UK Infra Bank to be capitalised with at least £12bn

The new UK Infrastructure Bank will be capitalised with an initial £12 billion ($16.7 billion; €13.9 billion), with the ability to issue a further £10 billion in guarantees, the UK government confirmed this week.

The £12 billion of capital will be in the form of both equity and debt, with £5 billion to be made available as equity by the UK Treasury. The bank will also be able to borrow up to £7 billion, in the form of £1.5 billion per year, from a government credit facility and the private markets – a key differentiator to the conditions imposed on the Green Investment Bank in 2012. The funding “is a significant uplift on the £3 billion that the GIB was capitalised with”, noted Richard Abadie, global leader of infrastructure at PwC, in a statement.

An additional key contrast to the GIB, which was privatised to Macquarie in 2017, was also outlined, with the government stating that it “intends that the bank will remain as part of the public sector, fulfilling its role in supporting investment, permanently”.

The government said this week that the vehicle will aim for “a sustainable return”, with a specific return target to be set later in the year. It will be allowed to recycle capital and reinvest returns, with progress and financial performance to be reviewed in spring 2024.

Its remit will be to “invest to make projects happen that would not have happened otherwise or to bring projects forward to meet net zero or regional and local growth objectives”, the government stated, targeting the clean energy, transport, digital, water and waste sectors. Its focus will also be on crowding in private sector capital to new areas of the infrastructure market and the government said the bank will “limit its exposure to investments that could already be fulfilled by the private sector”.

Further sectors could be enshrined in the bank’s programme before the vehicle’s legislation, with a spokesman for the Treasury telling Infrastructure Investor that “its areas of focus will shift over time to respond to evolving markets and technologies”.

No more crowding out?

In its policy document, the government confirmed the new bank was partially filling the post-Brexit void left by the European Investment Bank. However, it also said it will do some things differently, following consultation with the private sector.

“Where the EIB provided support in well-financed areas, the government anticipates that the private sector will step in without public sector support,” it stated. “An assessment from Vivid Economics for the National Infrastructure Commission showed that a portion of EIB activity crowded out private investment. Respondents to the Infrastructure Finance Review echoed this point.”

The government highlighted the work done by the EIB in previous years to help boost the offshore wind sector and it is expected the bank will help support new green technologies in a similar fashion.

The bank will also work closely with pension funds on opportunities, the government added, while it will also look to crowd in “a wider set of investors”, including international investors.

“[The bank] will both back some regional projects, but also the large, complex projects that need significant investment to get off the ground – an efficient use of its capital,” said Ted Frith, chief operating officer of UK pension platform GLIL Infrastructure, in a statement. “This will also help create more opportunities for pension funds to invest directly into infrastructure, which means more stable, long-term returns for millions of pensioners.”