Fund green energy schemes with bonds, urges think tank

The government’s national wealth fund should be empowered to issue bonds to fund investments worth £100 billion over the next decade in ways that would not add to the UK’s debt burden, a think tank has found.
The New Economics Foundation (NEF), a left-leaning think tank, has called on the chancellor to use the £7.3 billion national wealth fund (NWF) as one of the main vehicles to fund investment in clean energy as the government considers changes to its fiscal rules in this month’s budget.
Rachel Reeves is expected to announce plans to use the fund’s money at the government’s landmark investment summit today, after Labour said it aimed to generate £3 from the private sector for every £1 of state funding in the fund.
If the fund is given the power to issue its own investment bonds, mirroring state development banks such as the German KfW, it could raise up to 14 times as much money from private markets, totalling £100 billion over the next ten years, the NEF said.
Theo Harris, an economist at the NEF, said: “The government would be shooting itself in the foot not to follow Germany’s example and allow the NWF to raise private money by issuing bonds. This is a rare example of a policy no-brainer. The potential ratio of £14 of private investment for every £1 of public money blows the government’s three-to-one target out of the water.
“If the government is serious about revitalising British industry and investing in green infrastructure to create jobs and bring down energy bills, then this has to be reflected in the fiscal rules and the NWF’s ability to raise its own funds.”
Reeves is consulting Treasury officials on changing the debt measure targeted in the fiscal rules to one that accounts for the value of assets held by the state and not just the liabilities it owes. One measure being considered is targeting an increase in “public sector net wealth”, which would count investments made under the fund as part of the state’s assets. Bonds from the fund would be counted under the government’s overall debt.
Mark Carney, the former governor of the Bank of England and lead adviser on the NWF, has said he supports the shift to public sector net wealth as it would help to “make a success” of the wealth fund, which will initially prioritise investment in green hydrogen, cleaner steel production, ports and gigafactories.
“There will be other factors that will determine the effectiveness and impact of the national wealth fund but getting its design right will be irrelevant if the resources cannot be made available to build the nation’s balance sheet,” he wrote in The Times last week.