The European Investment Bank (EIB) is the world’s largest international public lending institution. It provides loans and long-term project funding at very low interest rates. It can do this because it can itself borrow at very low rates due to its AAA credit rating, being underwritten by the governments of all 28 EU Member States. Any potential risk is shared, giving a stronger guarantee than can be given by a single national government.
If we go ahead with Brexit and also leave the EIB, access to such loans will no longer be available to British local authorities, companies and government (apart from, perhaps, a small share of the few loans given outside the EU).
Not being able to apply for the EIB’s funding will be a significant loss for the UK. Over the past ten years, UK projects have benefited from more than £52bn in EIB loans. Projects like the extension of the Northern line on the London tube, the refurbishment of University of Edinburgh’s School of Law, campus development projects at Newcastle University, social housing projects in Northern Ireland and upgrades to the National Grid all benefited from EIB loans – to name just a few.
In Yorkshire alone, the EIB has invested £150 million for a new household waste plant at Allerton Park, and £56 million to build seven new secondary schools in Bradford, Harrogate, Huddersfield and Keighley. Furthermore, HS3, the new train lines meant to improve travel times between Liverpool, Manchester and Leeds, would undoubtedly have been able to benefit from EIB investment, especially as the Conservative government recently reneged on its promises to invest in rail infrastructure in the north of England.
In April 2017, the UK Institution of Civil Engineers voiced their concern that Brexit is likely “to reduce levels of investment in infrastructure“. They believe that, if we leave the EU, there is going to be a real need for a UK investment bank, able to support much needed infrastructure development. The existing British Business Bank is inadequate due to its small size and limited remit. In any case, it will be a tall order to match the support that the EIB has provided to the UK in recent years – an average of £7bn per year – and the low interest rates.
In the circumstances, one might wonder whether the UK might ask to stay in the EIB, despite leaving the EU, just as it might do for a number of EU agencies such as the Air Safety Agency, the Medicines Agency or Europol. This would make sense, especially as the EIB has never been a controversial part of what the EU does.
But, no: the “Brexit means Brexit from every aspect of the EU” position of the Tory right wing is dictating that we must leave even this beneficial body. Hard line ideological considerations are again trumping economic sense. In stark contrast, Labour’s shadow chancellor John McDonnell has made it clear, on several occasions since the referendum, that he would seek to retain EIB membership.
Another factor is that the government has an eye on reclaiming Britain’s share of the paid-in capital to the EIB. The UK’s 16% share of the paid-in capital is approximately €3.4bn. The snag here is that, although the European Commission has recognised that the UK will indeed be returned the paid-in capital once it is no longer is an EU member state, it made clear in its initial position paper in July that the capital should only be returned once the existing loans to UK projects have been fully repaid. With some UK projects having been given loans spread over many years, it is likely to take some time before the funds will be given back to the UK and reinvested – or not! – into UK projects by the government itself.
In the end, losing our preferential access to EIB funding will be a significant blow for the United Kingdom. British companies, universities, schools, hospitals, investors and governments will not be able to benefit from preferential access to the cheap loans that the EIB provides. This does not bode well for a country that wants to invest considerably more in its infrastructure.