UK investment in public infrastructure in recent years – including roads, railways and energy projects – has been consistently low relative to other advanced economies (see chart below). gross-fixed-capital-formationIn his speech at the Conservative Party Conference, the Chancellor Philip Hammond stressed that “We need to close that gap with careful, targeted public investment in high value infrastructure”.

However, the UK’s vote to leave the EU has generated some uncertainty about sources of future infrastructure investment, particularly with respect to one important investor in the UK – the European Investment Bank (EIB). Founded under the Treaty of Rome of 1957, the EIB is directed and managed by EU member states and it is tasked with contributing to the “balanced and steady development of the internal market in the interest of the Union”. It is the world’s largest multilateral lending institution, borrowing and lending twice as much as the World Bank. The charts below highlight the key sectors for EIB lending in the UK as well as the increase in lending commitments over recent years (more than doubling between 2012 and 2015).


EIB, The EIB in the United Kingdom (accessed on 14 November 2016)

What has the EIB funded in the UK?

The EIB has played a role in various large scale infrastructure projects in the UK, including the Channel tunnel, the second Severn crossing, the Jubilee Line extension to the London Underground network, the Heathrow Express and London to Dover fast rail links. Brian Unwin, a British former President of the EIB, has suggested that: “There is no alternative multilateral institution with the EIB’s lending capacity and expertise in infrastructure investment, and proposals to establish a UK equivalent have come to nothing.”

The EIB also supports non-infrastructure projects that make a significant contribution to growth and employment. The joint European resources for micro to medium enterprises (JEREMIE), funded by the EIB and the European Regional Development Fund (ERDF), provides a funding channel that has been described as “a lifeline for growing small and medium-sized enterprises”. This funding is particularly important in the north of England where a combined £415m has been spent since 2010. New funds include the £142 million Finance for Business North East programme which, by the end of the programme, is expected to have supported 972 businesses, safeguarded 3,100 jobs and created over 5,700 more.

In response to several Parliamentary Questions, the Government has asserted that:

  • “The UK is and continues to be a shareholder of the European Investment Bank (EIB), and the EIB has publically stated that its engagement in the UK is unchanged. All existing loan contracts signed between UK promoters and the EIB remain in force, and the EIB has continued to sign and approve new projects since the EU referendum.”

However, questions remain about the relationship with the EIB beyond Brexit.

Could the EIB still lend to the UK after ‘Brexit’?

In 2011-2015, 89% of the EIB’s €339 billion in total investment was invested in EU member states. The remaining 11% was spent outside the EU, including in Norway (as a member of the European Free Trade Area), EU membership candidate countries (such as Montenegro, Serbia and Turkey) and other areas such as Latin America and ACP (Africa, Caribbean and Pacific) states. EIB lending outside the EU is governed by a series of mandates from the European Union in support of EU development and cooperation policies in partner countries. As a result, any continued lending to the United Kingdom would have to be unanimously agreed by the EIB’s board of governors (the finance ministers). The UK’s future relationship with the EIB is likely to be a feature of exit negotiations.

What are the alternatives?

As yet it’s unclear what approach the Government will take to fill any gaps left by any post-Brexit withdrawal of EIB funding. Reports suggest that with respect to infrastructure, it may be considering a number of possibilities, including the Treasury issuing “infrastructure bonds” (a way to match private investors and pension funds with new transport and energy schemes) or the launch of a UK investment bank.

For non-infrastructure schemes, many (such as JEREMIE) are co-financed by European structural and investment (ESI) funds and the EIB. The Treasury has guaranteed ESI funding for all projects signed before the 2016 Autumn Statement, as well as an additional guarantee for projects signed after the Autumn Statement that “pass the value-for-money test and are in line with domestic strategic priorities”. However, there has been no indication that the funding share from the EIB falls under this guarantee and thus there is uncertainty over overall funding for many projects.

Our Autumn Statement background briefing gives detailed info on the current economic situation ahead of Wednesday’s Autumn Statement. 

Picture credit: Ingenhoven Architects – European Investment Bank – photo 13 by Forgemind ArchiMedia; Creative Commons Attribution 2.0 Generic (CC by 2.0)