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Written evidence submitted by Professor Mariana Mazzucato
Professor in the Economics of Innovation and Public Value at University College London
Founding Director of UCL Institute for Innovation and Public Purpose (IIPP)
Rogerio de Almeida Vieira de Sa
Policy Fellow (Public Finance), UCL Institute for Innovation and Public Purpose (IIPP)
Table of Contents
Financial Firepower: leveraging capital and debt issuance to expand the balance sheet
Proactive Investment Approach: Building deal origination and project design capacity
Innovative Financial Instruments: Patient capital, equity stakes and revenue-sharing
Financial Instruments: Equity, Conditionalities, and Socialising Rewards
6. What degree of independence will the National Wealth Fund have from HM Treasury?
Conclusions and Recommendations
The National Wealth Fund (NWF) is a potentially transformative public institution—capable of reshaping the UK’s investment landscape by deploying patient, catalytic capital toward long-term public missions. However, its success will depend on whether it is empowered to go beyond a narrow sectoral mandate and operate as a bold, mission-oriented public investor.
This submission draws on international evidence and IIPP’s research on public development banks and mission finance to offer constructive, concrete proposals for strengthening the NWF’s design, governance, and strategy (Mazzucato and Penna, 2016, Mazzucato and MacFarlane, 2023; Mazzucato and MacFarlane, 2019; Mazzucato and Mikheeva, 2020; Mazzucato, Doyle and Kuehn von Burgsdorff, 2024; MOIIS, 2019). We argue that to meet its dual goals of crowding in private finance and advancing national missions such as net zero and regional rebalancing, the NWF must be:
This submission provides detailed recommendations across investment strategy, institutional design, governance, financial instruments, and fiscal accounting. A summary of our recommendations follows:
Table 1: Key Recommendations
Theme | Recommendation |
|---|---|
Mission Orientation | Legislate a mission-based mandate (e.g. green industrial transformation, regional productivity convergence). Use missions to coordinate cross-sector investments and define success through outcome-based metrics. |
Additionality and Impact | Develop formal ex-ante and ex-post additionality frameworks. Adopt portfolio-level impact metrics (e.g. private co-investment, jobs, emissions). Foster additionality by focusing on high-risk or nascent areas. |
Scaling Through Leverage | Enable the NWF to issue bonds and raise debt on its own balance sheet, with a Treasury guarantee and leverage cap. Treat the Fund as a strategic investment entity, not an annually budgeted programme. |
Deal Origination Capacity | Establish an in-house project development unit (“mission lab” or “deal hub”) with technical experts (engineering, regional economics, innovation policy) to co-develop investable pipelines with local actors. |
Innovative Financial Instruments | Deploy a wider toolkit: equity, revenue-sharing, convertible debt, patient capital. Tailor financial instruments to market gaps, not standard products. Introduce return-linked conditionalities and risk-sharing clauses. |
Reward-sharing and Conditionalities | Institutionalise public return mechanisms—e.g. equity stakes, royalty shares, or dividend conditions. Attach conditionalities to finance (climate, jobs, skills) to ensure alignment with public objectives. |
Climate & Regional Synergy | Use place-based industrial missions to deliver both net-zero and levelling-up goals. Create regional advisory panels. Report dual metrics (e.g. job creation and CO₂ reduction per £ invested). |
Governance and Independence | Legislate the NWF’s statutory mandate. Appoint a specialist advisory panel. Ensure operational independence from HMT on financing decisions. Establish regular parliamentary and public reporting mechanisms. |
Fiscal Accounting and PSNFL | Encourage ONS and HMT to classify NWF capital expenditure under PSNFL as investment. Recognise NWF equity holdings as assets. Ensure transparency in off-balance sheet borrowing and contingent liabilities. |
International Learning | Establish an international advisory panel with representatives from KfW, BNDES, EIB, etc. Join global public finance networks (e.g. Finance in Common) to stay at the frontier of mission-driven investment practice. |
The UCL Institute for Innovation and Public Purpose (IIPP), founded and directed by Professor Mariana Mazzucato, welcomes the opportunity to submit evidence to the Treasury Committee’s inquiry into the National Wealth Fund (NWF). IIPP is an academic centre focused on rethinking how public policy and finance can drive mission-oriented innovation and inclusive, sustainable growth. Our research on mission-driven public finance, public development banks, and industrial strategy informs this submission (Mazzucato and Penna, 2016, Mazzucato and MacFarlane, 2023; Mazzucato and MacFarlane, 2019; Mazzucato and Mikheeva, 2020; Mazzucato, Doyle and Kuehn von Burgsdorff, 2024; MOIIS, 2019). We structure our response around the key questions posed in the Committee’s Call for Evidence, addressing each in turn.
In summary, we find that the National Wealth Fund represents a potentially transformative tool for mobilising and directing capital toward the UK’s strategic objectives. However, realizing this potential will require: a clearer mission-oriented mandate (beyond narrow sectoral targets), agreed-upon metrics on additionality to avoid crowding out private finance, innovative use of financial instruments (including equity stakes and conditions to socialize rewards of public investment), and robust governance and accountability mechanisms ensuring independence and public purpose orientation. We conclude with concrete policy recommendations to strengthen the NWF’s design and impact.
