources to do that. There are no excuses where that is concerned. We have that as a target.
Then there is an election commitment by the Government to commit £5.8 billion into a specific set of sectors through the course of this Parliament, so we have that target as well. It is not a current-year target—it is a target over the life of the Parliament, so a slightly longer term—but we have to keep an eye on that.
Beyond that, we have full flexibility. That is a real advantage. The more we get boxed into ring-fencing pots for things, the less effective we can be. At the moment, we can pivot into whatever the current challenge is.
Baroness Walmsley: It sounds a bit like moving the deckchairs on the “Titanic”.
John Flint: Well, we are not sinking.
Baroness Walmsley: If your appetite for investing in science and technology, including frontier technologies, is not very clear, is there a danger that you will be sticking to safer and more predictable infrastructure investments? Can they really be regarded as safer or more predictable these days?
John Flint: No one should have any fear that we are sticking to things that are safe. As I said, when the Treasury set us up four years ago, it did so with a leverage ratio—an amount of economic risk capital, relative to the notional capital, which confirmed that we have a very different risk appetite to the rest of the market. We have been operating to that, so we have been taking significant risk.
The new Government have actually given us an even bigger risk budget. We have been operating at close to four times what commercial banks take, and we now have the room to go up to five times that. We have announced over 50 transactions and, within those, there is a lot of risk; I do not think that anyone should be worried about our capacity to take risk.
The way in which we think about science and technology is not to start with our own independent view of what we think it would be fun or lucrative to invest in. We go back to the Government’s priorities. We go back to this department’s priorities and make sure that we are deploying our resources in service of those.
Q250 Baroness Walmsley: The final part of my question refers to something that you said to Baroness Northover earlier on. Historically, the UK Infrastructure Bank has been criticised for being a bit slow in deploying its funds, at a rate of less than £1.5 billion a year. To what do you attribute that? Will the reforms to your mandate and regulations allow you to fix it? If so, how?
I noticed that, earlier, you mentioned that one way of speeding up is to move towards the larger end of the ticket spectrum; I think that that is what you said. Is there any other way of doing it, or is that the key way of improving the speed?
John Flint: I would just like to make sure that the committee has full sight of the criticism that we received. We were criticised for being too fast and being too slow at the same time.
Baroness Walmsley: You were about right, then.
John Flint: We built the organisation from scratch. As the accounting officer, I had the challenge of deploying public money quickly because, as you might imagine, there was pressure to get things announced. However, you also have to do it in a robust and controlled way that represents good value for money. I am not going to apologise for the fact that the organisation has built steadily through the years. We have referenced that we should be able to commit double the amount of capital this year than we did in the last, which in turn was double on the previous year. That is how an organisation scales sensibly.
If we want really to expand the pace, one of the ways is to do some bigger tickets. The other would be to outsource more of it, to start deploying via fund managers and to make the commitments to them by saying, “The money’s available under these terms”. Those are the two big levers. There will always be process efficiencies—we are a young organisation, and we built all of our processes ourselves on the fly—but I suspect that efficiencies will be quite a modest driver in the context of either doing more bigger ticket projects or outsourcing to third parties.
Q251 Baroness Neville-Jones: You have just described some of the ways in which you can lay off risk. For a young organisation, your mandate and the things that you have been asked to do have evolved pretty fast. At the same time as finding ways of risk reduction, how are you going to ensure that you have the right metrics, so that the long-term economic and technological benefits are valued alongside the conventional return on investment? Is it a matter of educating the market? How do you go about that? It seems to me that communication is quite important in that context.
John Flint: Yes—it is very important. The easiest part, in many ways, is all of the financial metrics. We are accounted for under IFRS 9, which is the same standard that the banking system uses. Although we are not regulated, we account in the same way, and we publish all of our financial information in the same way. We have been doing that since we started, so it is already in place.
We also have in the organisation a brilliant impact team that is resourced with economists who came out of the public sector, many of whom are still seconded from government departments, so we can speak that language as well. We can tell the impact story or the economic story. We will communicate around emissions abated at various points in project life cycles. We will monitor and report on the jobs created and supported.
We have a paper coming to our exco this afternoon, on revising the methodologies for measuring the amount of private finance mobilised alongside the things that we do; for a small organisation, we have a good resource dedicated to that. As I said earlier, it will publish its first discrete impact report later in the autumn.
Baroness Neville-Jones: So you have not encountered any grumbles so far on that front?
John Flint: No. The reason why we have not, to be honest, is because the original mandate of the organisation—to finance infrastructure only for the climate transition or for local and regional economic growth—is the first filter. We do things only in service of those two missions. So, by definition, everything that we were likely to do was going to have a good impact story. It has been trouble-free, but the mandate almost made it trouble-free.
