Tag Archives: financial services

A Scottish National Investment Bank: the solution to growing Scotland’s economy?

Posted on by

By Steven McGinty

On 28 February, the Scottish Government’s ambition to establish a Scottish National Investment Bank (SNIB) moved one step closer, following the publication of an implementation plan.

Welcoming the plan, First Minister Nicola Sturgeon (who announced the policy last September) set out why she believed the time was right for a Scottish National investment bank. She explained:

“To realise our ambitions for Scotland’s economy, innovative companies need access to strategic, patient finance to grow and thrive, while the business environment must encourage our young people to be the entrepreneurs of the future.”

What does the plan say?

The plan – developed by Benny Higgins, CEO of Tesco Bank – provides recommendations for the governance, operating model, and financing of the new bank. It proposes that the new financial institution should:

  • be publicly-owned and focused on creating inclusive growth
  • operate in an ethical and transparent way
  • be supported by £2 billion of capital over the first 10 years
  • work with private investors, not crowd them out
  • help creative new markets for private investment
  • provide investment for smaller and larger projects
  • become self-sufficient in the long-term, including raising its own capital to fund investments

Why a publicly owned bank?

The idea has circulated in British politics for a number of years, particularly since the 2008 financial crisis. In 2010, Lord Mandelson – then Secretary of State – seemed keen on the idea, even going so far as having fact finding lunches with representatives from the KfW banking group, Germany’s state-owned bank. In 2017, the UK Labour party manifesto included a proposal to establish a National Investment Bank and a network of regional development banks.

In Scotland, environmental campaigners Friends of the Earth have been working with New Economics Foundation and Common Weal to build a case for a national investment bank. In their 2016 report ‘Banking for the Common Good’, the group argued that the UK banking system is not fit for purpose, highlighting that over two million people in the UK don’t have a bank account and that 1,500 communities have no access to banking services. They also noted that small businesses struggled to access finance, particularly in Scotland.

The plan has also been influenced by the work of University College London professor Marian Mazzucato – a member of the Scottish Government’s council of economic advisers. At the launch, she explained:

“Innovation requires patient strategic finance, and there is simply not much of that in the UK. Yet around the world state investment banks are taking centre stage in providing such finance for key social and environmental challenges of the 21st century.”

The International Monetary Fund (IMF) have also published research on the rationale for publicly owned banks. This includes work by Nobel Prize winning Economist Joseph Stiglitz, who suggests state banks can help overcome market failures by promoting investments which lead to important social benefits. In addition, the report notes that state banks have the ability to invest resources in strategically important areas which the private sector has been unwilling to invest in. Providing this capital can be crucial for developing innovative technologies, helping them to emerge as profitable industries, and eventually creating economic growth.

Opposition to a Scottish National Investment Bank

In the Scottish Parliament, Ruth Davidson, leader of the Scottish Conservative Party, claimed that the bank was just a re-announcement of previous policies, highlighting that there is already a Scottish Investment Bank, which sits within Scottish Enterprise.

However, this was robustly refuted by the First Minister, who argued that the new Scottish National Investment Bank was on a different scale and of a different nature to previous programmes.

National investment banks in practice

Germany – Kreditanstalt für Wiederaufbau (KfW)

The KfW is owned jointly by the German government (80%) and German states (20%). The bank raises about €60-70 billion each year through issuing bonds and due to its’ public status is able to provide loans at better rates than commercial banks. It has interests in a wide range of areas, from funding small and medium sized enterprises looking to export abroad, to cities looking to invest in new road infrastructure.

The bank has won a number of awards including ‘World’s Safest Bank 2016’ and ‘Best Responsible Investor 2016’.

Nordic Investment Bank (NIB)

The NIB was formed in the mid-1970s by five Nordic countries: Denmark, Finland, Iceland, Norway and Sweden. By 2015 the bank had grown to include three new members: Estonia, Latvia and Lithuania.

Based in Helsinki, its mission is to create a ‘prosperous and competitive Nordic-Baltic region’. This is achieved through funding projects that improve infrastructure, increase market efficiency, and support the development of new technologies.

In 2016, €3,373 million was disbursed in loans, with the largest share of lending going to local governments to fund wastewater systems, electricity transmission, and heat generation projects.

