Countdown to Brexit: 56 days – Parliament identifies urgent need for UK to establish its own ‘Investment Bank’ as it loses access to the EIB

Since joining the EU in 1973 - the UK's infrastructure has been the beneficiary of more than €118 billion of lending from the European Investment Bank (EIB).  The UK will lose access to the EIB after Brexit and the Government should look to establish a ‘UK Infrastructure Bank’.

Parliament’s ‘EU Financial Affairs Sub-Committee’ yesterday published a key report on the impact of Brexit and loss of access to the European Investment Bank.  It calls for the Government to consider establishing a UK infrastructure bank - ahead of the UK leaving the European Union – which in the event of a no-deal is in exactly 7 weeks’ time on 29 March.

The report notes that there has already been a “marked decline” in funding from the EIB since the referendum and the triggering of Article 50.

Despite this - and the fact that the UK will lose access to the EIB after Brexit - the Government has said little about any future relationship with the EIB - or about possible domestic alternatives.  These should be explored as a matter of urgency within the Government's infrastructure finance review and - depending on the outcome of this review - become part of its National Infrastructure Strategy.

Commenting on the report, Baroness Falkner - Chair of the EU Financial Affairs Sub-Committee - said: "For the last 45 years the UK has relied on the European Investment Bank to invest in all manner of vital infrastructure projects such as Crossrail, London’s ‘Super Sewer', the expansion of Manchester’s tram network and Scotland’s Beatrice offshore windfarm.

"The UK’s infrastructure, and the industries that depend on infrastructure spending, will be hurt if the Government does not quickly find a way of plugging the funding gap that will be created if access to the EIB is lost after Brexit.

"We're calling on the Government to give serious and swift consideration to the creation of a UK infrastructure bank.  It also needs to come clean about why it has not claimed any share of the EIB's profits, which for the UK could amount to €7.6 billion."

The call comes on the day that the Institute of Directors (IoD) warned that 29% of firms in a survey of 1,200 members believed Brexit posed a significant risk to their operations in the UK - and had either moved part of their businesses abroad already or were planning to do so.

Nearly one in three British businesses are planning to relocate some of their operations abroad or have already shifted them to cope with a hard Brexit, according to a leading lobby group.

More than one in 10 had already set up operations outside the UK as the prospect of a no-deal Brexit becomes more likely amid Westminster gridlock.  Most firms considering a move were looking to open offices inside the European Union, said the IoD, which represents 30,000 firms.

The warning from Parliament about access to capital was further endorsed as Barclays announced that it is to move €190bn (£166bn) of assets to Dublin - because it "cannot wait any longer" to implement its Brexit contingency plan.  The High Court has approved the move which involves 5,000 clients.

The business amounts to around 15% of the bank's £1.2 trillion in total assets - and was previously conducted in the UK through Barclays branches across the EU. 

The plans will be in place by 29 March.  Barclays Dublin operation is expected to double in size to 300 people as a result of the business being channelled through the Irish capital.

Key findings from the 50-page Parliamentary report include:

Losing access to the EIB will lead to a significant funding gap, especially for large-scale infrastructure projects.  The 87 per cent decline in EIB funding, and the 91 per cent decline in EIF funding, since the referendum and the triggering of Article 50 - is “striking”.

With so little time left until Brexit, the lack of any meaningful proposals on a future relationship with the EIB or domestic alternatives is “disappointing”.

The Government should give serious consideration to the creation of a UK national infrastructure bank.  The UK must fill the gap left by loss of access to the EIB - and support the financing of key UK infrastructure - post Brexit and into the future.

The Government has “failed to provide a satisfactory explanation of its negotiation position on the return of the UK’s capital”.  The EIB is a profitable business.  There seems to be a plausible case that the UK should receive some share of that profit.  A 16.1 percent share of the EIB's retained earnings would be €7.6 billion – around 20 per cent of the UK’s financial settlement of £35–39 billion.

Reference:

https://publications.parliament.uk/pa/ld201719/ldselect/ldeucom/269/269.pdf

 
John ShuttleworthComment