Labour’s UK Wealth Fund Ambitions at Mercy of Statisticians
(Bloomberg) -- Labour’s plans to drive rapid green investment into the UK through a National Wealth Fund rest in the hands of the country’s statisticians.
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When the fund is set up, the Office for National Statistics must make a critical accounting determination on whether it counts as national debt. If the ONS keeps the fund off the books, Labour will be able ramp up investment while sticking to its fiscal rules. If it’s on the books, those rules will prove a major constraint.
The ONS decision may affect the success off the whole program. Labour wants a “catalytic” fund that uses equity as well as financial products like first-loss debt, guarantees, and price assurances to draw private capital into projects like green steel, green hydrogen, industrial decarbonization and gigafactories.
The task force helping to design the NWF, led by Green Finance Institute Chief Executive Officer Rhian-Mari Thomas, said earlier this week that a “five-fold increase in investment is required by 2030 to achieve net zero, with sustained annual investment of £50 billion ($65 billion) a year” after that.
The panel estimates that as much as £56.9 billion of extra investment is needed by 2030 over and above existing announcements of public and private funding. The NWF will provide £7.3 billion but, even if it hits its goal of raising three times more from the private sector, it will fall £27.7 billion short.
The NWF task force acknowledged in its report that Labour’s fiscal rules may be an obstacle. “Further review of implications on fiscal rules (in particular Public Sector Net Debt) are required to ensure consistency with objectives,” it said.
Such a review “may wish to consider the exclusion of certain public development institutions from PSND calculus through necessary governance reforms, changing the treatment of assets, or at least reducing emphasis on PSND in the fiscal rules.”
Mark Carney, chair of Bloomberg Inc.’s board and a former Bank of England governor, also sits on the task force.
The ONS determination is likely to be months away yet. It said “several models” are being considered for how to treat the fund but Labour’s current plans assume it remains on balance sheet.
The precedents are the UK Investment Bank and the British Business Bank, both of which are treated as part of central government and so put on the books.
“The economic sector classification will not be determined until further details are available,” the ONS said in a statement. “The NWF is still being developed, with several models being considered. There will be nothing definite to consider until that point.”
The Treasury declined to comment but a person familiar with the plans said details will be set out in the budget later this year alongside wider tax and spending plans that are consistent with Labour’s fiscal rules.
Labour’s binding rule is that national debt must be falling as a share of GDP in the fifth year of the Office for Budget Responsibility’s forecast. Economists have warned that Chancellor of he Exchequer Rachel Reeves may face a £30 billion fiscal hole in her first budget under that measure.
A group of economists from the London School of Economics and Andy King, a former director of the OBR are considering alternatives. King said Reeves’ could either use a debt measure that excluded development banks or switch the rule to “public sector net financial liabilities.”
PSNFL would net financial assets off against the liabilities rather than use just one side of the balance sheet, as with PSND. Given that development banks have roughly the same amount of financial assets as liabilities, PSNFL would effectively remove them from the debt measure.
In the past, governments have played the ONS accounting rules in an attempt to keep debts off balance sheet. Doing so also runs the risk of the ONS bringing them on balance sheet, however, as happened with housing associations and student loans.
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