In countries that have achieved smart, innovation-led growth, the public sector has often played an important role providing patient, long-term finance (Mazzucato and Macfarlane, 2018). From technological breakthroughs such as the internet to societal challenges such as climate change, public investment has played a key role driving the direction of economic growth and innovation. Across the world this has taken different institutional forms, but in many countries patient finance is increasingly coming from state investment banks. While the traditional functions of state investment banks were in infrastructure investment and counter-cyclical lending, some have taken on a new role as key global actors steering the path of innovation towards addressing contemporary challenges such as climate change (Mazzucato and Macfarlane, 2018)
The UK is well known to have too little patient finance, bringing short termism to the economy (Mazzucato and Macfarlane, 2018, 2023). In this context, public financial institutions that can provide that long term patient capital are well positioned to effectively promote the much-needed capital development of the economy in a smart, inclusive and sustainable direction (Mazzucato and Penna, 2016). Wealth funds are a form of patient public finance. The surge in sovereign wealth funds (SWF) is one of the most significant financial developments of recent decades (Megginson, Malik, and Zhou, 2023). At the start of the millennium, SWFs held just $1.2 trillion in assets; by 2025, that figure is estimated to have grown to $13.4 trillion (Global SWF, 2025). This represents a powerful—and growing—financial force that could be harnessed for the common good.
The United Kindom’s NWF has a headline ambition to act as an “impact investor,” leveraging its £27.8 billion in public capital to attract private finance into clean energy and growth sectors (Reeves, 2024). Its stated 3:1 private co-investment target is ambitious but not unprecedented: the now-privatised Green Investment Bank (GIB) achieved comparable ratios in offshore wind and other renewables, and international peers like Germany’s KfW routinely crowd in comparable ratios of commercial capital (National Wealth Fund, 2025; Mazzucato & Penna, 2016). The NWF also claims to target “market weaknesses, not just market failures” (Reeves, 2024), echoing a mission-oriented investment logic—where public finance shapes new markets rather than merely correcting existing inefficiencies (Mazzucato, 2021).
The crucial question is not simply whether the NWF is likely to crowd in private capital, but whether it will do so in a way that drives transformative growth and innovation. That depends on whether its governance and financing tools are aligned with a coherent national mission-oriented strategy, as set out in The UK’s Plan for Growth and its evolving industrial strategy. At present, that alignment is unclear.
While the NWF references “missions,” it is not obvious how its mandate is embedded within the UK’s Plan for Growth or indeed its upcoming Industrial Policy. The Fund appears to operate as a standalone silo, with its own investment strategy and priority sectors (green steel, ports, hydrogen, gigafactories, carbon capture), without a clear institutional mechanism to coordinate with other arms of government under a shared mission logic. Without that cross-institutional alignment, the NWF risks becoming just another “fund” among many — making investments that are individually sound but collectively lack directionality and coherence. A mission-driven NWF would not simply aim to attract private capital into predefined sectors but would work in tandem with other agencies to co-shape innovation ecosystems around clear public goals (e.g. decarbonising energy-intensive industries, building zero-carbon cities, narrowing regional productivity gaps). That strategic coherence is not yet embedded in the Fund’s structure.
With an initial Treasury allocation (reported as £7.3 billion for the first five years, aiming to spur £20–30 billion in private investment) and a planned total of £27.8 billion over nine years, the NWF’s current capitalization is significant but still modest relative to the country’s multi-decade infrastructure and industrial funding. International experience shows that successful national investment banks leverage their capital base by borrowing to multiply their impact. In practice, this means the NWF should have the authority to raise its own debt – for example, by issuing bonds or other debt securities. This ability to borrow (much like local authorities or sub-national bodies can, and as NDBs do) would allow the Fund to scale up its lending and investment far beyond what budgetary seed funding alone permits. Benchmarks from peer institutions illustrate what is achievable.
Germany’s KfW, for instance, is able to lend on a massive scale because it finances itself predominantly via capital markets: under its statutory framework, all KfW obligations are explicitly guaranteed by the German federal government, enabling it to issue AAA-rated bonds globally and channel high volumes of capital into development-oriented investments.org. As a result, KfW’s total assets are around €550 billion, roughly 15 times the size of its paid-in capital – a leverage ratio made possible by prudent debt issuance and government backing. Many national development banks operate with leverage ratios on the order of several times their equity; an analysis of development banks globally finds leverage ranging from about 4:1 up to 9:1. By adopting a similar model, the NWF could potentially augment its balance sheet to the scale of hundreds of billions of pounds over time, rather than just tens of billions – dramatically increasing its ability to fund projects. We recommend that the NWF explicitly plan for leverage in this range once it is established and has built a track record, subject to prudent risk management and demand for its finance.
Importantly, empowering the NWF to issue debt need not undermine fiscal sustainability. In fact, the Government’s new debt metric – public sector net financial liabilities – means that borrowings used for investment by entities like the NWF have a neutral effect on recorded debt, so long as they are backed by assets. This provides a window for the NWF to expand its lending capacity without breaching fiscal rules, provided the proper governance and guarantees are in place. The key is to legislate or mandate that the NWF may raise capital market financing (within prudent limits) with an implicit or explicit Treasury guarantee. Such a guarantee ensures low financing costs (taking advantage of the government’s credit rating) and reflects the public purpose of the Fund, while the operational independence of the NWF ensures credit decisions remain commercially sound and mission-focused.
With the ability to borrow, the NWF can aim much higher in scale. By the end of the decade, instead of being constrained to disbursing roughly £3 billion per year from the Exchequer, the Fund could be targeting annual investment levels several times higher by crowding in private co-financing and reinvesting its returns. For example, leading continental development banks like Bpifrance and KfW each invest on the order of 1% of national GDP per year; for the UK, 1% of GDP is over £20 billion annually – nearly four times the NWF’s current yearly deployment plans. While the NWF will need time to ramp up, this indicates the magnitude of long-term ambition that should be built into its design now. Therefore, a critical recommendation is that the NWF’s charter and governance explicitly accommodate future capital raises (either via bond issuance or further capital injections) to maintain a high growth trajectory. By leveraging its initial public capital with debt, the NWF can truly punch above its weight – turning a foundation of, say, £10–20 billion of public funds into perhaps £50–100 billion of financing capacity to invest in Britain’s green and industrial renewal. Without such leverage, the Fund risks remaining a relatively small player, unable to move the needle on the UK’s investment shortfall.
