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September 13, 2018

Post-Brexit UK investment bank would require up to £10bn

A UK investment bank run by the UK government after Brexit to replace the shortfall left if the European Investment Bank funding is withdrawn after 29 March 2019 could cost up to £10bn to capitalise.

By Christopher Marchant

A UK investment bank run by the UK government after Brexit to replace the shortfall left if the European Investment Bank funding is withdrawn after 29 March 2019 could cost up to £10bn to capitalise.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 to the European Investment Bank following Brexit.

Responding to a question on capital from Conservative peer Lucy Neville-Rolfe, James Richardson, chief economist at the NIC, said: “It would depend on the flow of new technologies required. Broadly speaking you’re looking at a balance sheet in single figure billions.”

The committee questioned Phil Graham, chief executive of the NIC, and James Richardson, chief economist at the NIC, neither of whom 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 involves lending to countries economically quite a lot like 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.”

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 (UKIB).

Richardson gave a planned timeframe of 2021 for the establishment of the UKIB, 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 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 the 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. The government does worry about the sheer scale of the public sector debt for broader macro-economic reasons, and anything that scores in it is going to raise some issues.”

In April the European Investment Bank supplied Grenke with a long-term, low-interest credit facility for up to €100m.

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