Will the National Wealth Fund make a profit?

The National Wealth Fund has taken over the U.K. Infrastructure Bank, set up by the previous government. The new government is adding Ā£5.8 bn in current plans to the Ā£22 bn of inherited investment potential in the Infrastructure Bank and widening its remit and powers a bit. The Infrastructure Ā Bank lost Ā£22 m in its last reported year, 2022-23.

The idea is to finance projects and ideas the private sector is nervous about, and to crowd in private finance to projects by putting up some of the capital or offering guarantees. Taxpayers should expect returns from these investments at a minimum to cover the taxpayer costs of borrowing all the money to put up the capital. Let us call that 4.5%. It would also be good to provide for capital repayment at say 3% a year. A private investor would clearly Ā expect Ā a risk or equity addition to the return, say at least 5%. That takes the total to 12.5%.

It seems unlikely the National Wealth Fund will aim for this. They may well be satisfied with a low single figure return, and may at least in early years run with more losses. They need to guard against being seen as the Ā last resort for high risk projects the private sector thinks will go under or as a first resort for a potential private sector consortium that sees the Fund as capable of absorbing risk through guarantees or high risk debt tranches which gives the private investors a less risky ride.

The state borrowing at 4.5% to invest in projects should ensure that the overall portfolio can avoid losses and pay for the borrowings.

5 Comments

  1. Peter
    November 2, 2024

    ā€˜ Will the National Wealth Fund make a profit?ā€™

    No. If the private sector is ā€˜nervousā€™ about the projects the fund finances they are probably risky.

    The sort of people the fund will employ will not be capable of dealing with such risk (the usual assortment of overpaid cronies). Itā€™s not their money anyway.

    So it will inevitably be susceptible to hare-brained schemes from chancers who make money pulling the wool over peopleā€™s eyes – harnessing energy from the power of tides etc, etc.

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  2. Lifelogic
    November 2, 2024

    Someone (or a smaller businesses) borrowing for business or property development from a bank is likely to pay something like 9%, 4% over base plus in and out fees of perhaps 2% and legal costs. So they need profits well in excess of this circa 10% level to cover them. If you rent out property you do not even get proper tax relief so you need far more than that.

    The logic of having IHT for some but not for others like government or our King of Deluded Climate Hypocrisy is that after a few generation everything will end up in the hands of the ones who pay no IHT people. At 20% or 40% this does not even take that long.

    Income tax, NI employer and employee are all taxes on transfer of money from a business to an employee. Spit into three levels to disguise how high the taxes are. On top of this we have enforced workplace pension deductions too. They can easily take about 60% of your income if on higher rate taxes, then they take council tax and commuting to work costs off you and when you spend it another 1/6 is VAT if on petrol 60% is tax. They are only split into three so it looks less bad and to push up tax complexity another tax in itself you have to pay for payroll services on top.

    Reeves promised not to increase NI but has done so. For one of my businesses the wage bill increase with the minimum wage increases and maintaining differentials plus the NI changes mean it would have to increase prices by about 8% to balance the books (will customer pay this?) plus my component suppliers and delivery people will be in a similar position. So if they do that my position will be even worse still. This budget will not work it will destroy the tax base and collect less tax over a few years in the end.

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    1. Lifelogic
      November 2, 2024

      It will also push up inflation and interest rates, make many leave the country or not bother to work so hard, or to go black market with bartering, cash in hand and living off benefits. The first female Chancellor and perhaps the worst and the most dishonest budget ever – even given the stiff competition. This budget and net zero are an appalling combination – total insanity.

      So Leonardo DiCaprio Endorses Kamala Harris and Bashes Trump for Ignoring Climate Change: ā€˜He Continues to Deny the Scienceā€™ asked about his recent flight he say he flew commercial – so that is OK then. First class causes up to three times as much CO2 per head so did he even fly economy? Or like Emma Thompsonā€™s hypocrisy was it first class?

      Actress Dame Emma Thompson has been defending her decision to fly from the US to attend a climate change protest in central London. Well dear try economy for a change that saves at least half the fuel per head and you are not that big so would fit in quite easily. Or go first class and shut up perhaps?

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  3. agricola
    November 2, 2024

    I very much doubt it. It will be down to the financial judgement of those running it and givernment pressure, neither of which bode well.

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  4. Ian wragg
    November 2, 2024

    If the private sector is nervous of such projects then we can be sure they will turn out to be white elephants.
    No one in government has ever tun a business so what makes them think they will be successful. Of course itsnot their money they’re risking so they won’t care.
    What’s the betting it’s spent on carbon capture or similar vanity projects which will do nothing to help the planet, just virtue signalling from the government.
    I see Packham is suingthe government for not bankrupting us quickj enough. A thoroughly unpleasant character no doubt part funded by the Brussels Broadcasting Company.

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