Last week, the UK released its National Infrastructure Strategy, pledging to end the “slow adoption of new technology [and] policy uncertainty that undermines private investment”. For a country that has seen its fair share of stop-start infrastructure developments in recent years, there was much to cling on to here.
The 2021-22 spending round will include £27 billion ($35.7 billion; €29.8 billion) of public funding towards infrastructure. There were longer-term pledges on fibre broadband buildouts and the UK’s commitment to net zero by 2050, although the latter still requires greater clarity from the long-delayed energy white paper. The strategy also came with the unveiling of a National Infrastructure Bank, set to be launched in the spring of 2021 “to finance major new investment projects across the UK”, chancellor Rishi Sunak told the House of Commons.
The government said the bank will be able to offer equity and debt, as well as co-invest alongside the private sector “where appropriate”.
There have been many calls since the UK’s Brexit vote in 2016 for such an institution, given it will lose the support of the European Investment Bank. This factor was recognised by the UK government, although it added the NIB will “provide more targeted support than the EIB, and will be better aligned with the UK government’s objectives”.
There will be many in the market hoping the government makes good on that promise.
“The EIB was hugely competitive in the way that they priced transactions,” Tom Sumpster, then head of infrastructure at Legal and General Investment Management, told our 2017 UK roundtable. “Is the EIB really going to be missed from the market? Certainly not, I don’t think, in the UK.”
Three years later, his successor, Will Devenney, is circumspect on the NIB, telling us that LGIM sees it as a positive move, as long as the bank is used in the right way. Devenney added that he sees room for it to be active in parts of the energy transition, such as electric vehicle charging, carbon capture and storage and hydrogen. Digital infrastructure could also benefit, as much of the sector is not yet investment grade.
The new NIB must also learn from 2012’s launch of the Green Investment Bank. While certainly a matter for debate, the GIB largely directed private capital towards projects and industries – think biomass, offshore wind – it was not previously present in, or at least not with scale. In that sense, it played a crucial role in helping Britain become the European renewables powerhouse it is today.
It should also learn from the GIB’s failings. Only a fund never a bank, the GIB was hamstrung from the outset by its inability to borrow. Somewhat worryingly, the Treasury declined to comment as to whether the NIB will also be subject to the same limitations. If the government is serious about addressing market failure, this must be clarified.
A well-funded NIB with a laser-focus on jump-starting new technologies and crowding-in capital to parts of the market that sorely need it is an evergreen proposition. If there’s one thing it should unashamedly copy from the EIB, its longevity should be it.