The chancellor’s pet PuFins have an important role – but they need more scrutiny

The chancellor’s pet PuFins have an important role – but they need more scrutiny Nils Pratley A regulator to keep the National Wealth Fund and the British Business Bank on mission is starting to look essential

T wo winners in the budget are known already. They are the National Wealth Fund and the British Business Bank, state-funded investment bodies that have rapidly become central to the government’s growth strategy.

The former chancellor Rachel Reeves handed extra slugs of capital to both and now John Healey is going further. The NWF will get another £15.4bn over the next half decade, on top of its existing £27.8bn, and there’ll be another £5bn for the BBB, which already has £30.6bn.

Expect a fanfare about “over 100,000 jobs across the country to be created” via the extra capital for these so-called PuFins. The term means public financial institutions. They invest in private sector assets, either directly or through third-party funds, with the aim of making a profit for the taxpayer – or, at least, earning a return that matches or beats the government’s cost of borrowing.

Cue, also, another round of debate about whether Healey is engaged in fancy financial footwork to get around the constraints of his fiscal rules. Reeves rewrote those rules in her first budget in 2024 to allow the value of financial assets – such the NWF and BBB’s loans and stakes in companies – to be netted off against the public debt.

To fans, the principle makes sense. As long as the PuFins’ assets maintain their value and cover the interest on the government’s extra borrowing (a critical condition), it’s a way to boost investment. More critical projects can be built sooner, and possibly more cheaply; more companies may prosper to the eventual benefit of the public purse.

Critics, such as the right-leaning Centre for Policy Studies in a report last week, see a “financial wheeze” that disguises the true level of government borrowing and stores up trouble, as the Blair-era private finance initiative did. The thinktank called for the wings of the PuFins to be clipped.

Healey, it is safe to assume, will ignore that advice. The PuFins fall squarely within his theory for growth – the idea of “crowding in” private investment and spreading money around the regions.

In Healey’s support, one can say state-backed co-investment vehicles are not new. Governments of all hues have used them. George Osborne even launched a Green Investment Bank. And the NWF, despite its misleading name (it’s not a Norway-style wealth fund), to some degree merely replaces infrastructure lending that might have been done by the European Investment Bank in pre-Brexit days. As for the BBB, its focus on “scale-up” capital for young, fast-growing companies is designed to address a gap that has been a source of grumbles for decades. Both institutions are useful.