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.
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.
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