New public sector lenders created by the government since Brexit are investing two-thirds less than the UK was receiving from the EU’s European Investment Bank, a new report finds.
Over more than four decades, the EIB backed UK projects ranging from the Channel tunnel and the 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 including the UK Infrastructure Bank (UKIB).
The EIB invested an average of £6.4bn in the UK between 2009 and 2016 in real terms, peaking at £7.5bn in 2016 – the year of the Brexit referendum.
By contrast, the successor institutions created by the government, including the Leeds-based UK Infrastructure Bank (UKIB), invested £2.4bn in 2022 – a third as much as the EIB was spending six years earlier.
“It is not clear that the UK’s domestic development banks will be able to fill the hole left by the EIB by the end of the decade. They lack staff and expertise, inhibiting them from scaling up operations quickly,” said Stephen Hunsaker who co-authored the report with Peter Jurkovic.
“Nor have they achieved the coveted AAA credit rating of the EIB. Consequently, they lend at higher rates, making it more expensive to lend to public-interest projects.”
The new institutions – which include the Scottish National Investment Bank, the Development Bank of Wales and the British Business Bank – also appear to be less focused on infrastructure projects than the EIB.
Between them, they invested just 17% as much in infrastructure projects in 2022 as the EIB did before it began winding down its links with the UK. The British Business Bank says that it has never had a remit to invest in, or lend to, UK infrastructure projects and focuses on improving access to finance for smaller businesses.
Labour’s shadow City minister, Tulip Siddiq, said: “The Tories’ failure to invest in British industry has left growth on the floor and our public services crumbling, with working people paying the price.
“Labour will unlock billions of pounds of private sector investment through our national wealth fund to deliver new gigafactories, clean steel plants and renewable-ready ports across Britain.”
The Liberal Democrat Treasury spokesperson, Sarah Olney MP, said: “This damning report highlights yet another broken promise from this Conservative government. We already knew farmers and [fishers] have suffered from the government’s failed trade deals, but now their investment plans are left in tatters too.”
UKIB’s chief executive, former HSBC boss John Flint, has suggested it will accelerate investment in the coming years, in particular on projects connected to the government’s net zero ambitions.
He said earlier this month: “The financing needs that come directly off the government’s net zero strategy are just going to start increasing significantly year after year.”
But the UK in a Changing Europe report – titled “The Investment Gap” – argues that the UKIB’s growth will be constrained by strict Treasury limits on lending, imposed to protect taxpayers’ money.
Public sector lenders such as the EIB aim to harness the lower borrowing costs and longer time horizons of governments, to back projects that private investors deem too risky.
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By providing certainty that a project will go ahead, they can then “crowd in” private funding.
But Hunsaker argues that the more modest scale of the new institutions means they have so far backed “fewer, smaller and lower-risk projects”. One recent high-profile investment by the UKIB was £24m 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 £858 per capita in Scotland and £773 a head in London – against £180 in Yorkshire and the Humber, for example.
Launching the UKIB two years ago, Rishi Sunak, then the chancellor, said it would contribute to the government’s levelling up agenda. The thinktank suggests there is little evidence of that happening so far, with most UKIB projects either nationwide, or covering multiple regions.
The research finds the only sector in which the domestically backed banks have matched EU institutions is in lending to small and medium-sized businesses.
The British Business Bank, launched by Vince Cable, then the business secretary, almost a decade ago, surpassed £1bn in lending last year, exceeding the maximum lent by the EIB’s small business arm, the European Investment Fund.
A Treasury spokesperson said: “the UK Infrastructure Bank was set up with £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.
“In its first two years the Bank has done 20 deals worth over £1.87bn in digital infrastructure, green transport and clean energy, supporting 5,700 jobs across the country”.