If the NWF is to succeed in mobilising investment at scale and driving economic transformation, it cannot be a passive financier waiting for deals to appear at its door. Instead, it should take a proactive stance in originating, shaping, and catalyzing investment opportunities, consistent with its developmental mandate. This means actively seeking out projects aligned with its strategic objectives, designing and structuring investments in collaboration with stakeholders, and not simply relying on proposals brought by the private sector. In effect, the NWF should help create the pipeline of viable projects where one may not currently exist, tackling the coordination and information failures that often impede investments in new sectors.
Adopting an origination mindset will require the NWF to develop significant in-house expertise and an interdisciplinary team. This goes beyond typical financial analysis; it means having staff who understand engineering, technology, project development, and regional economics. Successful public investment banks worldwide have done exactly this. For instance, KfW, Bpifrance, and the European Investment Bank all maintain in-house technical expertise – engineers, scientists, sector specialists – alongside financiers (Mazzucato and Mikheeva, 2020). This breadth of knowledge enables them to appraise projects on more than just immediate financial metrics; they can evaluate technological viability, environmental and social impact, and long-term economic benefits. A key difference between effective national investment banks and private financial institutions is precisely this broader capacity within their staff, which allows decisions to be informed by real-economy considerations and mission goals. Embedding such expertise will enable the Fund to originate deals– for example, identifying a gap in the market and convening partners to develop a project, rather than waiting for a fully formed proposal from a commercial bank or investor.
Concrete mechanisms can support this proactive role. The NWF could establish a Project Development unit or “deal hub” that works with local governments, entrepreneurs, and research institutions to turn ideas into bankable projects. Notably, Brazil’s BNDES has a “Project Factory” initiative aimed at structuring projects (especially in infrastructure and public-private partnerships) for investment – effectively acting as a project incubator for the state and for investors. Through that program, BNDES helps prepare feasibility studies, business models, and consortia for complex projects (such as sanitation concessions or renewable energy auctions), which are later financed and executed with private co-investors (Mazzucato and Macfarlane, 2023). The NWF should adopt a similar facilitative role. For example, if a local authority has an idea for a net-zero transport solution or an innovation district but lacks expertise to develop it, the NWF’s team could step in to provide technical assistance and structure a viable investment plan, eventually financing it alongside private capital. This not only creates more investable projects aligned with national priorities but also signals to the market that the public sector is actively shaping opportunities, not just assessing them.
In practice, a more proactive NWF would involve scanning for opportunities (e.g. new technologies emerging from UK universities that need scale-up financing, or regions that could host supply chain clusters with the right infrastructure), conducting preliminary analyses, and then using the Fund’s convening power to bring together key players (private investors, industry, local stakeholders, other public bodies) to get projects off the ground. It should be willing to be the first mover in areas of high-priority– effectively creating a demonstration effect for the private sector. Critically, this approach requires some tolerance for early-stage risk and a mandate that encourages innovation.
The NWF’s investment criteria should thus be broad enough to allow it to initiate and lead deals that fulfil its mission, rather than narrowly insisting that every deal meet specific financial performance metrics on a narrow, case-by-case basis. Shifting to a portfolio view of additionality is critical: the NWF should be judged on whether its portfolio as a whole moves the needle on national objectives. The Fund should balance the need to “crowd in” private finance with a recognition that it sometimes must lead the way (and even accept being temporarily the sole investor) in nascent areas until the market matures.
In summary, building strong deal origination capacity and a multi-disciplinary team is essential for the NWF. This will enable it to generate a high-quality deal flow aligned with its mandate, ensure that it is crowding in the private sector by expanding the universe of investable projects, and avoid the under-deployment problems witnessed in the UKIB’s early phase.
The NWF’s toolkit of financial products should be flexible and innovative, tailored to filling gaps in the market and maximizing long-term public value. If the Fund simply replicates standard commercial lending or overly relies on traditional blended finance models (e.g. small, subordinated loans or credit guarantees to de-risk private investors), it may not achieve the step-change in investment outcomes that is needed (Mazzucato, 2025). Instead, the NWF should make full use of a wide range of financing instruments – including taking equity positions, offering patient venture capital, and structuring investments with profit-sharing or revenue-sharing components – to support transformative projects that private finance alone finds too risky or too slow to pay off.
One key recommendation is for the NWF to take equity stakes more routinely in the ventures and projects it supports, rather than only providing debt. By investing equity or using convertible instruments, the Fund ensures that the public sector shares in the upside of successful projects. This addresses a common shortcoming of public-private finance: too often, the public takes the downside risk (through grants or guarantees) while private investors reap most of the gains if a project thrives. A more equitable risk-reward sharing is desirable. For instance, if the NWF provides early-stage capital to a green hydrogen production facility or a next-generation battery startup, it could retain an equity stake that yields substantial returns if the venture succeeds. Those returns could then be recycled into new investments or even returned to the Treasury over time, improving the sustainability of the Fund. Ensuring fair public/private profit-sharing in sectors of the future is crucial – and that means the NWF being prepared to use equity and profit-sharing tools, not just loans. Concretely, this might involve the NWF co-investing in a project alongside a private firm and agreeing that the NWF earns a percentage of revenues (a royalty or income share) until its investment is repaid with a premium. Such revenue-sharing structures can be suitable for projects like renewable energy deployments or infrastructure with user fees, allowing the public investor to earn a return linked to the project’s performance. They align incentives and ensure the public benefits directly from the growth it helped finance.
