LONDON—Earlier this month, UK Chancellor of the Exchequer John Healey pledged to “sharpen the focus” of the country’s public-finance institutions. Four more regions are to become strategic partners of the National Wealth Fund (NWF), and the British Business Bank will deploy an additional £150 million ($199 million) to help scale up firms in the north.
Healey is right to identify public finance as a key driver of good growth. Patient finance from public development institutions, such as Germany’s KfW and the Brazilian Development Bank (BNDES), is one of the most powerful levers governments have for directing growth and promoting industrial transformations—as opposed to simply responding to market trends after the fact. It is public institutions that often bear the risk before the private sector has the courage to enter a market. When patient finance is done well, with conditionalities attached to public financing, it can help shape a market to deliver inclusive, innovation-driven, and sustainable growth.
Since adopting its five national “missions” in 2024, the United Kingdom has given renewed attention to its public-finance institutions. The creation of new bodies like the NWF, Great British Energy, and the National Housing Bank is a promising first step. Nonetheless, each could benefit from becoming more outcomes-oriented. The NWF’s own battery supply-chain strategy is a good example of what is needed, because it targets a core challenge (supply-chain resilience) rather than a specific sector. But this approach should be the standard rather than the exception.
Another problem is that none of these bodies, individually or collectively, operates at the scale of a true state investment bank. They still lack the borrowing power and the permanence that have made KfW, the BNDES, and the European Investment Bank effective. The NWF can invest only up to £5.5 billion per year over the next five years. But public finance needs scale to support a broader economic transformation. Germany’s public investment bank lent €62 billion (£53.5 billion) to households, businesses, and municipalities in 2025 alone, and its business lending is conditional; for example, recipient firms must invest in greening their supply chains and supporting sustainable growth.
Systemic reform matters as much as strengthening any single institution. Devolving investment power to combined authorities, for example, requires that the center and the regions work as one system. But for that to happen, the government must reform the UK’s fiscal rules. Changing the benchmark from public-sector net debt to public-sector net financial liabilities (PSNFL) did create roughly £50 billion of additional headroom; but Healey should not stop there. Extending the forecast horizon over which fiscal targets are assessed, for example, would make it possible to judge a mission-oriented investment by what it builds over a decade, not by what it costs in a single spending review.
Yet even then, PSNFL would still be just a financial measure. It would not capture the productive value of a railway, a stronger grid, or a healthier, more skilled workforce. Building or owning a physical asset outright (be it a nationalized steelworks, energy generation facilities, or social housing) would still be reported as pure debt, with no credit for the asset itself.
To close this gap, the government needs to adopt a Public-Sector Net Worth (PSNW) metric that would count non-financial assets alongside financial ones. PSNW is the only accounting fix that would stop the government’s public-control agenda from being penalized by its own fiscal framework. (These issues are not unique to the UK. At the new Global Council for a Common Good Economy, my colleagues and I have been thinking about what a genuinely responsible fiscal framework looks like from a global perspective.)
Much to his credit, in the same speech announcing changes to the UK’s public-finance institutions, Healey emphasized that public control is broader than public ownership. He envisions local leaders and policymakers working together to shape markets in essentials like transportation, energy, and housing; to ensure accountability for the things that matter to people and businesses, from fair bills to investments that actually get funded; and to become capable of making quicker decisions and better regulations.
Public-finance bodies are well positioned to take on many of these tasks. An equity stake, a conditional loan, or a co-investment agreement can secure public control over an essential sector’s trajectory—influencing what gets built, on what terms, and for whose benefit—without the state having to own or manage assets outright. Done well, public finance can direct innovation toward serving the common good, such as by ensuring that contracts carry conditions to deliver public value, including a share of the rewards.
There is a clear precedent for this: NASA, a confident public-sector player that has engaged with hundreds of private companies, wrote “no excess profits” into its procurement contracts for the Apollo mission. Socializing both the risk and the reward in this way is central to inclusive growth.
The UK has laid more of the foundation for a coordinated, mission-oriented public-finance ecosystem in the past two years than it has in a generation. But for most of the last three decades, it has recorded the lowest level of total public investment in the G7, a gap equivalent to roughly £500 billion. And because UK subsidies and tax incentives often carry no conditions, its private-sector investment is also one of the lowest in the G7.
Closing such a large gap will not happen through incremental reforms. Britain does not just need more public finance. It needs public finance to be organized differently, with public institutions operating at the same scale as their international peers, independent enough to plan for the long term, and durable enough to outlast any government.
Copyright: Project Syndicate, 2026.
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