The European Investment Bank (EIB) has been active in the UK since 1973, during which time it has lent more than €118 billion to key infrastructure projects. This has included funding for major energy projects, transport, water and sewerage, higher education and housing. In 2015 alone, the EIB provided £5.6 billion for 40 different projects, amounting to approximately one-third of total investment in UK infrastructure. The European Investment Fund (EIF), of which the EIB is the majority shareholder, has also played an important role in providing and supporting access to finance for UK SMEs through a variety of intermediaries.
Brexit means that the UK will no longer be a member of the EIB. The EU Treaties restrict EIB membership to EU Member States, meaning that any future cooperation with the EIB will almost certainly be on the basis of the UK being a third country. Despite this, the Government has said almost nothing about how it envisages that such a relationship would work. This is all the more worrying given the 87 percent fall in EIB funding since 2016 and the fact that new UK projects will no longer have access to the EIB after 29 March 2019, until and unless a future relationship is agreed. It is therefore seriously concerning that, with Brexit and the associated loss of access to EIB financing a matter of weeks away, the Government has said nothing publicly about its ambitions for a future relationship with the EIB.
Under the Withdrawal Agreement, the UK will, over a period of 12 years, receive the €3.5 billion of capital it has paid in to the EIB. However, the UK will not receive any share of the profits that the EIB has accumulated, nor any interest or dividends. Given that this could amount to €7.6 billion, almost 20 percent of the UK’s obligations under the £35–39 billion financial settlement, we regret that the Government has failed to provide an adequate explanation of the position taken in the negotiations.
Losing access to the EIB will have negative consequences for the financing of UK infrastructure. Not only does the EIB offer cheaper and longer-term loans than commercial lenders, but the quality of its independent expertise and due diligence also provides projects with a stamp of approval that crowds in additional private investment. While the Government has taken some steps to alleviate potential difficulties for SMEs, notably through additional resources for the British Business Bank (BBB), more remains to be done. Riskier infrastructure projects and those falling within the EIB’s broader social mandate may find it more difficult to access alternative sources of finance at similar cost.
Given the vital role of infrastructure investment, the Government should consult on establishing a UK infrastructure bank, in line with the recommendations of the National Infrastructure Commission. We call on the Government to explore this option within its infrastructure finance review and, depending on the outcome of that review, to launch a consultation on the possible design features of a UK infrastructure bank as part of its upcoming National Infrastructure Strategy. As the UK loses access to the EIB, this would be an important step in supporting the financing of key infrastructure after Brexit and into the future.