Another advantage of deploying patient capital (long-term, low-return-tolerant funding) and equity is that it can catalyse projects that require a longer gestation period or have uncertain early cashflows. Many transformative investments – for example, developing a new clean technology, or major regeneration schemes – may not generate steady returns for many years, which deters purely commercial lenders or investors who need quick profits. The NWF can bridge this gap by offering financing with longer tenors or grace periods, and by accepting a longer investment horizon in exchange for higher impact. This is analogous to the role venture capital plays in tech innovation, but the NWF’s patient venture capital would be applied to areas of public priority (like green infrastructure or strategic manufacturing) where private VC is often lacking. An illustration: for an offshore wind project with novel technology, the NWF could provide a subordinated loan or guarantee to cover construction-phase risks that private insurers won’t touch – but in return for taking that first-loss risk, it could negotiate an equity kicker or a share of the project’s future revenues once operating. This way, public money is not just a one-directional subsidy; it’s an investment with potential payback (Mazzucato, Doyle and Kuehn von Burgsdorff, 2024).
Additionally, the NWF should have the freedom to design bespoke financial products suited to different sectors. In some cases, co-investment funds or fund-of-funds vehicles might be appropriate (e.g. to support scale-ups in life sciences or semiconductors, the NWF could anchor a fund with private venture investors). In other cases, green bonds or project bonds issued by the NWF (or with its guarantee) could help channel institutional capital into infrastructure, with the NWF providing a partial guarantee or interest subsidy. The use of contingent returns is another innovation: the NWF could make repayable advances to companies that are only repaid as a fraction of future profits if the company succeeds – essentially a public sector version of venture debt or income-contingent loans, sharing risk on the downside but securing public return on the upside. All these approaches move beyond the “vanilla” debt financing that, while important, may not on its own spur the kind of projects the UK needs.
The overarching principle is that the NWF’s financial strategy should be mission-driven rather than instrument-driven (Mazzucato, 2021). It should ask: what form of capital does this priority project require that the market is not providing? If the answer is high-risk equity, or very long-term patient funding, or a revenue-contingent loan, then the NWF should be empowered to provide that, even if it means deviating from standard banking products. This flexibility, combined with a mandate to preserve public value (not just avoid losses), will enable the Fund to back bold ventures while still eventually recycling funds. By retaining equity or other upside participation, the NWF can ensure that when projects succeed, the public sector shares in the financial rewards – a virtuous cycle that can replenish the Fund and justify the risks taken. Moreover, setting expectations that the NWF will use strategic conditionalities (such as requiring high environmental and job-quality standards in projects it funds) and seek fair returns will safeguard against criticisms of “corporate welfare.” Instead, the NWF will be seen as a savvy investor for public good: willing to take risks the market won’t but also structuring deals so that the nation benefits when those risks pay off.
A defining feature of the NWF is its dual objectives of spurring regional (and national) economic growth while delivering climate action (decarbonisation). The inquiry asks how these two goals relate and whether they are complementary or in tension. IIPP’s view is that regional rebalancing and climate action can and should be mutually reinforcing, but this requires deliberate strategy. The NWF’s design acknowledges a “strong regional mandate” to “unleash the full potential of our cities and regions” (Reeves, 2024). Many of the Fund’s priority sectors – e.g. green steel, hydrogen, and port infrastructure – are capital-intensive industries often located outside London and the Southeast. Investing in these areas can create high-quality jobs in regions that need them, aligning with the UK’s “levelling up” agenda while advancing net-zero goals.
International experience supports the synergy of place-based and green investment mandates. Germany’s KfW, for instance, has regional programmes for energy-efficient housing and Mittelstand (SME) support that reduce emissions and stimulate local economies. Likewise, BNDES in Brazil financed extensive renewable energy projects in less-developed Northeast states, tying regional development with clean energy transition. The NWF can emulate such models by ensuring that its climate investments are geographically distributed to maximize regional impact. For example, financing a “green steel” plant in Teesside or South Wales could both cut industrial CO₂ emissions and regenerate a local economy.
That said, there can be trade-offs if not managed properly. A risk is that in pursuit of regional jobs the Fund might back some carbon-intensive activities or legacy industries for short-term employment gains, which could conflict with climate goals. Conversely, a narrow focus on least-cost carbon reduction might concentrate investment in areas with best renewable resources (e.g. offshore wind in specific coastal zones) and not necessarily affecting communities most in need of employment. A mission-oriented strategy can bridge this tension: rather than treating regional growth and climate as separate goals, the NWF should pursue “green industrial transformation” missions that inherently integrate both (Mazzucato, Doyle and Kuehn von Burgsdorff, 2024). This means prioritising projects like renewable energy clusters, clean manufacturing, building retrofit programs, and sustainable transport networks in regions starved of investment. Such mission-based framing encourages projects that deliver double dividends – decarbonisation and local value-added.
The relationship between the objectives should also be reflected in governance. We encourage the NWF to coordinate closely with devolved governments and local authorities to identify projects that fit local growth plans and also contribute to national climate targets. A bottom-up pipeline development, guided by national missions (like Net Zero 2050), can ensure the Fund’s portfolio achieves a geographic balance of green investments. IIPP’s research on mission finance underscores the importance of inclusive stakeholder engagement (Mazzucato, 2021): involving regional representatives, industry, workers and communities in co-designing investment priorities can produce projects that have strong local buy-in and lasting impact. In practice, this might involve the NWF establishing regional advisory panels or working through existing structures (e.g. Combined Authorities) to vet proposals against both climate and local development criteria.
