Launch a national investment bank
National investment banks can steer capital towards public priorities and economic transformation.
The UK is unusual among major advanced economies in not having a national investment bank (NIB) or similar institution providing the type of long-term, patient finance that the private sector does not (although the Scottish Government plans to launch a Scottish NIB soon). While the traditional functions of NIBs in other countries have been in infrastructure investment and counter-cyclical lending, in recent times they have taken on more active roles in industrial and innovation policy. In countries such as Germany and China, NIBs have confronted the key social and environmental challenges of the 21st century, such as climate change.
An NIB is most effective when placed at the centre of the investment process, nurturing knowledge and expertise and coordinating other stakeholders in the investment ecosystem. In order to provide the bank with the flexibility required to fulfil a mission-oriented mandate, it needs a wide range of instruments at its disposal, and the ability to invest across a wide range of activities. In the UK, a new NIB could be most effectively structured around three operational ‘arms’:
- Enterprise: Many UK firms struggle to access finance from banks, and are underserved compared with international firms that benefit from domestic industrial policy and state-led financial support. A new NIB could work with other banks to provide finance to firms and nurture new industrial landscapes. This does not simply mean keeping struggling companies alive, but creating new opportunities. The NIB could promote industrial democratisation by offering tailored support to cooperatives, and helping traditional businesses transform their business models. It could also attach conditions to loans, such as reducing carbon footprints or complying with pay ratios.
- Infrastructure: Successive governments have underinvested in key strategic areas such as energy and transport, which has held back the UK’s economic potential. A new NIB could provide low-cost finance for infrastructure projects which align with the wider missions of the bank – ranging from energy and transport, to public utilities and new towns development.
- Innovation: Investment in research and development in the UK has fallen over the past 30 years, and remains lower than most other major advanced economies. Because innovation is highly uncertain and has long lead times, it requires finance that is patient and long-term. Many great technological breakthroughs, from the internet to nanotechnology, were only made possible by early stage public investment. A new NIB could provide long-term, patient finance. Where innovative breakthroughs do occur as a result of NIB investments, the NIB should seek to capture some of the financial rewards, for example by holding equity in innovative companies.
Policy in practice
Projects that demonstrate the benefits or may be helped by polices like this.
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