If you’ve ever sat on a train in the north of England, you’ll have a first-hand experience of Britain’s dire record on infrastructure — most trains are overcrowded and out-of-date, and seemingly local journeys can take hours to complete. In addition, we’re still keeping power stations open years longer than they were originally intended; our green energy development is sluggish; and we still can’t make a decision on airport expansion or high-speed rail.
Meanwhile, as Britain’s growth rate continues to dawdle, small businesses around the country are finding it difficult to receive loans from risk-averse commercial banks. For potentially costly ventures, Britain’s start-ups can’t catch the same breaks as their American or German counterparts.
Infrastructure and small business investment is something the UK has been particularly bad at for, well, forever. The UK hasn’t really bothered with infrastructure spending, consistently lagging behind other western economies for the past twenty-five years. Lending to small businesses has been even worse — it was first identified as a problem in the Macmillan Report of 1931. Whereas other nations use booming business, manufacturing, innovation and entrepreneurialism to improve their people’s living standards, the UK instead relies on its financial sector and housing market to drag the rest of the country into economic success. This lack of substance means that, underneath the bonnet, the UK’s economy is pretty weak.
Now, if you’re happy to look at the shiny headline figures about the UK’s recovery since the financial crash and are tempted to think, “looks good to me!” then feel free to stop reading here. If, however, you think that the lack of small business lending or infrastructure investment are an issue for the UK economy, then let us propose a solution. Its name is the British Investment Bank, and we think you’re going to like it.
The British Investment Bank (which we could also call the National Investment Bank) would be a state-owned (but part-commercially funded) bank. The government would set the bank’s objectives, but it wouldn’t be allowed to meddle in its day-to-day activities — that would be the responsibility of professional bankers. It could take inspiration from other state-owned banks or organisations, like the German Kreditanstalt für Wiederaufbau or US Small Business Administration. These organisations work in the public interest but are at arm’s length from their respective governments, so politicians can’t meddle in their work with an eye to winning an election or boosting their poll ratings.
If you think that the lack of small business lending or infrastructure investment are an issue for the UK economy, then let us propose a solution. Its name is the British Investment Bank
This means the British Investment Bank has two important characteristics. Although state owned, the bank would be largely independent of the government, so could invest in large infrastructure projects without accruing greater debt on the government’s current spending. Once built, many of these infrastructure projects could be loaned to the private sector, in the long run making each project self-sustaining. In addition, the fact that the bank is state-owned means that it doesn’t have to worry about the riskier small business ventures that banks in the private sector have hitherto avoided for fear of them proving too costly.
Indeed, while on the surface big infrastructure projects and small business lending seem a strange marriage, they would actually complement each other nicely. Infrastructure spending is normally low-risk and has high returns. Think about transport systems like roads and railways, or power stations — they’re used by a lot of people, and make a lot of money. Having these projects in its portfolio would allow the British Investment Bank to take on riskier ventures like giving a loan to an exciting new tech business. In fact, when you think that a lot of infrastructure projects involve small businesses (e.g. solar power companies or software companies with an interest in road management) it makes even more sense — the British Investment Bank could even act as an intermediary between the businesses and project management. Look below the surface, and infrastructure and small businesses are a solid combination.
Finally, the British Investment Bank would be both accountable and efficient. The government and Parliamentary committees would have oversight over its actions and would set the Bank’s objectives, but the day-to-day management would be taken care of by expert, professional bankers. This gives the Bank democratic accountability (sorely lacking in many public and quasi-public institutions at the moment) while being free of political meddling — the best of both worlds. Ultimately, the Bank would not be accountable to a group of shareholders, but to the British people.
Now, we know what you’re thinking — if the British Investment Bank is such a great idea, why hasn’t it happened already? The thing is that, while it can be self-sustaining once it gets going, a British Investment Bank would need a lot of money to get started. While ideas have been floated as to how to do this (e.g. a one-off levy on commercial banks, or by selling off the government’s assets) the reality is that such a large sum of money can only come from the government. Raising that amount of money would require either the raising of taxes or, more likely, borrowing. Given the government is trying to reduce its deficit, suggesting a new round of borrowing could be politically damaging. However, given the improvement that the British Investment Bank could make to the UK economy, the politicians putting it into practice could gain plaudits later for taking an unpopular decision that later turned gold.
Putting it into practice could be a political minefield, but a British Investment Bank could turn out to be the bedrock of Britain’s economy — somewhere entrepreneurs and small businesses could turn to for financial support, while providing the infrastructure to make Britain competitive to all businesses in an increasingly globalised world. After a costly initial capital injection it would be completely self-financing. It would be accountable to the British people while free of political meddling.
It’s time to balance our economy, and the British Investment Bank would be the best first step to doing so. Next stop, prosperity. All aboard!
Jon commentates on the ways culture and politics interact.