In conclusion, the dual objectives of the NWF need not be in conflict – if managed through an integrated mission-oriented approach, they can be mutually reinforcing. We recommend that the NWF’s strategic plan explicitly outlines how each investment supports both regional development and the climate transition, and that it reports on metrics for each (e.g. regional job creation and carbon reduction per pound invested). By doing so, the NWF can become a flagship instrument for a just transition, ensuring that the move to a green economy also “levels up” left-behind regions, leaving no community behind in the process.
The Call for Evidence raises the question of whether the NWF should maintain a sectoral focus or adopt broader mission-driven strategies. The current design of the NWF highlights specific priority sectors: clean energy, digital and technology, advanced manufacturing, and transport, with an initial £5.8 billion earmarked for five sectors (green hydrogen, carbon capture, ports, gigafactories, and green steel). However, a mission-oriented approach – framing objectives in terms of solving societal challenges (e.g. achieving net-zero, building resilient communities, improving public health) – could offer greater flexibility and long-term vision (Mazzucato, 2021).
A potential drawback of a narrow sectoral focus is the risk of missing cross-sectoral synergies and being too rigid as technologies evolve. Missions are inherently cross-cutting. For example, a mission to decarbonise the UK’s energy system by 2035 would involve multiple sectors (renewables, grid infrastructure, food production, housing, etc.) and encourage innovation across each. A mission to “build a carbon-neutral city” in a region would span transport, construction, digital, and more. By contrast, if the NWF is confined to pre-specified sectors, it might not support projects that fall between or outside those silos (for instance, an innovative agri-tech project for carbon sequestration might not clearly fit “clean energy” or “manufacturing” labels). Sectoral priorities should therefore be treated as dynamic and subordinate to higher-level missions.
The Government’s strategic steer to the NWF hints at an expanded mandate aligning with a forthcoming Industrial Strategy, including scope to invest in “dual-use” defense-related technologies, life sciences, and creative industries alongside the green sectors. While broadening to more sectors may capture additional opportunities, it underscores the need for an overarching mission logic to prevent dilution of purpose. IIPP advocates that the NWF’s investments be guided by clearly defined missions that correspond to public value outcomes – for example: “achieve a zero-carbon power sector by 2035,” or “close the UK’s productivity gap between regions within a decade,”. Sectoral investments would then serve these missions (Mazzucato, 2021). This approach provides directionality: it specifies why money is invested (the problem to solve), not just where (which sector). It can also inspire wider actor alignment (other agencies, private firms, academia) around shared goals.
We note that some of the NWF’s priority sectors themselves relate to missions – for instance, “clean energy” is essentially a mission area, and within it hydrogen or carbon capture are means to an end (net-zero industrial clusters). Rather than sector versus mission, the strategy should be structured as missions with portfolios of projects across sectors (Mazzucato & Penna, 2016; Mazzucato, 2021). The NWF should have the agility to shift resources to whatever sectoral solutions best achieve the mission target over time.
Finally, evaluation and accountability can be better aligned with missions (Mazzucato et al, 2024). Citizens and Parliament can more easily assess whether a mission is being achieved, versus parsing a collection of sectoral investments whose ultimate impact might be unclear. Mission-oriented indicators (like tons of CO₂ avoided, or regional income convergence) measure success in terms of real outcomes, which is appropriate for a public fund with broad public purpose objectives.
Recommendation: The Committee should encourage HM Treasury to frame the NWF’s remit in mission terms. The five priority sectors should be seen as initial focus areas under the umbrella of the UK’s Growth Mission and Clean Energy Mission. As the Industrial Strategy is updated, the NWF’s strategic plan should map how each mission will be pursued through a portfolio of investments across multiple sectors. We also recommend establishing a process to periodically review and adjust sectoral priorities in light of mission progress and technological change. This will ensure the NWF remains flexible and future-oriented, able to back the most promising solutions to society’s challenges rather than being locked into a static sector checklist.
A critical principle for the NWF – as with any public development finance institution – is additionality. The Fund should only invest where its involvement adds value that would not be provided by the private sector alone. The Treasury’s own statement underscores that the NWF’s £27.8 billion is to catalyse investment “that would not have otherwise taken place”. Ensuring additionality is essential for efficiency and for justifying the use of public funds.
To operationalize additionality, robust criteria and assessment processes are needed. We recommend that the NWF develop a clear additionality assessment (ex ante) and report on additionality outcomes (ex-post). Metrics might include leverage ratios (private/public finance), whether the project was stalled before NWF involvement, and qualitative testimonies from co-investors that the project was accelerated by NWF participation. The Fund should also have an explicit “do no harm” policy on crowding out – i.e. avoid projects where there is evidence that equivalent purely private financing was readily available. This could be enforced through requiring demonstration from project sponsors that attempts to secure all-private finance were insufficient, or through independent review.
One risk to guard against is political pressure to back low-risk or commercially attractive projects for quick wins (which private finance might have done anyway). That would undermine additionality. The NWF’s governance (discussed later) should insulate investment decisions from such pressures (Mazzucato & Penna, 2016). It is promising that the NWF’s mandate includes taking greater economic risk in service of the government’s missions. Indeed, international peers illustrate the importance of risk-tolerance: KfW, for example, provided countercyclical loans during downturns and pioneered finance in renewable energy when German commercial banks were reticent, thereby filling a void. Similarly, the UK’s new Infrastructure Bank (UKIB) – now subsumed into the NWF – was explicitly tasked with additionality, stating it would “not support projects that can be fully financed by the private sector” (UKIB, 2021). The NWF should carry this principle forward emphatically.
