Sunak set to launch UK infrastructure bank to fund capital projects


Chancellor Rishi Sunak will set out plans next week for a new National Infrastructure Bank to channel billions of pounds into capital projects as part of the UK government’s “levelling-up agenda”, according to government officials.

The Treasury believes that the new institution, to be based in northern England, can play a key role in helping to kickstart Britain’s economic recovery in the wake of the pandemic.

The new lender, which will be operational by next spring, will have a remit to help deliver the UK’s commitment to reach “net zero carbon” by 2050 and provide funding for projects across the UK. It will co-invest alongside private investors through a mix of loans and guarantees as well as taking equity stakes in projects. 

The government will set the bank’s mandate but officials said that within that the management would have a high degree of independence.

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Meanwhile, Mr Sunak will also announce changes to the Treasury’s “green book”, which decides the allocation of money for projects, to prioritise levelling up more deprived regions and meeting ministers’ climate goals.

The Conservative party won December’s election promising a spending splurge in “left-behind areas” such as the midlands and northern England. 

Boris Johnson, prime minister, this week committed the government to a new 10-point plan to try to cut carbon emissions to “net zero” by 2050.

The Conservative government previously set up a Green Investment Bank in 2012 only to sell it off five years later to an Australian private equity group.

The Treasury will within weeks announce the location of a new “economic campus” in northern England as part of broader attempts to relocate 22,000 civil servants out of London and the south-east by 2030. 

Mr Sunak will also confirm the launch of a new “UK shared prosperity fund” to replace up to £2.4bn a year formerly provided through EU structural funds. An initial £220m will be allocated next year for local areas to pilot programmes for the new successor scheme, the Treasury announced on Friday. 

It also said the chancellor would set out tens of billions of pounds of infrastructure investment during the spending review, including £1.6bn for local roads in the next financial year.

The new infrastructure bank was recommended by John Armitt, the head of the National Infrastructure Commission — an arms-length government body — who said it should start with an asset base of £20bn. Mr Sunak is not expected to set out the precise financial framework for the new lender, until the spring Budget. 

The new bank is in part designed to replace funding previously obtained from the European Investment Bank, which the UK is leaving after the Brexit transition period which ends on December 31. 

The EIB previously lent about €8bn a year for projects ranging from London’s Crossrail line to social housing and new school-building projects.

Typically, the EIB provided cheap debt for public and private projects and was particularly useful in supporting new technologies that struggled to get private investment because of the uncertainty and risk involved.

Wednesday’s statement will also see the publication of the long-awaited “National Infrastructure Strategy” document detailing the government’s spending priorities over the coming years.

Mr Sunak in March announced £640bn of gross capital investment in projects such as roads, railways, schools and hospitals over the current parliament. 

One potential challenge for the new bank is whether it would be able to attain the highest possible credit rating. The EIB is able to borrow at very cheap rates because of its AAA credit rating.

In an “Infrastructure Finance Review” consultation launched last year — which will conclude in the autumn — the Treasury noted that some countries such as Germany, Japan and Canada have publicly-owned, operationally independent financing institutions for infrastructure.

Noble Francis, economics director at the Construction Products Association, welcomed news of the new bank: “It has the potential to be a great success in drawing in additional private finance to help fund infrastructure projects.”

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