Can a National Infrastructure Bank transform the UK?
A National Infrastructure Bank has the potential to drive economic and societal change, but it must be broad enough in scope and ambition, and look long term to have an impact
As part of his last Spending Review, chancellor Rishi Sunak announced details of a National Infrastructure Bank (NIB), seen by many as vital if the UK is to meet its climate change ambitions and 2050 net-zero carbon target.
Firmer details are expected in the Budget on March 3, but in the interim, the National Infrastructure Strategy (NIS) suggests part of the bank’s role will be to replace some activities of the European Investment Bank (EIB) now Britain has left the European Union, offering targeted support “better aligned with the UK government’s objectives”.
In a foreword to the NIS, prime minister Boris Johnson says: “About half of all infrastructure spending is private, especially in energy, water and telecoms. We will reduce policy uncertainty that holds back investment and create a new National Infrastructure Bank to co-invest with private sector partners.”
So can the NIB succeed in harnessing the future of sustainable investment across the UK, especially when an earlier UK Green Investment Bank is seen to have failed?
Timely boost for the UK’s net-zero ambitions
Just last year, UK100, a network of local and regional council and authority leaders, called for a similar scheme to the NIB. It wanted to see a specific net-zero development bank “to kickstart the journey to 2050”.
A report, released with Siemens, showed how a £5-billion investment could unlock £100 billion in sustainable energy projects and help “level up” across the UK.
UK100 director Polly Billington says: “The NIB could achieve exactly this, mobilising private investment to rebuild our economy, while meeting our climate goals and building resilience into our communities.”
She welcomes the UK government’s “commitment and rhetoric about the importance of meeting its climate targets” and that it intends the NIB to have a net-zero mandate.
But Billington warns: “To succeed it will need a strong development focus, a regional structure and a place-based approach that builds on the expertise in local government.”
Offering a mixed-funding model
Some now view the NIB as a chance for the UK to become a global leader in infrastructure development, believing it should define a new model for green investment by becoming a positive disruptor.
Jason Longhurst, chair of the UK Business Council for Sustainable Development, is one of those. But he says it would need clear outcome-based metrics, measured against new environmental contribution baselines via the United Nations Sustainable Development Goals.
He explains: “At national scale, the bank has the potential to unlock and define a ‘clean growth economy’. To succeed, it must help to mainstream sustainability and channel the UK’s response to climate change, moving the agenda from ’emergency’ to ‘transition’ and showing the tangible and viable economic benefits at every level.”
However, Longhurst cautions it cannot repeat the mistakes of the Green Investment Bank and only offer one method of financing, through loans.
“It must reward those who transition to net zero, it must enhance opportunities to go beyond tax incentives, reduced corporation tax and innovator benefits,” he says. “The UK needs a mixed-investment approach of grants to address market viability and funding gaps, investment loans to stimulate high growth and to significantly reduce the interest rate for green investment.
“It also must address social wellbeing, health improvement, youth employment, social mobility; successfully tackling all these challenges will uplift earnings and reduce state reliance if delivered.”
Replacing EIB funding after Brexit
Matthew Jellicoe, co-founder of OnePlanetCapital, an investment house focused on businesses tackling climate change, is another who welcomes the NIB as he believes it could “take on large and long-term projects where private finance may often be reluctant”.
Jellicoe references a carbon capture PhD scientist who told him the technology was falling behind due to a lack of investment in infrastructure to prove it is viable.
“The transition to net zero requires a paradigm shift across most aspects of society, from energy production through to transport and the way we live in general. Large upgrades to rail infrastructure, reintroduction of trams in city centres, tidal power plants; all of these types of long-term projects will benefit,” he says.
“With a crisis as pressing as climate change, I do not think the government has any choice regarding setting up the NIB. EU banking facilities have to be replaced rapidly and if the government wants to drive the ‘green industrial revolution’, it will have to walk the walk.”
Making the NIB viable long term
One of the biggest risks of any long-term project is a change in government. It is for this reason that cross-party support and a non-political focus could also be a crucial part of the challenge.
Adam Savitz, managing director at Xynteo, whose Choose Growth report sets out ways in which chief executives can collaborate between the government and private sector to solve carbon challenges, believes so. He says: “To see this agenda through, this partnership needs to hold, outliving electoral cycles and terms of service. Only then will we be able to catapult the UK ahead in the race for new growth.
“There’s never been more capital available for net-zero infrastructure development. But before the monitoring frameworks are designed to capture the return on investment essential to decarbonise, the greatest challenge is to ensure we look systematically across all investment strategies.
“The NIB’s success hinges on a deep and fast reset of the interface between government and business, combining respective strengths. They must take the democratic legitimacy, public policy expertise and early-stage investment muscle of governments and weld it with the technological capacity, business modelling knowhow and scaling expertise of companies.”
Following the German model
According to the UK Green Party, the NIB could look abroad for inspiration. Its finance spokeswoman Molly Scott Cato pointed to Germany’s state-owned public development bank KfW as a useful model to follow as it has “funded their successful shift towards a low-carbon future”.
Scott Cato, a former Green MEP, believes a publicly-funded national retrofitting scheme should be the NIB’s top priority, adding: “As Greens, we are clear that COVID recovery investment should prioritise the need to respond to the climate emergency.
“Genuinely building back better means there is clear criteria so funding only goes to companies that will be part of our net-zero carbon future and favours those demonstrating they are making rapid progress on reducing their CO2 emissions.
“All investment by the bank should pass stringent carbon stress tests as well as offering mandatory disclosure on environmental, social and governance risks.”