In addition, market crowding-in should be a long-term objective: the goal is not for the public sector to permanently finance everything in a given area, but to catalyze nascent markets until they become self-sustaining. Over time, as sectors mature (e.g. offshore wind in the UK is now largely private-financed after initial Green Investment Bank support), the NWF can shift to newer frontiers. This dynamic approach ensures continual additionality.
In sum, additionality is fundamental to the NWF’s success. We advise the Committee to seek assurances on how additionality will be measured and enforced. We suggest the NWF adopt formal Additionality Metrics and Impact Framework, publish criteria and independent evaluations (perhaps via the National Audit Office or an expert panel) to verify that its investments genuinely mobilise new, not substitute, private capital. Such transparency will build credibility and public trust that the NWF is catalyzing extra economic activity and not simply displacing private initiative.
The NWF’s investment structure and tools will determine not only how risks are shared with the private sector but also how rewards are shared with the public. A key point in this inquiry is the need for better use of equity investments, conditionalities on support, and mechanisms to socialize returns from successful projects. This speaks to a long-standing issue in public finance: too often the state socialises risks (through grants, guarantees, bailouts) while the rewards (profits, equity appreciation) are privatised (Mazzucato, 2013). The NWF offers an opportunity to change that model.
Use of equity: Unlike traditional government grant programs, the NWF can deploy a range of instruments – including loans, direct equity stakes, and convertible securities. Equity investment is particularly powerful for a public fund with mission objectives. By taking equity positions in companies or projects, the NWF can share in the upside when those investments succeed. This not only provides a potential financial return to taxpayers (recycling gains into new public investments or reducing the net fiscal cost), but also gives the public an ownership seat at the table. Many breakthrough technologies – from biotech to clean energy startups – carry high risks but also high potential returns; public venture investments can thus yield significant gains. For example, Norway’s state investment fund and Singapore’s Temasek have historically taken equity stakes in strategic industries, yielding dividends for the public purse over time (Mazzucato, 2021). The NWF should similarly consider equity stakes in high-growth potential firms (e.g. battery manufacturing ventures, innovative SMEs in green tech) rather than only offering debt. We note positively that the NWF’s mandate expansion includes greater “economic risk capital”, which implies more ability to invest in equity or higher-risk tiers of finance.
Conditionalities: When the NWF does provide finance – whether debt or equity – it should attach conditions that align with public interest outcomes. IIPP’s research emphasizes “conditions attached” finance as a tool to steer projects toward broader public value (Mazzucato and Rodrik, 2021). For instance, the NWF could require that a company receiving support for a new production facility meets certain labour standards (good jobs, training apprenticeships), or that it commits to climate targets (e.g. powered by 100% renewable energy by a set date). It could also stipulate that if a project supported by public funds greatly exceeds initial profitability expectations, some of that windfall is returned to the public sector (a form of reward sharing). Conditionalities ensure that the public investment is not a blank check – it comes with expectations of reciprocity.
Profit-sharing or equity warrants: if NWF provides a loan at a below-market rate to kickstart a project, it could include a clause that grants the NWF a small equity stake or dividend if the company later performs exceedingly well. This way, the taxpayer benefits from the upside that their early support helped create. Another mechanism is price or access conditions: for example, if NWF invests in a new green technology, it might require that the technology be made available affordably to domestic industry or that intellectual property developed with public money not be locked away. These approaches stem from the principle that public investments should yield public returns, whether monetary or social (Mazzucato, 2013).
Socializing rewards: The concept of a National Wealth Fund inherently suggests that the public should gain wealth from investments. As Rachel Reeves (as Shadow Chancellor) argued in proposing a similar fund, “when we invest in new industries, in partnership with business, the British people will own a share of that wealth.”. The current government’s NWF, by being housed within HM Treasury, means any profits or equity value ultimately accrue to the state (and thereby the public). However, it will be important to explicitly account for and utilize returns. We recommend that the NWF sets up a reinvestment mechanism: profits, interest, or dividends earned by the Fund should be re-used for further mission-driven projects or, if substantial, could contribute to a sovereign wealth-type reserve for future generations. This prevents short-term political diversion of gains and keeps the wealth circulating for public benefit. Over the long run, a successful NWF could improve public finances – if high-return equity investments pay off, they can reduce the need for tax revenues for investment. For example, historically, some public banks (like Korea’s development bank) returned profits to government, and sovereign funds like Temasek have delivered positive net returns to their treasuries (Mazzucato, 2021).
In implementing these approaches, the NWF should balance reward-sharing with not deterring private co-investors. The terms should be fair and proportional. For instance, the state shouldn’t expropriate excessive returns that would dissuade entrepreneurship; rather, it should secure a modest, negotiated share reflecting its catalytic role. This is analogous to how private venture capital funds demand equity for early risk-taking – the public fund should do no less. Legal agreements (shareholder agreements, loan clauses) must be carefully structured to enforce conditionalities and profit-sharing without adding undue complexity that slows deals.
Effective governance of the NWF is crucial to its success and integrity. The inquiry rightly asks about the NWF’s governance structure and its independence from HM Treasury. Based on IIPP’s analysis of public investment institutions, we argue that the NWF should be governed with a dual emphasis: operational independence to make sound, mission-driven investment decisions free from short-term political interference; and strategic accountability to elected officials and the public to ensure it serves public purposes (Mazzucato & Penna, 2016; Griffith-Jones & Ocampo, 2018).
