European Investment Bank

Industry heads give evidence to House of Lords over importance of the EIB to UK business funding

The decrease in UK funding to the European Investment Bank has accelerated as Brexit approaches

On 17 October the House of Lords EU Financial Affairs Sub-Committee heard from a range of industry heads about the impact of European Investment Bank (EIB) lending and the impact its absence could have.

While the EIB pledged that Brexit would not change its relationship with the United Kingdom, EIB financing to the UK fell from £6.9bn in 2016, the year of the referendum decision to leave the European Union, to £1.18bn in 2017.

As well as lending to British industry, the EIB has been a strong supporter of the UK leasing industry, underwriting credit lines from the British Business Bank (BBB) with several UK lessors.

In 2017 the Federation of Small Businesses (FSB) urged the UK to “ready” itself in preparation of Brexit, and expanding the remit of the British Business Bank in response.

In April 2017, the European Investment Fund (EIF), of which the EIB is a majority shareholder, acted as guarantor for a £37.4m facility for Shire Leasing.

The EIF also underwrote half of a £53m (€65.3m) facility provided by the BBB to LDF, now known as White Oak UK, and half of a £51m (€67.07m) facility provided in the same way to Henry Howard Finance in February and May of 2016.

The effect of a loss of the EIB and its investment in UK leasing via the EIF would create a vacuum in funding which either the BBB could provide, or a new UK government investment bank, the committee said.

Piers Williamson, chief executive of the Housing Finance Corporation, explained that his organisation: ““…Hhas been dealing with the EIB for the last twenty years, and is in agreements with the bank that last for the next thirty.”

“The EIB has political masters at the end of the day, and while there is uncertainty over Brexit I think they are hesitant to provide funding. My working assumption is we go to the bottom of the pile in terms of priorities.”

An alternative to the EIB is a potential UK Investment Bank or an expansion of pre-existing bodies, something that was discussed in the subcommittee’s hearing with members of the National Infrastructure Commission in September.

On the possibility of founding a UK-only Investment Bank, Williamson said: “The EIB was a venture of its time, founded in the aftermath of the Second World War and able to operate in a relative vacuum. Inventing a single nation EIB, it may not be able to prosper in quite the same way. Whatever is produced needs to be handled carefully.”

Pete Clutton Brock, policy advisor at E3G and former Treasury Official, gave an example of a successful independent investment arm, the Green Investment Bank, stating of that institution prior to its privatisation it “leveraged £3.40 per pound invested, never below market capital” for its investment in large-scale green energy projects.

Alex Conway, assistant director for Brexit and European programmes for the Greater London Authority, said the EIB was “a very cost-effective way of supporting businesses, and it’s not clear yet how this fund will be replaced.”

Conway identified expansion of the British Business Bank (BBB) as a potential means of covering the investment gap.

Williamson summated the need to cover EIB funding as such: “I’m a pragmatist. Whatever can get through the Treasury is the best solution.”