UK's new lenders invest less than EIB

UK's new lenders invest less than EIB

The government created new public sector lenders, created since Brexit, are investing two-thirds less than the UK was receiving from the EU's European Investment Bank.

Over more than four decades, EIB supported UK projects ranging from the canal tunnel and Manchester Metrolink to offshore windfarms and upgrading the National Grid.

The thinktank UK in a changing Europe has compared the EIB's record with the work of new Treasury-backed institutions such as the UK Infrastructure Bank.

Between 2009 and 2016 the EIB invested an average of £5.3bn in the UK, peaking at £5.3bn in 2016 - the year of the Brexit referendum.

By contrast, the successor institutions created by the government, including the Leeds-based UK Infrastructure Bank, invested in 2022 - a third as much as the EIB was spending six years earlier.

Until the end of the decade, s domestic development banks will be able to fill the hole left by the EIB. They lack personnel and expertise, which is disadvantageous for them from scaling up operations quickly, said Stephen Hunsaker, who co-authored the report with Peter Jurkovic.

The new institutions, including the Scottish National Investment Bank, the Development Bank of Wales and the British Business Bank, appear to be less focused on infrastructure projects than the EIB.

Between them, they invested just 17% more in infrastructure projects in 2022 than the EIB did before it began winding down its links with the UK. The British Business Bank has never had a remit to invest in or lend to UK infrastructure projects and is dedicated to improving access to finance for small businesses.

failure to invest in British industry has left growth on the floor and our public services collapse, with working people paying the price, Labour shadow minister Tulip Siddiq said.

UKIB's chief executive, former HSBC boss John Flint, has suggested it will accelerate investment in the coming years, particularly in projects connected to the government's net zero ambitions.

But the UK in a Changing Europe report argues that the UKIB's growth will be constrained by tight Treasury limits on lending, imposed to protect taxpayers' money.

The EIB is a public sector lender that seeks to leverage the government's lower borrowing costs and longer time horizons to support projects that private investors consider too risky.

By ensuring that a project will go ahead, they can then 'crowd in' private funding.

Hunsaker contends that the more modest scale of the new institutions means they have so far backed fewer, smaller and lower-risk projects. The UKIB's latest high-profile investment was the UKIB's £24m investment in a cornish lithium mine.

The analysis shows that EIB projects were not evenly spread across the UK. Between 2010 and 2019, the bank invested an average of £858 per capita in Scotland and £773 a head in London, compared to £180 in Yorkshire and the Humber.

Rishi Sunak, who launched the UKIB two years ago, said it would play a crucial role in the government's improvement of the government's strategy. There is little evidence of that happening so far, with most UKIB projects either nation-wide, or covering multiple regions, the thinktank suggests.

The study finds that the only sector where domestically backed banks have matched EU institutions is in lending to small and medium-sized businesses.

Vince Cable, then the business secretary, has launched the British Business Bank, which surpassed 1bn in lending last year, exceeding the maximum lent by the EIB's small business arm, the European Investment Fund.

The UK Infrastructure Bank has a £22bn financial capacity, and is specifically designed to address net zero and levelling up, providing more targeted support than the EIB and is better aligned with the government's objectives, a Treasury spokeswoman said.