Baroness Neville-Jones: I want to make another point about how the National Wealth Fund compares with other organisations. Clearly, we have established that it is small and that a number of us around this table would like to see it a good deal bigger, but do you think that the ways in which the KfW in Germany or Bpifrance operates—if you have looked at them—have lessons for us that we could adopt? Or do you reckon that the Kreditanstalt is so different that there is not much there for us? I am no expert but it seemed to me that that was quite a stretch whereas Bpifrance is perhaps more relevant, although it is a much bigger operation with many more tasks. Can you see us evolving that way?
John Flint: Is there something that we can learn from those organisations? Yes. Is there something that we have learned? Absolutely.
The team that established the original organisation did a lot of work in understanding what the international comparators were doing. So there are already elements of these organisations in our design. I also know that, when the current Government were getting ready to become the Government, they did quite a lot of work on this and spent time studying the KfW. So there is a lot of thinking behind the design.
To be honest, as a management team, we have not spent time doing this. We have not been to France; we do not have the bandwidth for it. However, we should keep an open mind towards how these two organisations have evolved. One of the big differences is that we still have a very fractured landscape here. Bpifrance has brought a lot of this together under one roof; the KfW is a single organisation that provides public finance across a landscape that is currently served in this country by multiple different sources. There are some clues there as to what the future might hold.
Baroness Neville-Jones: Do you mean reducing the amount of fracturing in our set-up?
John Flint: Yes.
Q252 Viscount Stansgate: As you know, the Government are hoping that the Mansion House reforms and vehicles such as the British Growth Partnership are going to help push institutional investors, such as pension funds, into investing in UK science and technology companies. How will the National Wealth Fund work directly with institutional investors and vehicles such as the British Growth Partnership to help provide clear investment opportunities for them in innovative science and technology companies?
John Flint: The really blunt answer is that we will not. Let me explain. We are focused on providing capital to companies, projects and technologies. We are not focused on helping investors get to those investments; that is quite a different orientation. We are here to provide capital to those technologies and companies that need it; in doing that, there is no doubt that it will be helpful to the investment community. If you look at some of the companies we have supported to date, they will need further follow-on fundraisers. That is the point at which the investment community can engage, because we have taken them to the next stage.
What we do not promise—and must not promise, in my view—is that it is our job to create a pipeline for those organisations that have vastly more resources than us and are both well covered by and an integral part of the City. We need to stay focused on directing our resources into getting capital to where it is needed. That will be helpful to the investment community, but I am not going to promise it that we are here to give it a pipeline.
Viscount Stansgate: That is clear; thank you very much.
Q253 Baroness Young of Old Scone: Taking that slightly further, one of our previous witnesses painted a picture of there being a pipeline from a bright idea right up to a multi-billion-pound organisation, where the role of people such as Innovate UK is to play a part in shepherding companies from one end of that pipeline to the other. Do you see yourself as part of that pipeline at all, or are you something completely different?
John Flint: We are part of the pipeline in the sense that, if you lay all the different public finance institutions end to end, from grant-giving bodies all the way through to, at the larger end, UK Export Finance, we are part of that continuum in the provision of public money. However, it is really dislocated, and we should not pretend that it is going to be easy. The notion of a seamless service that we can engineer across that landscape is false. We are all different legal entities; some are extensions of government departments, while we are a company under corporate law in the UK.
When you think about a seamless pipeline and shepherding somebody from one end to the other, you have to confront the reality that competition law today means that organisations cannot talk to each other about something as basic as pricing. So, the ambition of making that seamless customer journey is probably the right ambition, but we have to recognise that we just are not organised for it. The ambition around that was expressed in the same way four years ago when I arrived. We are still talking about it in the same way; if anything, the landscape has become more, not less, complicated. It is the right ambition, but we have to be realistic about it.
Q254 Baroness Willis of Summertown: My question leads directly on from that. How do we co-ordinate all of this? I wrote down your list of all the different things you have to represent now, and I thought, “Gosh”. I was expecting one or two areas but you are now in life sciences, waste, water and natural capital. Those sit in the remit of NERC, not DSIT, so you are starting to move across departments as well.
Can you give us an idea of how you plan to enable this co-ordination between the British Business Bank, Innovate UK, science and technology experts, DSIT, Defra, et cetera? Who is going to do that? Otherwise, in five or 10 years’ time, there will be another committee asking, “Why is this so mixed in how it is being effective?”
