Government risks serving up a PuFin soup

In this blog, James Fotherby outlines how the government has bet big on Public Financial Institutions but requires further reform.

As it looks to navigate a tight fiscal environment, the government has decided to bet big on Public Financial Institutions (or PuFin for short) to help achieve its policy programme, from growth to clean energy and housebuilding. In their first year, Labour has expanded the mandates of PuFins, established new institutions, and increased their financial firepower to £137 billion. But, with six different national-level PuFins, and several devolved ones, the government risks creating a confusing and cumbersome public finance offering for investors and project developers alike.  

PuFins have become a critical tool for kickstarting economic growth 

PuFins may lack household-name status, but for decades they’ve stepped in where private finance falls short to deliver policy goals. During the pandemic, the British Business Bank (BBB) acted as a lifeline for SMEs badly affected by Covid-19; the former UK Green Investment Bank helped de-risk first-of-a-kind offshore wind projects in the mid-2010s; and, before Brexit, the European Investment Bank co-financed infrastructure projects like the Elizabeth Line and the Channel Tunnel. 

The game-changer for PuFins landed in the 2024 Autumn Budget, when the Chancellor adopted a broader yardstick for how government debt is measured: the Public Sector Net Financial Liabilities. Unlike previous measures, this accounts for both public liabilities and the value of public assets, such as loans or equity stakes. According to the New Economics Foundation, this switch has rendered the majority of PuFins investments “fiscally neutral”. In practical terms, it means these institutions can now deploy greater capital without eating into the Treasury’s headroom.  

The impact of this new fiscal rule has been striking. Since the Autumn Budget, the government has increased the financial capacity of PuFins by around 40% over this Parliament to £137 billion. UK Export Finance was one of the big winners, securing an additional £20 billion at the 2025 Spending Review to help British exporters mitigate the impact of new tariffs and economic uncertainty. 

The government isn’t just topping up existing institutions but establishing new ones. The National Wealth Fund (formerly the UK Infrastructure Bank), Great British Energy, and the National Housing Bank are all new players created to support the government’s broader policy objectives, including clean-growth, low-carbon power, and housebuilding.   

The public finance ecosystem is too complex and fragmented 

The addition of the National Wealth Fund (NWF), GB Energy, and the National Housing Bank to the UK public finance ecosystem, which also includes devolved level institutions like the Development Bank of Wales, the Scottish National Investment Bank, and Invest NI, has created further confusion for the private sector. For investors, it can be unclear which institution they should engage with for a specific investment opportunity.  

Recent developments, such as the launch of the Strategic Public Investment Forum, have helped to improve join-up by mapping out the different stages of commercial maturity the PuFins operate in, as well as their different financial products at their disposal. Yet, overlaps and blind spots still exist. Should an SME in the clean energy supply chain pitch to GB Energy, the NWF, the Crown Estate, or the BBB? How do UK-wide bodies dovetail with devolved counterparts? Where can growth-stage companies go if they fall between the largest ticket size of the BBB (£10 million) and the indicative minimum ticket size of the NWF (£25 million)? 

Urgent reform is needed to simplify the public investment landscape  

In betting big on PuFins, the government has boosted capital, expanded mandates, and enabled institutions to take on greater risk. For this gamble to pay off, the government must improve the coordination and alignment of the public finance ecosystem to ensure its all pulling in the same direction and delivering measurable benefits across the UK.  

Hot off the General Election, the government floated the idea of consolidating the UK Infrastructure Bank and the BBB under the single umbrella of the NWF. Whilst the government has cooled on this idea, opting instead to get PuFins up and running as quickly as possible, the outgoing CEO of the NWF has urged the Treasury “not to close that file”. More immediately, the government must more clearly articulate the roles, synergies and hand-offs between different organisations. Without this, the government risks serving up a ‘PuFin soup’ that confuses the very investors and project develops it seeks to back.