UK Infrastructure Bank opens for business – who will it help? - PKF Francis Clark
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UK Infrastructure Bank opens for business – who will it help?

Last Thursday (17 June) the UK Infrastructure Bank (UKIB) opened for business with one observer proclaiming, “UK SMEs set to benefit from multi-billion pound funding with new national bank”.

But to be honest after reading that article, and other materials, I cannot see how that author concluded that SMEs will be the main beneficiary.

So, what do I know and what is its relevance?

UKIB – what is it exactly?

UKIB was first announced by the Chancellor at the 2020 Spending Review. It is designed to support major infrastructure projects, replacing the role that the European Investment Bank (EIB) played before Brexit and assisting with the delivery of the National Infrastructure Strategy.

Whilst it is referred to as a bank, it is not actually a banking institution and does not operate as such.

Where does UKIB’s money come from?

The UKIB will draw capital from HM Treasury and can borrow from private markets. It will also grow through recycling and retention of return on investments. The government will allocate capital to the Bank in phases in line with its institutional development.

What infrastructure projects will it invest in?

I found the framework documents useful in terms of context for infrastructure projects that the UKIB will be looking to invest in and have tabulated extracts below:

Strategic objectives of UKIB

 

  • To help tackle climate change, particularly meeting the government’s net zero emissions target by 2050
  • To support regional and local economic growth through better connectedness, opportunities for new jobs and higher levels of productivity
Operating principles, include

 

  • Achieving policy objectives and generating a positive financial return over time
  • UKIB will prioritise investments where there is an undersupply of private sector financing and, by reducing barriers to investment, crowd-in private capital
  • UKIB will be a long-lasting institution and able to provide long-term patient capital through its investments
Investment principles
  • The investment helps to support the UKIB’s objectives
  • The investment is in infrastructure assets or networks, or in new infrastructure technology. UKIB will operate across a range of sectors, but will prioritise in particular clean energy, transport, digital, water and waste

Open for business

The Bank is initially launching in an interim form and will scale up in capability and capacity over time.

UKIB will have an initial £12 billion of capital to deploy (£5 billion of equity and £7 billion of debt) and will be able to issue £10 billion of government guarantees

Looking at the bank’s own website: https://www.ukib.org.uk/  it states that “Once fully operational the UKIB will invest in private and public sector projections as well as provide advisory services.”

As of 17 June, they will only offer private sector financing where:

  • UKIB “provide a range of financing tools across the capital structure, including loans, credit enhancement and equity investments.”
  • To be eligible for financing a private sector project must meet UKIB’s four investment principles:
    1. The investment helps to support the Bank’s objectives to drive regional and local economic growth or support tackling climate change
    2. The investment is in infrastructure assets or networks, or in new infrastructure technology. The Bank will operate across a range of sectors, but will prioritise clean energy, transport, digital, water and waste
    3. The investment is intended to deliver a positive financial return, in line with the Bank’s financial framework
    4. The investment is expected to crowd in significant private capital over time
  • UKIB do not invest in projects involving extraction, production, transportation and refining of crude oil, natural gas or thermal coal with very limited exemptions e.g. carbon capture and storage (CCS) or carbon capture, usage and storage (CCUS)
  • UKIB does not bail out companies in distress

From late summer 2021, UKIB will offer financing to local and mayoral authorities across the UK, for high-value and complex economic infrastructure projects.

So, is it relevant for SMEs?

I am unsure currently as to how relevant this new institution is to our client base as a source of funds, directly or indirectly.

However, as the UKIB appears to be the main conduit for government investment into infrastructure projects and specifically those with a focus on delivering net-zero by 2050 it is, I suspect, going to impact on the SME market.

More detail on UKIB’s stance as regards projects eligibility (specifically those that do not contribute positively to climate change) will apparently be released once the Bank is out of its ‘interim’ stage.  I will provide an update when that happens.

FEATURING: Richard Wadman
Richard qualified as a Chartered Accountant with KPMG in 1993. Since 2006 he has worked in Corporate Finance, firstly with the predecessor firm in Truro… read more
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