A new report by the thinktank UK in a Changing Europe has found that the UK’s public sector lenders created by the government since Brexit are investing two-thirds less than the UK was receiving from the EU’s European Investment Bank (EIB) . The report compares the record of the EIB, which backed UK projects ranging from the Channel tunnel to offshore windfarms, with the work of new Treasury-backed institutions such as the UK Infrastructure Bank (UKIB).
The EIB invested an average of £6.4bn in the UK between 2009 and 2016 in real terms, peaking at £7.5bn in 2016 – the year of the Brexit referendum. By contrast, the successor institutions, including the Leeds-based UKIB, invested £2.4bn in 2022 – a third as much as the EIB was spending six years earlier .
The report’s author, Stephen Hunsaker, said: “It is not clear that the UK’s domestic development banks will be able to fill the hole left by the EIB by the end of the decade. They lack staff and expertise, inhibiting them from scaling up operations quickly. Nor have they achieved the coveted AAA credit rating of the EIB. Consequently, they lend at higher rates, making it more expensive to lend to public-interest projects.”
New banks focus less on infrastructure projects
The report also found that the new institutions – which include the Scottish National Investment Bank, the Development Bank of Wales and the British Business Bank – are less focused on infrastructure projects than the EIB. Between them, they invested just 17% as much in infrastructure projects in 2022 as the EIB did before it began winding down its links with the UK .
This could have implications for the government’s net zero ambitions and levelling up agenda, as infrastructure investment is seen as a key driver of economic growth and environmental sustainability. The report suggests that the government should consider increasing the capitalisation and mandate of the UKIB, as well as enhancing its coordination with other development banks and private sector investors .
Opposition parties criticise government’s failure to invest
The report has drawn criticism from opposition parties, who accused the government of failing to invest in British industry and public services. Labour’s shadow City minister, Tulip Siddiq, said: “The Tories’ failure to invest in British industry has left growth on the floor and our public services crumbling, with working people paying the price. Labour will unlock billions of pounds of private sector investment through our national wealth fund to deliver new gigafactories, clean steel plants and renewable-ready ports across Britain.”
The Liberal Democrat Treasury spokesperson, Sarah Olney MP, said: “This damning report highlights yet another broken promise from this Conservative government. We already knew farmers and fishers have suffered from the government’s failed trade deals, but now their investment plans are left in tatters too.”
Government defends reforms as seizing Brexit freedoms
The government has defended its reforms of financial regulation as seizing on its Brexit freedoms to deliver an agile and home-grown regulatory regime that works in the interest of British people and businesses. Chancellor Jeremy Hunt said the changes would secure “the UK’s status as one of the most open, dynamic and competitive financial services hubs in the world”
The government has announced a package of more than 30 reforms, dubbed the “Edinburgh Reforms”, which include scrapping a cap on bankers’ bonuses, allowing insurance companies to invest in long-term assets such as housing and windfarms, and reviewing rules that forced banks to legally separate retail banking from riskier investment operations . These reforms are being presented as an example of post-Brexit freedom to tailor regulation specifically to the needs and strengths of the UK economy.
However, some critics have warned that these reforms risk forgetting the lessons of the financial crisis and sowing the seeds of the next crash. Green charity Finance Innovation Lab said: “The government is taking major risks with stability of economy.”
