National Infrastructure Bank – a new (and improved) Green Investment Bank?

Following hot on the heels of the Prime Minister’s 10 point plan for a green industrial revolution, the UK government has released its National Infrastructure Strategy. One of the flagship policies heralded in this paper is a new UK infrastructure bank. The government hopes the new bank will catalyse economic growth, bring geographic balance to UK infrastructure investment and aid the country’s drive towards net-zero, but questions remain – and a sense of déjà vu will be hard to shake.

The National Infrastructure Commission (“NIC”) proposed introducing a new UK infrastructure bank in its first National Infrastructure Assessment, in July 2018, in a scenario – which has since come to pass – where the government did not maintain access to the European Investment Bank (“EIB”). On the basis of that recommendation, the government has now committed to the policy.

A public partner for the private sector

The new bank will based in the North of England and will, the government intends, be operational from Spring 2021. Further details of the bank’s operations, mandate and scope are expected to be set out by the Chancellor at Budget 2021 and legislation to establish the bank is anticipated in short order. What is known so far suggests that the bank will be able to provide guarantees as well as debt, equity and hybrid investments, and will also lend to and advise local authorities developing projects.

The government has emphasised its intention for the bank to invest alongside, rather than in place of, private finance providers to deliver infrastructure projects. The bank could invest time and expertise to help structure bankable lending opportunities in new sectors and so help to stimulate interest and support from other lenders; however the risk that the new bank may instead crowd out private infrastructure investors who already stand prepared to provide the finance needed for infrastructure projects in the UK cannot be wholly dismissed.

Filling an EIB-shaped void

The government acknowledges that the new bank will not replace all of the activities of EIB, but argues that the bank will provide more targeted support and have a strategy more closely aligned with UK government objectives than EIB would have had.

The new UK infrastructure bank will almost certainly be unable to surpass the sovereign credit rating of the UK and, as such, will not be able to match EIB’s credit rating (currently EIB holds a AAA Fitch credit-rating, compared to the UK, which Fitch currently rates AA-). This will mean that the new bank is unlikely to pass on the benefit of low cost of funds to the same extent as EIB – widely seen as one of the most tangible benefits brought by EIB to projects in mature sectors.

EIB’s independence from EU member states’ governments is often cited as a strength. Whilst the UK government has been clear that it intends for its new infrastructure bank to have significant operational independence, it remains unclear what the basis for the bank’s governance will be in any detail, and whether the government’s decision to revise the Green Book (the Treasury’s guidance on how to assess policies for public spending purposes) to rebalance investment across the UK will influence the bank’s decision-making.

At the time of writing it remains uncertain what the UK’s position in relation to state aid issues will be after the end of the transition period with the EU. However, state aid is likely to remain an important constraint. It remains to be seen whether the new UK infrastructure bank will be able to provide funding for projects that would not otherwise be viable and bankable. In this context (and in combination with the new bank not being able to match EIB’s low cost of funds), it seems likely that the new bank will focus its efforts on enabling viable and bankable projects to access the financing markets, for example supporting pilot projects in new sectors and co-lending to bridge funding gaps in sectors that have a limited track record and so cannot yet access sufficient lending from other sources.

Déjà vu

For those who recall the 2010s and a time before COVID-19, the government’s announcement of a new UK infrastructure bank may stir not-so-distant memories of another bank established by the UK government to invest in green projects – namely, the Green Investment Bank, sold by the government in 2017. Indeed, ministers have openly fostered such comparisons. Time will tell whether the new bank will drive and execute policy to the extent that government hopes it will, but its introduction signposts the seriousness with which government is treating the need for significant new infrastructure development across the country and its willingness to partner with the private sector to deliver it.