Brexit: European Investment Bank (European Union Committee Report) — House of Lords, 2019-07-16
Topic: Domestic Commerce
Sharon Bowles (Liberal Democrats, Centre to centre-left): My Lords, I welcome this report, which explains how useful the EIB has been to the UK. It is a shame that, pre-referendum, this kind of information about the EU was not deemed interesting by most media—I know, because I tried In view of time, I will concentrate on chapters 4 and 5 of the report concerning the consequences of losing EIB access and how to replace it. For utilities, where there is a consumer on the hook, the private sector may well step in, at higher cost, and pass that on in the regular utility bills. Risk management and getting payment is easy and the Infrastructure Forum suggests—perhaps optimistically—that it will be an extra loan cost of 0.5% to 1%. However, there will be gaps that the private sector will not cover, such as technology, universities and regeneration, areas where there is also huge social and economic impact Action to plug those gaps is urgently needed, because the EIB money has already largely dried up in anticipation of Brexit. I was at international meetings where that consequence of the referendum was flagged by significant EU individuals. Steps to set up a UK investment bank should be taken as soon as possible, as well as meanwhile increasing and extending the guarantee scheme. It is no good hanging on to see if a future deal with the EIB transpires. That both loses time and fails to recognise that national investment banks are now an integrated part of delivering EIB group funding and would be an important component in any substantial EIB relationship and skill-sharing. We cannot just be supplicants Other member states have significant national investment banks that exist alongside the EIB. Those that have not had them are creating them. The communication from the Commission dated 22 July 2015 on the role of national promotional banks, as they are properly termed, explains quite clearly its rationale. Section 2.1 specifically lists ways that market failures happen, with R&D, infrastructure, education and environmental projects all flagged as areas of underinvestment. Section 2.2 of the Commission communication sets out the principles for setting up national promotional banks, which of course the UK did more selectively with the Green Investment Bank and the British Business Bank Why is the UK seemingly so reluctant about a broad investment bank? It seems there are two policy blocks. The first is aversion to state aid. Never was a truer word spoken than by Philip Duffy of the Treasury, who is quoted in paragraph 123 of the committee’s report. He says, "some of the desire to be bound by State aid may come from us as much as it comes from our interlocutors in the negotiations" This was said in the context of the British Business Bank, but it applies generally. The UK has been strongly against state aid and in favour of competition and has been a driving force behind strict competition rules, often much to the annoyance of other member states. However, that is a battle largely won, even if without the UK there might be EU slippage. It is time to set aside the mentality that it is a binary choice and the fear that if we give an inch all the other countries will take a mile. It is time to concentrate on looking after ourselves where we have market failures In a conference I chaired in 2016, the chief executive of Cambridge Enterprise said, "we do have the world’s leading financial centre on our doorstep, yet we’re not able to support companies like ARM to grow bigger in the UK, because they couldn’t access the money that could be accessed by a much smaller company on Japanese markets" He also pointed out that, "we can’t fund everything on a 10 year venture capital horizon, some things need 20 or 30 years" And we wonder why we do not grow super-large companies and why most of our universities have to sell spin-offs before they grow large, because they hit the so-called death valley of funding. My own experience leads me to agree with the witness quoted in paragraph 124 of the report that we have taken an overly cautious approach and massively underused what could be done Then we come to the second taboo: the statistical treatment of national investment banks in national accounts. The committee was categorically told that a UK institution similar to the EIB would feature in public sector debt on the national balance sheet. I am not convinced of the correctness of that treatment, and a witness quoted in paragraph 130 of the report also says that the UK’s calculation of public debt is "a complete outlier". Therefore, can the Minister tell me whether the ONS is applying the European system of national and regional accounts, ESA 2010, correctly with regard to these matters The Minister may recall that there was a recent adjustment to the way student loans were accounted for in the national accounts. That story started when I spotted how it was being done during the Economic Affairs Committee inquiry on student loans, and we called in evidence from Eurostat. ESA 2010 makes it clear that national investment bank loans done at arm’s length, without needing government approval, are accounted for outside the general government statistics. They fall outside the EU stability and growth pact, and while that has no force on the UK, it is where the recommended debt and deficit maxima come from. This is conveniently explained in the July 2015 Commission document that I previously referenced, and it is also how I recall the ESA 2010 legislation. Does the UK wilfully depart from the international system of national accounts because that is what ESA 2010 is based on, or is the UK not prepared to set up an investment bank sufficiently independently from the Government that it is off the balance sheet? This is important in the debate between investment bank versus gilts and guarantees and squeezing the debt figures.