The NWF inherits the institutional structure of the UK Infrastructure Bank (UKIB), which is a government-owned company with an independent board. Notably, the NWF is “wholly owned and backed by HM Treasury, but operationally independent”. Its headquarters in Leeds and company status signal an arm’s-length body rather than a ministerial unit. This is positive, as it allows recruitment of professional investment staff and credit decisions based on merit. To maintain this independence, the governance framework should include: a competent board of directors with a mix of financial, industrial, and public policy expertise; a clear mandate set in legislation (so that its objectives cannot be whimsically changed by any government without parliamentary approval); and protections against political direction in individual financing decisions. For example, the UKIB Act 2021 provided the bank with statutory objectives and operational independence similar to the Bank of England’s relationship with government. The planned legislation to broaden NWF’s mandate beyond infrastructure should likewise cement its governance principles.
At the same time, independence must be balanced with accountability and alignment to democratic goals. The NWF exists to implement the government’s strategic economic missions, so it is appropriate that the Chancellor issues a strategic steer (as happened in March 2025) setting out priority sectors and expectations. Once the steer is given, however, the execution (project selection, timing, partners) should be left to NWF management. We suggest a governance model where the Treasury (and Parliament) define the high-level missions and risk appetite, while the NWF’s Board and investment committee take the day-to-day decisions within that framework. Regular reporting to Parliament – e.g. an annual report scrutinised by this Committee – can ensure transparency.
As with public banks, the governance of SWFs varies widely, with many falling short on democratic accountability and public transparency (Cummine, 2013; Maire, Mazarei, and Truman, 2021). Despite being publicly owned, many SWFs operate behind closed doors, driven more by market logic than by public interest. Even the Norwegian Government Pension Fund Global (GPFG)—the largest SWF in the world and the global gold standard for transparency and accountability—still has room for improvement in enabling direct citizen participation (Cummine, 2013).
The National Wealth Fund can learn from both its immediate predecessor (the UK Infrastructure Bank) and from analogous institutions globally. This section highlights key lessons and best practices from UKIB, KfW, BNDES, and other public investment banks that are relevant to the NWF’s success.
UK Infrastructure Bank (UKIB): Established in 2021 with £12 billion initial capital and £10 billion government guarantees, UKIB was tasked with similar objectives (climate and regional growth). One lesson from UKIB’s early operations is the importance of scale and patience. UKIB’s capital, while significant, was relatively modest compared to the UK’s investment needs; by transforming into the NWF with £27.8 billion, the UK has implicitly acknowledged the need for a larger commitment. UKIB also demonstrated that building a pipeline takes time – in its first year it made only a handful of investments as it staffed up and scoped opportunities. The NWF should therefore be patient in ramping up, avoiding pressure to spend hastily, and instead focus on developing robust pipelines (the statement that it will conduct more proactive outreach is encouraging). UKIB’s experience with local authority lending (it provided low-cost loans to councils for infrastructure) is another lesson: it filled a gap left by the closure of the Public Works Loan Board’s attractive rates, proving that there is demand for public financing at municipal level. The NWF can continue this role, ensuring local governments can invest in net-zero and growth projects, which also helps pipeline development and regional impact. A cautionary lesson from UKIB (and previously the Green Investment Bank) is to avoid premature privatization or dilution of mission. The Green Investment Bank (GIB) was sold off in 2017 after proving its concept, which arguably led to a refocusing purely on profit and less on public objectives. The UKIB was consciously designed to remain publicly owned. The NWF should similarly be maintained as a long-term public institution, not a vehicle for quick privatization. This is important for retaining its public purpose ethos and ability to invest with longer horizons and lower return requirements than private investors.
KfW is often cited as a gold standard, being one of the world’s largest public development banks (Mazzucato and Macfarlane, 2023). Key practices from KfW that the NWF could adopt include:
During the 2000s, BNDES was instrumental in Brazil’s industrial and infrastructure expansion, at one point disbursing more annually than the World Bank (Mazzucato and Macfarlane, 2023). Lessons from BNDES include:
Other examples:
The overarching lesson is that the NWF should be ambitious in scale and scope (learning from KfW’s scale), clear in mission and additionality (learning from UKIB’s and GIB’s experiences), and accountable and innovative (learning from both the successes and mistakes of institutions like BNDES). We recommend the NWF set up a formal International Advisory Panel drawing experts from peer institutions and academia (e.g. a representative from KfW or EIB) to periodically advise on strategy and innovation. By standing on the shoulders of these giants, the NWF can accelerate its learning curve and impact.
While HMT is the shareholder, day-to-day independence is key for investor confidence. One practical recommendation is that the NWF be empowered to raise its own finance (through issuing bonds or borrowing) within limits, rather than relying solely on Treasury disbursements. KfW, for instance, raises money on capital markets with an explicit federal guarantee, yet it is off the government’s budget. If NWF could similarly leverage its capital base by borrowing (subject to debt caps), it would enhance its financial autonomy and firepower. This would require careful accounting (discussed in the next section) but could free NWF from the uncertainties of annual budget cycles.
Finally, accountability mechanisms should include external evaluation. We recommend that an independent evaluation panel review NWF’s performance against objectives every 2-3 years, reporting to Parliament. This panel could include academic experts (for example, experts in development finance and mission-oriented policy, potentially from institutions like IIPP), and its reports would help adjust strategy and maintain accountability to the public interest.
The NWF’s governance should enshrine: a clear mission-oriented mandate in law; a professional board and management given operational independence; regular parliamentary oversight (via reports to this Committee or a dedicated liaison committee); and strong transparency in operations. With these in place, the NWF can be insulated from short-termism while remaining fully aligned with the UK’s long-term policy goals.
The final issue we address is the potential impact of Public Sector Net Financial Liabilities (PSNFL) accounting changes on the NWF and its investment strategy. Government accounting rules and fiscal frameworks can significantly influence how public investments are undertaken. Historically, the UK’s fiscal metrics (like Public Sector Net Debt and Net Borrowing) have sometimes discouraged long-term public investment because they treat such investment similarly to current spending. The inquiry’s mention of PSNFL suggests a consideration of how to account for NWF’s operations in the public balance sheet, and whether changes in this area could enable a more effective investment strategy.
