Stephen Hunsaker / Oct 2024
Image: Shutterstock
It is very likely that on the eve of the 2016 referendum, there were very few Brits – apart, perhaps, from those stationed in a recess of Luxembourg - contemplating the long-term impact that the vote might have on UK infrastructure projects and public investment. Eight years on, while the number of those concerned may not have grown, the problem of public investment certainly has. The shadow of the European Investment Bank (EIB) still looms large over the UK investment landscape, and it likely will for some time to come.
In 2016, the UK received over £8 billion in investment from the EIB. As a result of Brexit, the UK left all EU institutions, including the EIB. By 2020, the UK had established four domestic investment banks to replace the EIB’s role. However, these adolescent institutions have struggled to fill the substantial gap left by their predecessor.
By 2023, the new UK investment banks managed to replace only 40% of the £8 billion that the EIB had been investing in the UK in 2016. In critical sectors like infrastructure, the replacement rate only reached 20%.
In the last year, notable progress has been made by the UK investment banks into financing projects ambitiously similar to those supported by the EIB, including scaling up semiconductor manufacturing, green hydrogen production, and offshore wind port capacity. However, the small sizes and lack of the same institutional creditability - and critically, lower credit rating - as their European counterpart means the banks tend to focus on less risky, smaller projects.
It appears unlikely that the UK investment banks will be able to match previous EIB levels of investment until at least 2028. This makes the warning from former EIB president Werner Hoyer, that the UK would struggle to replace the investment levels of the EIB for a decade, all the more prescient.
The UK’s options for an immediate remedy are limited. As previously examined, Labour’s plan for the five-year, £7.3 billion National Wealth Fund to spur investment is a modest contribution compared to what the UK had under the EIB, which invested that amount annually into the UK, pre-Brexit.
Reestablishing relations with the EIB as a non-member state is a possibility, but fraught with unknowns, and likely many concessions - something that neither side, if the current political climate is any indication, seems keen on giving. While the UK and EU may be poised to enter a new phase with talks of a ‘reset,’ public investment has yet to be mentioned, and it seems unlikely to be on the agenda anytime soon.
Even rejoining the EU, a point that has clearly been stated as off the table, wouldn’t provide a quick fix either. It would be a long and arduous process, and reinvestment from the EIB into the UK would likely not occur until well after the ink had dried on Article 49.
The UK government’s ambitions of growth are predicated on its ability to crowd-in private investors for infrastructure projects. To do so, it must first inject public financing to attract those investors. Growth comes at a cost and public investment is a critical component of that equation. More ambitious plans than just the National Wealth Fund will likely be required to achieve the level of growth the UK aspires to. Yet, without the backing of an institution like the EIB, the UK will likely struggle to meet the investment demand.
In the absence of a clear solution, the UK must navigate an increasingly precarious investment landscape, balancing the need for immediate action with long-term planning. A more coordinated and ambitious strategy—potentially involving new partnerships or stronger public investment commitments—may be the only viable way forward. Without it, the UK’s infrastructure and growth ambitions risk being left in the shadow of what was once possible under the EIB’s robust support.