Final thoughts

Since the 2008 financial collapse, a number of political leaders have supported a national investment bank. However, what really matters is that any new bank – whether public or shareholder owned – is able to meet key economic goals, including increasing finance for small and medium sized businesses and supporting the technologies of the future.

The Knowledge Exchange provides information services to local authorities, public agencies, research consultancies and commercial organisations across the UK. Follow us on Twitter to see what developments in policy and practice are interesting our research team. 

‘Workshop of the world’ … Is British manufacturing a thing of the past?

Posted on by
Image of old industrial plant.

Image: Till Krech via Flickr under a Creative Commons Licence.

By Steven McGinty

In the 19th century, Britain was heralded as the ‘workshop of the world’, producing everything from locomotives to extraordinary handicrafts. By the 20th century, the United States was the predominant manufacturing power, but Britain had become a specialist in manufacturing.  In recent history, economic growth has been led by the service sector, particularly from financial services in the City of London.

This change in the economy has led to a lot of debate. In fact, this was cited as one of the main drivers of inequality by the Scottish Trades Union Congress (STUC) at a recent seminar I attended. However, does this mean Britain should return to its industrial roots, or should it focus on the provision of services, which has been seen as key to recent economic successes?

The Chancellor, George Osborne, certainly thinks there’s a place for manufacturing. In March 2014, he emphasised that his Budget was focused on boosting UK manufacturing and rebalancing the economy across the regions. The Budget included some high profiles measures, including the introduction of £7 billion of funding to cut energy bills for manufacturers, as well as compensation of £1 billion for energy intensive manufacturers.

A recent House of Commons Library statistical release provides some interesting insights into the UK manufacturing sector. It reports that economic output has decreased from 30% in the 1970s to 10% in 2012 and that manufacturing was badly affected during the recession, falling 14.5% between the first quarter of 2008 and the third quarter of 2009. The manufacturing workforce has also reduced from 5.6 million in 1982 to 2.6 million in 2014.

However, an Office for National Statistics (ONS) report provides some signs of optimism. It found that, since 1948, productivity in the manufacturing sector has increased gradually by 2.8% each year, compared to 1.4% in the service sector. The report suggests that the UK manufacturing sector has benefited more from information and communications technology (ICT) than the services sector and the more integrated global economy.

These factors have contributed to a shift from low-value manufacturing, where the focus was on low costs and low skilled workers, to high-value manufacturing, where workers provide value to the production process with their knowledge and expertise.

Interesting trends have also started to develop. For instance, Civitas has produced a report into ‘onshoring’ or ‘reshoring’, a practice that involves firms bringing back production that they had previously sent overseas. Firms are taking this approach for a number of reasons, some of which are related to the difficulties of offshoring such as language barriers, whereas others are looking more at the positives of domestic production, such as improved quality control, as well as an increase in a brand’s appeal by its connection to having products manufactured in countries such as the UK. Examples of onshoring including General Motors, who are currently investing £125 million in a domestic supply chain in the UK.

The report also highlighted that there are still barriers to onshoring. For example, less flexible workforces, although this is deemed to be changing in the United States as trade unions are becoming more flexible.

We have also seen the rise of ‘phoenix industries’. These are groups of firms that use similar technologies and have emerged in traditional industrial areas, typically developing sophisticated components for use in a range of industries. This idea was discussed in a recent article in the Cambridge Journal of Regions, Economy and Society. It focused on a case study of the West Midlands, an area which has been seen as the ‘heartland’ of the automotive industry.  The article emphasised the importance of Jaguar Land Rover (JLR), the niche/luxury car manufacturer, for providing opportunities for smaller more innovative companies in their supply chain. Yet, the article also highlights that getting access to funding is key for these companies to develop their prototypes. This lack of funding for small firms was identified as a weakness of the UK sector.

So, is British manufacturing a thing of the past? The answer is most likely no. However, the shape of the manufacturing industry and the role it has to play as part of the overall economy has still to be determined. This will depend on a number of factors including future government policy, particularly addressing issues such as access to capital and shortages of skills, as well as the overall global economy, most notably the ability of the Eurozone to recover from its current economic downturn.

 

 Further reading:

N.B. Some resources may only be available to members of the Idox Information Service. Find more information on the service here.