The National Wealth Fund (NWF) and the British Business Bank (BBB), two government-backed investment bodies, are set to receive significant new capital allocations that will expand their roles in the UK’s economic growth strategy. Chancellor John Healey announced plans to provide the NWF with an additional £15.4 billion over the next five years, complementing its existing £27.8 billion portfolio. The BBB will also receive an extra £5 billion, building on its current £25.6 billion fund.
These institutions, known as public financial institutions (PuFins), invest in private sector assets to generate returns for taxpayers—ideally at or above the government’s borrowing costs. The government projects that the increased capital will contribute to the creation of more than 100,000 jobs nationwide. PuFins aim to boost investment by co-financing projects with private investors, accelerating infrastructure development and supporting innovative businesses.
The use of PuFins as a fiscal tool has sparked debate. Critics, including the Centre for Policy Studies, caution that expanding their role risks obscuring the true scale of government borrowing and could lead to financial complications reminiscent of past initiatives like the Blair-era private finance initiative. The think tank advocates for tighter restrictions on PuFins’ activities.
Supporters argue that such institutions are a longstanding part of public finance. The NWF, despite its name, functions differently from sovereign wealth funds abroad and has taken on a role similar to that previously filled by the European Investment Bank pre-Brexit. The BBB’s focus on providing growth capital to scale-up companies addresses a gap in private sector financing that has persisted for years and complements broader regional development efforts.
Concerns remain, however, about whether these bodies strictly adhere to the principle of "additionality"—the requirement that their investments add value beyond what private investors would do independently rather than displacing private capital. Questions have been raised about some investments, such as the BBB’s £25 million stake in Kraken Technologies—a highly valued spin-off from Octopus Energy—and the NWF’s financing to Scottish Power, a company owned by a well-capitalized parent firm. Critics argue these may not represent ideal targets for public investment.
Both the NWF and BBB highlight successful cases aligned with government priorities, such as the BBB’s £100 million follow-on investment in Oxford Quantum Circuits, a quantum computing company. They also report returns consistent with or approaching government borrowing costs. The BBB cites a 3.9% adjusted return over five years, while the NWF’s longer-term targets have yet to be realized. Both institutions emphasize co-investment with private investors as a mechanism to ensure financial discipline.
Evaluating "additionality" remains challenging, acknowledged even by the NWF in its impact framework, which notes the assessment involves judgment rather than precise measurement. With growing Treasury allocations, there is concern that the definition of additionality could become overstretched. Currently, PuFins are accountable only to their sole shareholders—the Treasury for the NWF and the business secretary for the BBB.
The Institute for Fiscal Studies offers a cautious perspective, suggesting that opportunities for profitable investments aligned with government priorities may in practice be limited. The Resolution Foundation observes that despite recent increases, the NWF’s funding capacity has only marginally outpaced inflation.
As public financial institutions play an increasingly prominent role in the UK’s investment landscape, experts emphasize the need for enhanced scrutiny to ensure they focus on genuinely additional projects without crowding out private investment. Strengthening independent oversight may be key to maintaining their effectiveness and safeguarding public funds.