黑洞社区

You might be forgiven for assuming that the UK鈥檚 new national infrastructure bank, announced by the government this month, will be a much needed shot in the arm for infrastructure. Well, not quite. 

Despite what its name suggests, the new bank will be anything but a traditional source of funds for the usual suspects of motorways, railway lines and power stations when it comes to big infrastructure programmes. Instead, it is to be a standard-bearer for what chancellor Rishi Sunak has described as the quest to 鈥渂uild back better, fairer and greener鈥�. This is likely to mean things like new energy projects, carbon capture and storage facilities, and climate change mitigation such as flood defences. 

In his Budget speech, Sunak declared that the new bank 鈥� which will be based in Leeds (pictured) 鈥� will invest in 鈥減ublic and private projects to finance the green industrial revolution鈥�. His announcement of the bank was accompanied by the first real detail about what it will attempt to achieve. 

A Treasury document on the 鈥減olicy design鈥� of the bank reveals that its raison d鈥檈tre will be to 鈥渉elp tackle climate change, particularly meeting our net zero emissions target by 2050鈥� and 鈥渟upport regional and local economic growth鈥�.

It will act as a catalyst for investment in projects that would otherwise be deemed too risky by traditional lenders, with 拢12bn in equity and debt capital and the ability to issue 拢10bn of guarantees.

There will be a focus on infrastructure such as clean energy, transport, digital, water and waste, and the bank 鈥渨ill also play an important role in supporting and developing early-stage technologies鈥�. Its 鈥渋nitial focus will be on climate change mitigation and resilience鈥� and it will target 鈥済reener technologies鈥� for support.

The bank will also act as a broker of deals between local authorities and other parties on developing and financing projects, and aims to offer loans to local authorities, starting this summer, for 鈥渉igh value and strategic projects of at least 拢5m鈥�.

It鈥檚 got a remarkably wide remit for such a small amount of capital

Lord Newby

However, the document falls far short of giving any meaningful detail about how the bank will actually work in practice. It says that 鈥渋nvestment principles鈥� will be published 鈥渓ater in the spring鈥� and that 鈥渢he bank will develop its own metrics and decision-making framework for assessing projects鈥�.

The bank will start operating in 鈥渟pring 2021 in an interim form and then ramp up its activities over the coming months鈥�. But a date has yet to be set for the legislation needed to 鈥減lace the bank on a statutory footing, establishing its full powers and operational independence鈥�. 

And pressure is mounting on the government to translate its rhetoric into actual action, with a chair for the new bank not even appointed yet. When approached by 黑洞社区, the Treasury refused to elaborate on precisely when the bank will be launched. 

The document suggests that it could in fact take three years for the bank to become fully established. 鈥淭he government will review the bank鈥檚 progress and financial performance by spring 2024, to ensure it has sufficient capital to deliver its ambitions. At this point it is envisaged the bank will be established in statute, will have closed a number of investments and developed a strong pipeline of further projects.鈥�

Lacking ambition

Yet time is of the essence, with UK firms already having lost out on European Investment Bank (EIB) funding as a result of Brexit. In the five years leading up to the EU referendum in 2016, EIB lending averaged 拢5bn a year. And the new bank will not come close to filling that gap. 

The 拢22bn that the bank will have to play with may sound impressive. But it is spread over five years. Just 拢5bn is being provided in equity from the Treasury, with the bank able to borrow up to 拢7bn and use up to 拢10bn from the existing UK guarantee scheme.

Mark Gregory, chief economist at EY, commented: 鈥淎lthough a UK infrastructure bank is a welcome innovation, the resources available to it are relatively small.鈥� According to the Treasury鈥檚 own forecasts, released in the Budget, the bank鈥檚 total transactions over the next five years are expected to amount to 拢7.6bn, with around 拢745m in 2021/22. 

The bank 鈥渓acks anything like the ambition we need鈥�, according to shadow business secretary Ed Miliband MP. 鈥淔ar from transformative investment in infrastructure, the government鈥檚 new bank won鈥檛 even plug the hole left by the European Investment Bank,鈥� he has said.

The Green Alliance think tank warns that the funding committed by the government 鈥渇alls well short of the transformational funding needed鈥�. It states that there is no guarantee that the bank will not end up supporting projects that will increase, rather than reduce, emissions. 

