UK’s first infrastructure bank to boost climate goal investment

Chancellor Rishi Sunak has pledged an initial £12bn to set up the UK’s first infrastructure bank, saying it would “accelerate investment” in projects to help Britain reach its ambitious climate goals.

The UK Infrastructure Bank, which will launch in April, aims to draw private sector finance into local authorities as well as energy, water, waste, transport and digital projects. The government hopes to attract £40bn of private investment into projects that can help it meet its target of net zero carbon emissions by 2050.

A further £10bn of loan guarantees will be awarded under the remit of the new bank to be based in Leeds.

The industry welcomed the infrastructure boost while noting that the relatively small sums involved meant it was not a “game changer”.

Britain has one of the most privatised infrastructure markets in the world, with ports, water, energy and telecoms owned by a range of private equity groups as well as sovereign wealth, pension and infrastructure funds. But the coronavirus pandemic has taken a heavy toll, with airports calling for bailouts and rail services renationalised.

Sunak said that although the UK’s use of private finance was a “strength”, “the private sector cannot always shoulder the burden alone.”

“Working with the private sector and local government, [the new bank] will lead a shared mission to accelerate investment in the country’s infrastructure,” he said in documents published alongside the Budget on Wednesday.

The National Infrastructure Commission, a government advisory body, welcomed the chancellor’s move, saying the bank would “play a key role in catalysing the investment needed for projects to support economic recovery”.

However, the initial £12bn funding fell short of the £20bn called for by the NIC. Jeegar Kakkad, head of productivity and innovation at the Tony Blair Institute, a think-tank, said the shortfall was “baffling” and indicated a “lack of ambition” by the Treasury. 

“The government has also failed to provide sufficient clarity on whether the bank has a mandate to invest in longer-term relatively riskier projects, on the political independence of its decision-making structure, or on how much of its investments will be dedicated to digital, net-zero and transport infrastructure,” he added.

Boris Johnson’s government has already announced £600bn of infrastructure projects over the next five years, half of which are to be financed by the private sector. 

Given this, the infrastructure bank would provide a “boost but only a small boost”, said Noble Francis, economics director at the Construction Products Association, an industry lobby group. “It certainly isn’t a game changer and isn’t anywhere near what will be needed to get us on the road to net zero [emissions].”

Other infrastructure experts also said the government would struggle to meet its climate change commitments without further measures.

Richard Abadie, head of infrastructure at PwC, welcomed the new vehicle for private capital but estimated that £40bn would need to be spent each year for the next decade to reach the UK’s net zero target.

Alison Murrin, expertise counsel at law firm Ashurst, said the existing schemes “only scratch the surface and the government will need to consider much wider decarbonisation investment and incentives if the UK is to have any chance of achieving the net zero transition by 2050.”

The existing UK guarantees scheme, which has been used to draw private finance into projects such as the Northern Line Underground extension, will also come under the remit of the new bank. However that was criticised by the National Audit Office in 2015 as delivering poor value for money for taxpayers.

The government’s investment would be reviewed after three years, the Treasury said. Although owned by the government, the infrastructure bank would have a high degree of operational independence, it added.