Understanding PSNFL: Public Sector Net Financial Liabilities is a measure that accounts for the public sector’s financial assets and liabilities. If the government injects capital into the NWF (for example, buying equity in the Fund or providing it with cash), this increases gross debt but also increases financial assets (the government’s ownership of NWF equity). In principle, if the NWF’s investments are expected to yield a financial return, that outlay could be seen not as pure expenditure but as a financial transaction exchanging one asset (cash) for another (an equity stake or loan receivable). The Office for National Statistics (ONS) has rules to determine if such spending affects the deficit measures. For instance, loans that are expected to be repaid do not count as expenditure in the deficit; equity infusions can be treated similarly if there is an expectation of reasonable return. Only the expected loss component might count as a cost.
If upcoming PSNFL accounting changes provide a more nuanced treatment of public investments, it could free the NWF to operate with less short-term pressure. For example, if the Treasury adopts an approach that focuses on public sector net worth (assets minus liabilities) rather than just gross debt, then productive investments by NWF that create assets of equal value would not deteriorate the public net worth and thus might be seen as fiscally neutral. This aligns with recommendations by fiscal experts to distinguish borrowing for investment from borrowing for consumption.
Implications for NWF strategy: Should the accounting rules be adjusted to be more favorable, the NWF might be allowed to take on more risk or invest more aggressively without triggering fiscal tightening elsewhere. If, for instance, capital spending on NWF is excluded from some fiscal targets (similar to how some countries exclude certain strategic investments from deficit rules), the Fund could deploy its £27.8 bn capitalization faster or even seek additional capital in future budgets. It’s noteworthy that the NWF is positioned as an off-budget company (like UKIB) – while its capital comes from the Treasury, its operations might not count fully towards day-to-day spending. However, without clarity, Treasury officials might still constrain NWF’s activities to meet overall debt targets.
We would urge that any accounting changes be used to enable long-term investments but not to obscure risk. Transparency is key: if NWF’s investments carry fiscal risk, that should be reported and monitored, even if they are kept separate from short-term deficit calculations. One positive reform could be to incorporate an “expected return” on NWF investments into budgeting. For example, if NWF invests £1 billion in equity with an expected 5% return, the upfront outlay might increase debt but also create an asset; the expected return could be noted as reducing PSNFL over time. Such an approach would encourage viewing NWF outlays as investments with future payback, not pure expenditure.
Another aspect is off-balance sheet borrowing by NWF. As mentioned, NWF could potentially raise debt on its own books, guaranteed by HMT. If structured correctly, this might not immediately reflect in PSND (Public Sector Net Debt) – though it would in PSNFL if the guarantee is called. Countries like Germany and China use public banks to borrow for development tasks, keeping liabilities at arm’s length. The UK must carefully consider the trade-off: off-balance sheet financing can enable more investment now, but can hide liabilities. It is crucial that Parliament is informed of any such borrowing and that it remains within prudent limits.
PSNFL changes and risk-taking: If accounting rules become more accommodating, the NWF might increase investments in areas with long-term payoffs (like early-stage innovation) that typically are cut when short-term deficit control is paramount. We welcome potential reforms that treat capital investments differently from current spending, as this would align fiscal accounting with economic reality – borrowing to invest in productive assets is not the same as borrowing to pay salaries. The Committee could support moves to adopt a Golden Rule (borrow only to invest over the cycle) or similar that would implicitly favor NWF-type expenditures. The recent discussion of removing obstacles to pension funds investing in growth assets also ties in: if domestic institutional capital is unleashed, NWF can partner more with them, requiring less direct state spending.
However, a warning: accounting flexibility should not lead to excessive risk or lack of accountability. The failures of some PFI (Private Finance Initiative) schemes in the past showed that keeping things off the main balance sheet can result in poor value deals. The NWF should not become a dumping ground for projects that are too risky to be transparently funded. Strong governance and NAO oversight, as discussed, can mitigate this.
In practice, one concrete implication of PSNFL changes might be that NWF’s equity investments are seen as capitalizable assets rather than expenditures. This could allow, say, the £5.8 billion earmarked for certain sectors to be deployed without hitting current deficit numbers, making it politically easier to invest full allocations. If additional capital (the reserved £1.5 billion mentioned or more in future) is needed, Treasury could justify it by highlighting the asset creation. We would support the government providing additional capitalization to NWF as needed to meet its mission targets, especially if accounting evolves to recognize the long-term value creation.
Sensible PSNFL accounting adjustments can facilitate the NWF’s mission by removing artificial constraints. We recommend that the Committee encourage HMT and ONS to clearly define the fiscal treatment of NWF operations, ensuring it reflects economic substance (investment in assets) and not unduly penalize long-term investments. Simultaneously, the NWF should maintain high standards of disclosure about its financial position so that any impact on public finances is understood. With transparency and prudent limits, the accounting framework can be an ally, not an impediment, in using public investment to drive prosperity and innovation.
As currently conceived, the NWF shows promising intent but lacks full alignment with a mission-oriented investment strategy capable of mobilising public and private capital at scale, shaping markets, and driving systemic innovation toward national goals. To fulfil its potential, the NWF must go beyond narrow sectoral targeting or passive co-investment and instead embody a new model of public finance—one that is mission-led, proactive, risk-taking, and reward-sharing. Drawing on international best practice and IIPP’s research, we make the following cross-cutting recommendations:
We thank the Committee for its consideration and would be pleased to provide further detail or clarification on any of these points.
April 2025