鈥淚n theory money to support local development could go to incinerators, coal mines or airports, all of which would harm our progress to net zero,鈥� according to a briefing produced in response to the Budget. 

Lord Newby, leader of the Liberal Democrats in the House of Lords, is concerned that the bank may spread itself too thinly. 鈥淚t鈥檚 got a remarkably wide remit for such a small amount of capital. The worry is that there鈥檚 too much PR puff and not enough focus; how will the Treasury know that it鈥檚 achieved what it鈥檚 supposed to do when it鈥檚 got such a broad remit?鈥�

He adds: 鈥淭he proof of the pudding is going to be in the eating, isn鈥檛 it?鈥�

A lot of the time it isn鈥檛 access to cash that鈥檚 holding back development, it鈥檚 the risk profile

Hannah Vickers

And Richard Robinson, chief executive of Atkins for the UK and Europe, says: 鈥淭he bank鈥檚 aims 鈥� to help deliver net zero and support local and national economic growth 鈥� are ambitious and will need the funds and political will, both centrally and regionally, to deliver them.鈥�

In his view, 鈥渁 key test will be whether the bank is successful in crowding in private sector finance, which of course depends on how it鈥檚 structured, how it operates and how it鈥檚 going to lend.鈥�

Robinson adds: 鈥淕iven the government鈥檚 well鈥憄ublicised ambitions for an infrastructure revolution in the UK, the national infrastructure bank needs to be up and running quickly if

it is going to fund the  projects that will positively impact people鈥檚 lives during this parliament.鈥�

The concept of the new bank is generally supported across the sector. 鈥淚t looks like it鈥檚 heading in the right direction,鈥� says Alasdair Reisner, chief executive of the Civil Engineering Contractors Association. He thinks that 鈥渨ithin the next 12 months we鈥檒l start to see real-terms impact in terms of industry鈥�.

Commenting on the level of funding that the bank will have, he says: 鈥淚t鈥檚 not about how much the money is. It鈥檚 about: does this money unlock stuff that otherwise wouldn鈥檛 happen, in a way that鈥檚 sustainable? As long as it does that, the quantum is less relevant, because, to be blunt, if it was too big a number, would industry have the capacity to deliver all of the stuff that was being funded?鈥�

Sharing risk

Sir John Armitt, chair of the National Infrastructure Commission, who led the calls for the government to create the new bank, said: 鈥淭he opportunity here is to be able to attract in capital from the private sector, particularly on those projects where otherwise they would be reluctant to invest.鈥�

He sees the new bank as a mechanism for sharing risk between the government and the private sector and says: 鈥淚t is something to welcome in that it hopefully gives opportunity for more infrastructure investment from which inevitably engineers and construction companies will benefit.鈥�

In terms of the money available to the new bank, Armitt says: 鈥淚f the sector can demonstrate that there is the appetite and the opportunity and it鈥檚 taken up, then that ought to encourage the government to put more money on the table. But in the first place, given the constrained environment that we are in at the moment, I guess they have put in what they think is necessary to get the ball rolling and then we can take it from there.鈥�

Armitt stresses the importance of the bank hitting the ground running. 鈥淚n order for this to be seen as worthwhile and realistic, it needs to be seen to be acting and getting money out the door and into projects.鈥�

And Hannah Vickers, chief executive of the Association for Consultancy and Engineering, says: 鈥淎 lot of the time it isn鈥檛 access to cash that鈥檚 holding back development, it鈥檚 the risk profile. The scope of the bank is around stepping in with some seed corn funding on some of the risky green investments, so things like hydrogen networks, for example, to which your traditional lenders might say maybe at some point but not yet.鈥�

She adds: 鈥淭he opportunity of it is exciting; there鈥檚 a bit of a way to go in terms of the detail.鈥�

Vickers wants to see the bank able to engage with developers by this autumn, not least so it can 鈥渁dvise on the spending review鈥�.

She says: 鈥淚 think it has got the wrong name. People think 鈥榥ational infrastructure bank, oh, it鈥檚 going to finance the next High Speed 2鈥�, and it鈥檚 actually not really that at all 鈥� it has been set up as a bit of a catalyst around the green agenda and regeneration. It鈥檚 just unfortunate PR that it is called the national infrastructure bank.鈥