Norway’s sovereign wealth fund has long stood out as an economic marvel. Over the course of 35 years, the country’s chief investment vehicle has channelled surplus oil and gas revenues into an extensive portfolio, to date valued at a staggering £1.5 trillion. Not bad for a country with a population twelve times smaller than Britain’s.
Now, thanks to our new Government, Britain has a wealth fund too – at least on paper. Sadly, far from a decisive bid to imbue the British economy with renewed dynamism, Labour’s flagship National Wealth Fund (NWF) is little more than a rebrand of the UK Infrastructure Bank (UKIB), launched in 2021 to funnel investment into projects that would support an effective Net Zero transition.
The NWF’s strategic goals barely diverge from those of its precursor. The criteria for new investments lay out a familiar remit of ‘clean energy, advanced manufacturing, digital & technologies and transport’, adding only promises of fresh action on gigafactories and ports. This is all in line with the long-stated ambition to see Britain emerge as a global standard-bearer on Net Zero. All very well, yet it rings somewhat hollow when set against the spiralling costs of new energy infrastructure imposed by bureaucratic inertia and an ever-burgeoning repertoire of planning restrictions.
Anchored as it is to inward investment within a restricted set of domestic capital projects, the NWF’s strategy is wholly different from its Norwegian ‘counterpart’. Norway’s fund is banned from domestic investments, and its latest efforts at diversification involved a foray into Britain’s property markets, spurring a £570 million move to acquire a quarter of London’s historic Covent Garden Estate. The NWF, by design, is not built to craft a diversified portfolio, nor one that maximises returns.
Lacking a significant profit motive, the ventures the NWF backs sit in a blurry region somewhere between strategic investments and routine government spending. A £92m loan towards Denbighshire County Council’s coastal defences, though a laudable venture, is not obviously aimed at wealth creation.
Instead, public funds are committed to favoured projects in the expectation that this will act as a catalyst, de-risking these schemes and crowding in further waves of private capital. The NWF claims this will allow it to ‘mobilise £3 of private capital for every £1 invested’.
Quite apart from the difficulty of measuring and attributing any multiplier to the NWF’s investments, this approach has a more fundamental problem. A strategy premised on the expectation that businesses will follow the Government’s lead is naive at best. What if private investors fail to follow the NWF’s lead – a problem that has hobbled prior crowd-in schemes? This brings us back to the fund’s lack of focus on delivering returns. Without a strong financial incentive, what do the NWF’s designated industries offer to entice private investors, outside of a narrow tranche of ESG enthusiasts?
As the Labour Chair of the Treasury Committee Meg Hillier has warned, by ‘choosing the wrong sectors for investment,’ the NWF risks becoming ‘an extremely poor use of taxpayer money at a time when the public purse is incredibly stretched’.
Perhaps there was some recognition of this in October last year, when Rachel Reeves announced that the Government would reduce its cash injection into the NWF from an originally planned £7.3 billion to £5.8 billion. Unwilling to take risks in the service of outsize returns, the NWF remains far from the ‘crucial tool’ to growth promised before the election.
However, as the NWF stumbles on, Norway’s record shows the possibilities for sovereign investment done right. The Norwegian wealth fund’s year-on-year returns have supported long-term welfare commitments, a flat rate of income tax and a highly favourable budgetary position. Norway has emerged as one of few European nations to run successive budget surpluses, a rare benchmark: in 2023, it realised a surplus of 16.3% of GDP.
At the time of its establishment, Norway’s fund was novel and untried: a complete shot in the dark. Yet its success was not built on luck. Instead, multi-generational prosperity was guaranteed by the effective deployment of managerial capital, the pioneering conquest of diverse investment grade markets, and most importantly, self-imposed fiscal restraints, which ensure that the tap does not run dry.
As Britain wrestles with a fiscal position teetering on the brink, it is precisely such boldness and enduring discipline which our uncertain future demands.
The potential for channelling surplus North Sea oil revenues has now faded, yet the billions hypothecated into the NWF and its lacklustre bids at wealth creation demonstrates that Britain could seed its own sovereign investment vehicle if it chose.
Unfortunately, such a venture would take decades to bear fruit. Until Westminster kicks its addiction to short-termism and musters the grit to pursue a longer-term vision, it is hard to imagine a world where Britain even makes a start on following Norway’s lead.
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