By Adam Peggs
This week’s budget saw further details announced of the government’s proposed UK Infrastructure Bank. In short, while the creation of such a bank is good news in itself, there is little else to be optimistic about in the Treasury’s proposal document for the institution.
The UK Infrastructure Bank (UKIB) will have an initial capitalisation of £12bn and is hoped to support at least £40bn of investment in infrastructure projects by crowding in private finance.
This is a “paltry” figure, to take Rebecca Long-Bailey’s assessment. In 2019, Labour’s plans developed by John McDonnell, would have seen a National Investment Bank capitalised with an eventual total of £250bn intended to support some £500bn of investment in the economy. It will also be a fraction of the size of the bank’s German, French and Italian counterparts.
Rishi Sunak has said the bank will be tasked with delivering ‘world-class infrastructure’ by investing in areas like renewable energy, transportation and carbon capture and storage. It will use a definition of infrastructure found in the Infrastructure (Financial Assistance) Act, which, while not broad enough, would include housing and educational and health facilities.
There is an undoubted need in the country for a large increase in infrastructure investment, which is currently among the lowest in both Europe and the OECD. With the UK not even on track to meet its own targets to reduce carbon dioxide emissions, investment in green energy couldn’t come sooner.
Still, the environmental implications are not all positive. As Ann Pettifor recently noted, carbon capture and storage has often served as an excuse for inaction on the damage being wrought by fossil fuels.
The bank will have a high degree of operational independence. Given the tendency toward short-termism, the record of dubious decisions around Covid-19-related contracts and the degree of favouritism in numerous recent spending decisions, this makes some sense. But the left should be wary of the problems of this kind of technocratic direction, because a democratic public bank is far more likely to make socially useful decisions.
The bank’s core objectives will be to “help tackle climate change” and “support regional and local economic growth”. Neither of these aims are objectionable, though neither are currently detailed enough and the invocation of regional growth misses the real problem: regional disparities. While the bank will be based in Leeds, the lack of a network of regional development banks as proposed by McDonnell represents a missed opportunity to put its regionalist mandate into practice.
A wider mandate, like that outlined by Labour in 2019 – which included supporting worker cooperatives and for the bank to be profit-making but not profit maximising – would have been beneficial. This does not amount to the strong social purpose needed for a public bank.
While the bank’s invocation of a double-bottom line – when some kind of perceived social impact is also considered a bottom line – is interesting, there is little else in the document to suggest that the bank will be designed in a way other than to meet narrow economic objectives. Worse, the document emphasises the bank will be “flexible” with its mandate in “adapting and responding” to markets. This makes it clear that the logic of the market is intended to remain the dominant force in finance.
A key focus for UKIB will be co-investment, working alongside private financial institutions to invest in projects. While this will help mobilise finance, this approach tends to “cost taxpayers more while delivering less” as well as putting “the private interest before public purpose”, as political economist Thomas Marois observes. It is hard to argue with Marois’ conclusions that the bank’s benefits “may well be overshadowed by its pitfalls”.
The details of UKIB, underline the need to draw a sharper distinction between different forms of National Investment Banks. There are those that exist to support businesses through cheap credit, help fix market failures and promote more balanced growth Then there are heterodox National Investment Banks, institutions that exist to actively shape economic outcomes and promote transformative social objectives. It is the latter kind of bank that we need – and this is a long way from it.
In this light, it would make sense for Labour to emphasise its own commitments to a National Investment Bank and commit to capitalising the bank with at least £250bn over a decade.
Such a bank ought to be designed to serve as a tool of industrial democratic transformation, with a completely rewritten mandate and practices to properly reflect this. Only then will the bank have a strong chance of achieving the kind of structural change that is needed.
That UKIB is set to launch at least offers us an infrastructure bank to one day build into something better – a democratic institution capable of pursuing a radical industrial strategy.
Adam Peggs is a writer and activist based in Hackney, London.
Image by Harriet Pavey/ No 10 Downing Street, https://www.flickr.com/photos/number10gov/49647526566
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