The UK government is mulling the formation of a UK investment bank to replace the EIB in the event of a ‘no-deal’ Brexit. The details were revealed at a recent parliamentary hearing, writes Christopher Marchant
A UK investment bank to replace the shortfall left if European Investment Bank (EIB) funding is withdrawn after Brexit could cost up to £10bn to capitalise. Representatives from the National Infrastructure Commission (NIC) gave evidence to the House of Lords EU Financial Affairs sub-committee over the UK’s moves to offer replacement services or retain access to the EIB following Brexit.
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The EIB is the EU’s long-term lending institution, owned by its member states. It manages long-term finance, with the investment intended to contribute towards EU policy goals.
The UK’s departure from the EU directly impacts the level of contributions to the EIB, in return impacting how much is invested in the UK. James Richardson, chief economist at the NIC, said: “Retaining access to the EIB should be a priority, but should that not be able to be achieved, it’s time to start thinking about a Plan B, to look at a role for a UK institution filling in the gap.”
LARGER-SCALE PROJECTS
The NIC has argued for an entirely independent UK investment bank, as opposed to an expansion of the British Business Bank, as it feels that that institution’s remit is too focused on SME finance to be relevant to the larger-scale infrastructure projects that the new UK investment would focus on.
Specific infrastructure projects that required future funding, and could be of a scale to be implemented by a UK investment bank, included incentivising competition to deliver a full fibre internet network for the UK, and increasing the amount of electric vehicle charging points nationwide.
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By GlobalDataResponding to a question on capital from Conservative peer Lucy Neville-Rolfe, Richardson said: “It would depend on the flow of new technologies required. Broadly speaking, you’re looking at a balance sheet in single-figure billions.” Neither Richardson nor Phil Graham, chief executive of the NIC, ruled out future EIB investment in the UK, albeit on a smaller scale.
Richardson said: “We haven’t looked at this in detail, but there are mechanisms that the EIB currently uses that involve lending to countries economically quite similar to the UK outside the European Union.
“The challenge in this would be scale. The impact on the EIB’s balance sheet without the UK’s capital would be something that would have to be worked out.”
Examples given by Richardson of current non-EU countries receiving investment from the EIB were Norway and Switzerland.
TIMELINE
John Thomas, a peer who ruled in Gina Miller’s challenge to Brexit legislation, inquired about the timeline to create an independent UK investment bank.
Richardson gave a planned timeframe of 2021 for its establishment, in consideration of the time it took to establish the Green Investment Bank in 2012. Richardson and Graham stressed that private funding could replace EIB investment in infrastructure projects in the meantime.
Graham said: “The EIB is providing finance that could be provided perfectly well by the
financial market. It could be more expensive, but there are question marks about whether it’s the government’s responsibility to provide cheap finance in the first place.”
The committee’s chair, Liberal Democrat peer Kishwer Falkner, also inquired about an addition to the public debt the establishment of a UK investment bank could provide.
Richardson said: “It’s going to show up in the arithmetic, and compete with other uses of the government’s bank sheet.” Responding to questioning on interest payments,
Richardson said: “You would expect an institution of this sort to make a return on its capital to pay the interest; that would be a measure of whether it’s investing wisely – though the government does worry about the sheer scale of the public sector debt for broader macroeconomic reasons, and anything that scores in it is going to raise some issues.”
SCOTTISH PLANS
The Scottish government has announced plans for its own independent investment bank, and Graham explained how this could work with a UK body: “A Scottish national investment bank is much more focused on the British Business Bank-type element of its remit.
“If you read the consultation papers, there’s a lot of detail about how it would lend to SMEs and only a couple of paragraphs regarding how it could play a mission-focused role in lending to infrastructure, but very little detail about how.”
As an example of UK-Scottish interaction, Graham pointed out the German development bank KfW working in tandem with the EIB.
