There is a joke about economists that none would ever pick up a £10 note on the pavement, because it clearly does not exist. If it did, someone would already have picked it up. Or in other words, if an investment is worth making, it will already have been made.
If you believe this, you may also consider the role of a publicly financed investment bank to be limited. In identifying what is wrong with the assertion that all worthwhile investments will already have been made, it’s possible to see the role the NWF can have in delivering and leveraging new investment.
Before we consider impact – both its breadth and the time it takes to come to fruition – it’s first important to be clear on the role of the NWF. There are three key areas I want to draw out where the UK will rely on the Fund to mobilise private investment, and in the long run, to create jobs and drive growth.
First, let’s look at scale and scope, using land remediation as an example. Once land has been remediated, investors can take on construction and operational risk. However, the time frames and amount of capital required can prevent a private investor taking on early works, without a secure revenue to create a payback. Here, the NWF comes into its own – filling the gap and taking the risk to crowd in private investors.
Secondly, let’s consider the extent of externalities. This is jargon for parts of a project that have knock on effects that can’t be captured in the business case. Zero carbon buses, for example, reduce pollution but are more expensive than diesel ones. Here, a public fund can offer lower rates of interest to make investment more attractive for the private sector.
And finally, business models, particularly in nascent markets. Proving the case for a new technology or new demand availability is highly risky. Hydrogen production and distribution is a good example, where matching the ability to produce it and the demand for using it, is in its infancy. Once the market is established, this may well prove effective and investible, but the process of getting there needs support through public finance expertise.
Identifying gaps in private provision, which the NWF has proven it can do when you look at its scope and variety of investment to date, is of course not the same as making sure the money is well spent in practice. So when should we expect to see impact and how should we view success?
Given the time frames over which infrastructure investments come to fruition, it will take years before we can really judge the full impact. Moreover, hindsight is not a good way to judge a decision taken in uncertainty. It’s important to accept the reality that some of the investments made by the Fund will fail – if none do that suggests not that we are geniuses, but that we failed to take enough risks and support enough new ventures.
Pace of investment is topical given the urgent need for growth and to support the UK’s transition to net zero – but is this truly a good measure of success?
Taking time to make the right investments is important, as is the need not to waste the capital provided. That needs to be balanced against the desire to move fast, and the realism that infrastructure is not a sector where we see instant results.
Economic performance is crucial but is not the only measure of impact. Leveraging private sector investment and adding to performance is also part of the story, and there are less tangible impacts that we should include in our evaluation, such as facilitating progress to net zero, regional performance, and wider environmental and social concerns. Infrastructure may in some cases be a supporting rather than a standalone impact but can also be crucial to facilitating wider support. The NWF’s impact measures focus on the qualitative as much as the quantitative – what is directly measurable may be the least important!
Ultimately, the NWF’s investments will add to the UK’s economic performance if they make possible productive assets which would not otherwise exist. It will never be possible to know in advance with certainty that this will be the case – if an investment is certain, it is like the non-existent £10 note and of course the investment will already have been done.
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