Labor’s Plan to Clean Up the Conservatives’ Mess: The National Wealth Fund

British Prime Minister Keir Starmer and Rachel Reeves, the Chancellor of the Exchequer, visit the Manufacturing Technology Centre in the city of Coventry. Photo courtesy of Keir Starmer.  

Labor Party’s landslide win in the 2024 elections ushered in a new era of British politics and myriad new policies designed to fix the ailing economy. Faced with weak GDP growth and a lack of productivity, Labor’s primary mission is to grow the economy. Although economists are hesitant about Labor’s economic policies given that the party has no grand theory of economics driving its growth plan, the general public remains optimistic about Labor’s choice to focus on pragmatism rather than ideology. Instead of sweeping reforms, Labor aims to fix the economy through targeted measures like the National Wealth Fund (NWF). Proposed by Chancellor Rachel Reeves, the NWF is designed to spur investment in key industries like climate technology and infrastructure. This policy has the potential to generate private capital and drive sustainable growth, but its success will depend on how effectively lawmakers can navigate the challenges of implementation and gain the trust of investors. If Labor can balance its pragmatic approach with necessary and bold action, the National Wealth Fund could become a cornerstone of the UK’s economic recovery and long-term stability.

A sovereign wealth fund, or in this case, a national wealth fund, is a state-owned investment fund that invests in assets. The NWF’s purpose is to align the UK Infrastructure Bank and the British Business Bank, both of which are government-run institutions, so they can invest in new industries, such as green steel, green hydrogen, industrial decarbonization, gigafactories, and ports—all of which make up half of the UK’s carbon emissions. The NWF will mobilize billions of pounds in additional funding, starting with £7.3 billion through the UK Infrastructure Bank, to immediately invest in emerging sectors such as clean energy. Energy Security and Net Zero Secretary Ed Miliband believes the NWF could be the key Britain needs to become a clean energy superpower. However, British economists have expressed doubts that the NWF can fulfill Labor’s ambitions because of rising inflation and higher interest rates eroding the fiscal space available for new investments. 

These concerns are valid, given the economic damage caused by Brexit. Between June 2016 and December 2022, the British pound fell 19% to the US Dollar, making imports more expensive and worsening inflation.  However, the NWF has the potential to patch up a portion of the mess left by the Brexit trade deal. Correspondingly, the cost-of-living crisis has only swelled in the years since Brexit. Due to budget constraints, the previous Conservative government led by Rishi Sunak had increased taxes and announced several spending cuts. 

The NWF can address the Brexit-induced budget deficit by transforming the UK into the biggest green industrial market in the EU through investments. The Institute for Public Policy Research (IPPR) warned last year that the UK is failing to capitalize on economic opportunities from the global move toward a net-zero carbon future. The green sector contributes 5.8% of the EU’s GDP, compared to 3.9% of the UK’s GDP.  This discrepancy is due to the absence of a clear green industrial strategy. The NWF provides a framework to achieve the UK’s net-zero plan by 2050, which includes specific measures such as large-scale investments in renewable energy infrastructure, support for green innovation, and subsidies to accelerate the transition of key industries to sustainable practices. By capitalizing on the green industrial strategy, the UK can become a green energy giant, thus attracting foreign investors and increasing the revenue of the country. 

In addition to driving economic growth and investment, the green energy market also opens a plethora of job opportunities. Job growth in the UK has stagnated. Between 2023 and 2024, job vacancies fell by 18.7%, with many industries like hospitality and manufacturing facing a decline in employment opportunities. The green energy sector, however, presents a unique opportunity to reverse this trend. The NWF is estimated to create 650,000 jobs in sectors such as engineering, electricals, and plumbing. Moreover, many of these jobs offer competitive wages and long-term career stability due to the NWF’s income protection policy which protects 33% of annual salary after six months of service, as well as life insurance that is twice the amount of the employee’s annual salary. By fostering job growth in the renewable energy sector, the government can lift more people into well-paying roles, reduce financial strain, and support economic recovery.

Beyond its role in generating green jobs, the NWF can catalyze private capital in renewable energy and sustainability projects by providing initial funding to emerging initiatives and reducing investment risks for private investors. This approach to de-risking investments creates a multiplier effect where initial public funding attracts significantly larger private sector contributions—such as a $1 million public investment leveraging $5 million or more in private funding—thereby mobilizing private investment and amplifying the overall impact of public funds. The challenge lies in providing private investors with enough confidence to invest. Some investors have said the NWF bears striking resemblance to the UK Infrastructure Bank, which has been rendered inefficient by many investors. For instance, Naureen Zahid, director at the early-stage venture capital investor OpenOcean, sees similarities in the structure and function of the UKIB and the NWF. She further highlighted issues with the UKIB, such as operational delays and unclear strategies, which have eroded confidence in its ability to mobilize private capital effectively. 

One of the biggest challenges that lies ahead is that Labor must prove that the NWF is not merely a repackaged deal of existing structures. To this end, the government has provided clear guidelines differentiating this new venture from previous ones. These include focusing on catalytic capital to support clean energy and industrial growth, using financial tools like performance guarantees to de-risk projects, and prioritizing project-level crowding to mobilize private investment. While these are positive steps, the government’s approach must go further by developing clear plans for regional investment ecosystems across the country. Tailored strategies that address the unique needs of each region will be crucial for driving sustainable growth and ensuring that investments are aligned with local priorities. By offering diverse investment opportunities without prescribing asset allocation, the government can encourage investment through incentives and not mandates. While these measures are promising, ensuring the NWF’s effectiveness requires more than just financial innovation—it demands robust governance to align private investments with public interests.

This is where conditionalities come in. Conditionalities are requirements attached to funding or agreements to ensure they align with policy goals and serve the public’s interests. These requirements can look like business mandates to adopt sustainable practices or directing companies to invest in innovation. Economists caution that without proper conditionalities there is a risk of “parasitic relationships or capture,” where businesses receive handouts and subsidies primarily due to lobbying efforts. A lack of safeguards could lead to excessive costs, poor value for money, and corporate profiteering, similar to past Private Finance Initiatives (PFI) scandals. 

For the NWF to be effective, the state must promote public interests by prioritizing social and environmental goals, such as creating jobs. It should also oversee private firms as needed without losing their independence, while remaining adequately involved in decisions related to investment, production, and technological innovation.This ensures that public resources are used to drive innovation and growth that benefits society as a whole. 

By maintaining a balance between providing support and enforcing accountability, the NWF can avoid the pitfalls of previous initiatives and ensure that investments contribute to long-term economic stability and the achievement of national goals like decarbonization and technological advancement. This balance is crucial for both fostering sustainable growth and safeguarding public resources from private exploitation. If the NWF succeeds in this mission, it could become a cornerstone of the UK’s economic recovery, driving innovation and positioning the country as a leader in the global green economy.

Tara Tulshyan (CC ’27) is a staff writer at CPR studying economics and political science.