UK’s new Infrastructure Bank opens its doors to support post-pandemic growth

Chancellor Rishi Sunak is set to open the doors of the UK's new Infrastructure Bank in Leeds today, which aims to fund projects that are missed by the private markets and help spur economic recovery in the wake of the COVID-19 pandemic. 

The bank will have a focus on capital projects that include clean energy, digital, transport, water and waste. The bank's policy paper also notes that it will be focused on supporting and developing early-stage technologies. 

Part of the reason for the creation of the Infrastructure Bank, which is primarily being marked as a key element of the government's ‘leveling up' strategy, is also because of the UK's departure from the European Union. Since leaving the EU, the UK no longer has access to funds made available via the European Investment Bank (EIB) Group, which provides support to infrastructure projects and SMEs. 

But more critically, the EIB has used low cost lending to fund green technologies. The UK has committed to bring all greenhouse gas emissions to net zero by 2050 and so needs new mechanisms to fund investments in this area. 

Launching the Infrastructure Bank today, Chancellor Rishi Sunak said: 

Opening its doors today, the UK Infrastructure Bank will accelerate our ambitions for tackling climate change and levelling up, while creating new opportunities across the UK as part of our Plan for Jobs.

Through the Bank, we are investing billions of pounds in world class infrastructure that will support people, businesses and communities in every corner of the UK.

The Chair of the UK Infrastructure Bank, Chris Grigg, said:

The new UK Infrastructure Bank is open for business. I am delighted to be leading this institution, which will be a catalyst for investment to support regional economic growth and net zero ambitions.

I look forward to building strong partnerships with project sponsors, institutions and local leaders.

The bank will have an initial £12 billion of capital to deploy and will be able to issue £10 billion of government guarantees, which the Chancellor claims will help unlock more than £40 billion of overall investment. The Bank will carry out the following functions in support of its core objectives:

• provide a range of financing tools across the capital structure including debt, hybrid products, equity and guarantees to support private infrastructure projects

• provide loans to local authorities for strategic infrastructure projects

• act as a centre of expertise and provide advisory support to projects

• expand institutional investment in UK infrastructure

The need for a government-backed bank is said to be necessary given that large-scale infrastructure projects can take years, are risky and complex, and as such, often miss out on private investment. The bank aims to support the UK's National Infrastructure Strategy, which states: 

As the government helps the economy to recover it will also seek to address the long-term issues that have held back UK infrastructure. These issues include ‘stop-start' public investment, insufficient funding for regions outside of London, slow adoption of new technology, policy uncertainty that undermines private investment, and project delivery plagued by delays and cost overruns.

Market intervention

The Infrastructure Bank's policy paper states that it will provide leadership to the market in the development of new technologies, crowding-in private capital and managing risk through "cornerstone investments and a range of financial tools". It hopes that it can "bolster" the government's lending to local government for large and complex projects and help to bring private and public sector stakeholders together to regenerate local areas and create new opportunities. 

The government has said that it will be a long-lasting institution with a high degree of operational independence. The primary objectives, as noted above, will be on tackling climate change, but also supporting regional and economic growth. 

However, the focus may change over time to adapt to changes in market trends and technology. The bank's policy document states: 

The Bank will focus on intervening where it can make the biggest impact. This means addressing shortfalls in the provision of private finance to make projects happen that would otherwise not have had the necessary support. 

The Bank will have a broad mandate to offer support across different sectors. It will make a case-by-case assessment of the merits of an individual project. Its primary focus will be on the economic infrastructure sectors covered in the National Infrastructure Strategy, including clean energy, transport, digital, water and waste.

In addition, it will be able to lend to university projects that generate a return to support regional and local growth. The Bank will also play an important role in supporting and developing early-stage technologies.

The bank is headquartered in Leeds, in the north of England, which the government hopes will help further aid its ‘leveling up' agenda that is focused on bridging the ‘north-south divide'. Sir Roger Marsh OBE DL, Chair Leeds City Region Enterprise Partnership & NP11, said:

Locating this powerful national institution in our region will be a real catalyst for change and a major driver of our post-pandemic recovery. It will build on our long-term commitment to ensuring that the benefits of economic growth are felt by all of our communities.

This landmark decision is testament to the strength of our financial and professional services sector and will ensure a strong and successful long-term economic outlook for the city region, the North and the UK. It will act as a catalyst to inspire economic growth and business confidence at a time when it is needed most and it is pleasing that it will be operating from Leeds.

The move also signifies a new page in the relationship between the government and cities and regions across the North, where we work in partnership to unlock economic potential and deliver on the ambitions for levelling-up all parts of the country.

My take

Infrastructure projects are notorious for being plagued with delays, going over-budget, and taking a long time to deliver on anticipated benefits. The Infrastructure Bank has a broad brief and it has some huge ambitions to live up to - taking on challenges that have long plagued the UK. The key will be not just providing funding, but being astute in identifying opportunities that can support economic growth - and social development - for a UK that has been hit hard by the pandemic and faces a new future outside of the EU. It's not going to be easy.