18 October 2019

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Time for a Bank

Governments across the world are setting up ‘banks’. It could offer the UK a way out of the PFI morass
Time for a Bank

A decade after ‘bankers’ became a byword for the lowest of the low, in the wake of the financial crash, it seems that a new form of banker is now all the rage around the world.

National banks are gaining traction in a variety of locations. Whether it be Scotland’s proposed National Investment Bank, or the Canada Infrastructure Bank, institutions set up by government to step in to address a perceived market failure are now in vogue. And, it seems, generally accepted by the public at large.

Let’s hope, then, that the UK Treasury might be watching this trend with interest. For it seems to me that a ‘British Infrastructure Bank’ (or BIB – it even comes with a handily memorable acronym) might offer the UK a way to deal with some of the strands of infrastructure finance that it has found so vexing ever since it decided PFI was ‘a bad thing’.

Ultimately, the BIB could bring together the majority of the government’s existing financing products, such as the UK Guarantees Scheme and even (dare I say it) project finance mechanisms under one umbrella. The UK already has the Public Works Loan Board, which provides loans to public authorities, so why not use that as the basis of a much more comprehensive organisation that can offer a whole range of financial products for authorities – both national and local – when looking to develop new infrastructure?

Canada’s approach has been a long these lines, albeit with an overt mandate to crowd in private finance. Whether that would be a step too far for the politics of the UK remains to be seen.

However, it could offer the government a way of delivering new infrastructure through a design, build, finance, maintain model that is both more palatable to the general public, but also gives it a stake in those schemes.

Unfortunately, the signs are that the Treasury is not really leaning in this direction at present. With the likely exit of the European Investment Bank (EIB) from future British projects, many are keen to know what the government might do to replace it.

Last week, Exchequer Secretary to the Treasury Robert Jenrick told a Lords committee that one option being looked at is bringing the government’s financing options “under a single heading”. However, he and others have tended to shy away from the idea of an infrastructure bank when the idea has been put to them.

This week, the Infrastructure & Projects Authority published its £600bn pipeline of construction projects for the country. Around half of that will be purely privately funded. And while there was hardly a huge amount of projects earmarked for ‘mixed’ funding (the latest euphemism for PPP?), it remains what the Treasury would once have described as a ‘small but significant’ part of the plans.

In that document, Jenrick is quoted as saying that while PF2 is now off the agenda, “we remain committed to ensuring that levels of private investment remain high, including through established tools such as Contracts for Difference, the Regulated Asset Base Model, and the UK Guarantees Scheme”.

However, these alone cannot realistically be expected to fill the gap. Unless some sort of solution can be found that is acceptable both politically and publicly, that part of the pipeline will never get off the page. Many countries now like to refer to the ‘additionality’ of private finance: in other words, what they can deliver that would not have been possible through public funding alone.

For many projects in the UK across social infrastructure and into transport and other areas, a failure to create a model for private finance means the country will miss out on that additionality.

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Governments across the world are setting up ‘banks’. It could offer the UK a way out of the PFI morass

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