John Flint: As an organisation, our true north is the Government’s industrial strategy. In our previous guise, it was the net-zero strategy, but now it is that strategy. Everything we do is anchored to or oriented around that because we exist to serve it. To a certain extent, it does not matter what everybody else is doing; we are focused on that.
At a practical level, we have all the working relationships that we need to make sure that, when there is an opportunity to hand something off and make an introduction, we can do it. However, there are gaps: there are legal entity divides that need to be respected under law, et cetera. We should not pretend that we have this organised in such a way that will mean that, in five years’ time, we are not having the same conversation.
Baroness Willis of Summertown: In your own mind, what would “good” look like, if you were to create something that was able to pull all these bits together?
John Flint: I have said this for a while now: if the Government are really going to take advantage of the change in the fiscal rules, and if we are going to get serious about the Government being a much bigger lender and investor into the economy, they have to change. The Government have to take advantage of the opportunity to rationalise what we are doing and to go from multiple public finance institutions to one. This is about the Government getting good at being a lender; it is a completely new set of muscles. Lending is an industry. It is a specialist skill set that this country is brilliant at—we have the best regulators for this activity—but what we are not doing yet is embracing the scale of the opportunity then figuring out how best to do it efficiently. Would a private sector capital provider, or a private sector owner, own five or six small to medium-sized lending entities and keep them separate? They would never do that. They would be looking to consolidate, to get efficiencies of scale and to pick the best people out of the teams. So there is an opportunity.
My personal view—particularly on climate change—is that the Government, irrespective of their colour, are going to be more involved in the economy over the rest of my lifetime than they have been previously. If they are going to become really good at being an intermediary, they need to reorganise the way in which they do it—but that is just my personal view.
Baroness Northover: Can you elaborate a bit more on what you would consolidate? Which institutions are you thinking about here in terms of grouping together?
John Flint: I would not start with a list of institutions. I would start with a discipline of anything that involves intermediation and what banks normally do—lending, investing or committing risk capital—where there is a hope or an expectation that you get it back. The Government’s machinery is brilliant at grant pots. That does not need to change; what needs to be built now is comfort and ease with the skill of lending and investing. I would start off with the premise that all intermediation needs to be done through a single organisation or a single entity.
Once you have got to that point, it is so much easier to think about painting that customer journey. We have a division that does early-stage capital provision for technology priorities. That is on the balance sheet; it is therefore in that entity’s interests to see the value maximised through the life of the company. Currently, its interests end with, “Well, the grant has been given, or the Series A funding has been given, so we have done our job”.
Baroness Northover: You have talked about the British Business Bank and UKEF, and we have been talking today to Innovate UK and to UKRI—looking at that whole chain. How would you consolidate this to reflect what you have just put as the ambition?
John Flint: Again, I would not start with the organisations. I would start with the premise that all intermediation activity—because there is also some intermediation activity that happens off departmental balance sheets—and grant-giving should be separate, but, for anything that involves lending or investing, I would force consolidation into one entity. You get all the diversification benefits and risk aggregation benefits that the private sector searches for and which regulators supervise. That is what I would do.
Baroness Northover: Can you point to a country that provides a good example of doing it like that?
John Flint: The committee has already referenced two that are organised more in that vein: KfW in Germany, which provides a much more integrated provision of public finance; and Bpifrance, which is on the journey there. France was similarly disaggregated but is choosing to aggregate now.
Q255 Baroness Neuberger: As you know, a very large part of the motivation for us to conduct this inquiry was that we are so concerned about small, promising science and technology companies doing really well here then heading off abroad to get capital. You have told us that you do not have a seamless pipeline going all the way through, so I want to put this question in two parts.
First, given the way in which the National Wealth Fund is structured at the moment—and given that you like giving, or feel that it is appropriate to give, quite large lumps of money—what could the National Wealth Fund do to stop this? Secondly, if we went to your idealised system of everything being brought together into one funding system, how might that work to stop people going abroad?
John Flint: We already do this. There is a good range of examples of where we have made our capital financing contingent on the company committing to maintain its capital expansion and jobs in the UK or to maintain its head office in the UK. There is one instance where we provided finance to an entity that was dual listed here and overseas; the provision of our finance was contingent on it giving up the overseas listing. There is another example where we required a company to re-domicile here. So, at the point at which we are about to put public money into something, we have significant leverage; if we see an opportunity like that, we go for it.
Baroness Neuberger: In your idealised system where it is all brought together with one funder, that would presumably be much easier to do.
John Flint: Yes.
Baroness Neuberger: Thank you.
The Chair: Thank you very much for coming to give evidence. It has been really helpful; we are most interested in what you have had to say. That concludes this public session.
