The case for a British Investment Bank

The UK is the only member of the G8 not to have a dedicated institution dealing with SME financing.

For some time the calls have increased for the creation of some type of government-backed financing institution to support the UK economy.  This is based not only on the needs created by the perfect storm we have been experiencing since 2008 but also the value which a permanent institution could have for UK plc throughout the economic cycle, and in addressing issues which existed before the credit crunch.  In particular there are two areas where getting investment moving is vital:  the financing of small and medium-sized enterprises (SME) and ensuring we have fit-for-purpose infrastructure.  They are both fundamental for the creation of a growing economy in which business enterprise can flourish.

The non-availability of finance to smaller businesses is long-standing, having been identified in 1931 by the Macmillan Report.  Market failures exist in relation to the provision of both debt and equity.  In many cases this stems from an asymmetry of information between the finance provider and the business.  Financiers find it difficult to distinguish between high and low risk businesses without incurring significant costs which are judged too high in relation to the level of finance being provided, thus reducing profit margins.  The way Banks avoid this is only to finance businesses with a strong track record and/or the provision of collateral (the classic mortgaging of the family home to finance the business).  There are also credit-scoring systems which mean atypical, innovative businesses, which may be economically viable, are unduly penalised because they do not fit the mould.  The regulatory environment is stacked against SMEs as well with banks required to hold more capital when lending to SMEs, resulting in more expensive finance and/or less finance.  Added to that is the lack of competition in the mainstream SME lending market and the trend towards short-termism in lending, with facilities often repayable on demand.

Faced with such systemic deep-seated problems it is surprising, to say the least, that the UK is the only member of the G8 not to have a dedicated institution dealing with SME financing issues.  So there are international examples from which we can learn, notably the activities of KfW in Germany, the Small Business Administration (SBA) in the US and the Business Development Bank of Canada.  Indeed the SBA provided early-stage finance to success stories such as Apple.  There is also past UK experience, in the original activities of the Industrial and Commercial Finance Corporation (ICFC), created immediately after the Second World War to address the funding gap identified by the Macmillan Report.  Its modus operandi was to employ technical specialists, familiar with local business, operating through a regional network.  That original business model was watered down as external investors put pressure on increasing returns more quickly.  The strengths and weaknesses of the ICFC experience need to be borne in mind when considering how to structure any government intervention. 

In the area of infrastructure investment the coalition government's National Infrastructure Plan identifies the huge investment required in infrastructure over the next decade (some £250bn).  We have a nascent model in the area of the green economy, the Green Investment Bank.  Its activities are currently constrained by its inability to borrow until at least 2015 and then only if public sector net debt is falling as a percentage of GDP.  There are likely to be synergies between its current activities and those in the wider area of potential interventions in infrastructure investment and SME finance.  The Green Investment Bank's role is to crowd-in private finance where it can and to demonstrate financeability by being a frontier investor.  It will act in a commercial manner and is not in the business of financing lost causes.  Finance for infrastructure investment is constrained, in part by the retreat of commercial banks from the sector and the demise of credit-enhanced bonds but also as a result of regulatory changes, which make long-term investing in infrastructure more expensive (similar to the SME problem).  The EU has initiatives to attempt to address these issues but their resources are finite and have to cover the entire EU.  Given our investment needs, intervention is also required by government here in the UK.

There are therefore a series of necessary interventions in the areas of SME finance, and infrastructure finance which, based on past and present experience, here and internationally, point towards the creation of a British Investment Bank operating on a commercial basis independent from government. It would also have a public policy mission thus creating a dual-bottom line business strategy.  Given that split and the broad range of interested parties affected by it activities, there is merit in establishing an overarching Advisory Council which would not have executive authority but which would ensure that the board held to its dual strategy.  Members of the Advisory Council could include, among others, representatives of key government departments, trades unions and business.

Funding for the Bank could come from a range of sources, including channelling funds from National Savings and Investments.  Something similar is done to fund comparable institutions in France and Italy.  That would create an effective depositor base for the Bank and give it a platform to develop further products to fund its activities - for example Green ISAs, which could fund interventions by the Green Investment Bank.

If we fail to learn from and embrace the experience of other countries we will, as Ed Miliband said in his speech on 9 July, be condemning businesses to operate with one arm tied behind their backs.

Nicholas Tott is the author of a report for Labour's policy review on "The Case for a British Investment Bank".

The facade of the headquarters of the Bank of England. Photograph: Getty Images.

Nicholas Tott is a consultant for Herbert Smith and the author of a report for Labour's policy review on "The Case for a British Investment Bank".

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Inside Big Ben: why the world’s most famous clock will soon lose its bong

Every now and then, even the most famous of clocks need a bit of care.

London is soon going to lose one of its most familiar sounds when the world-famous Big Ben falls silent for repairs. The “bonging” chimes that have marked the passing of time for Londoners since 1859 will fall silent for months beginning in 2017 as part of a three-year £29m conservation project.

Of course, “Big Ben” is the nickname of the Great Bell and the bell itself is not in bad shape – even though it does have a huge crack in it.

The bell weighs nearly 14 tonnes and it cracked in 1859 when it was first bonged with a hammer that was way too heavy.

The crack was never repaired. Instead the bell was rotated one eighth of a turn and a lighter (200kg) hammer was installed. The cracked bell has a characteristic sound which we have all grown to love.

Big Ben strikes. UK Parliament.

Instead, it is the Elizabeth Tower (1859) and the clock mechanism (1854), designed by Denison and Airy, that need attention.

Any building or machine needs regular maintenance – we paint our doors and windows when they need it and we repair or replace our cars quite routinely. It is convenient to choose a day when we’re out of the house to paint the doors, or when we don’t need the car to repair the brakes. But a clock just doesn’t stop – especially not a clock as iconic as the Great Clock at the Palace of Westminster.

Repairs to the tower are long overdue. There is corrosion damage to the cast iron roof and to the belfry structure which keeps the bells in place. There is water damage to the masonry and condensation problems will be addressed, too. There are plumbing and electrical works to be done for a lift to be installed in one of the ventilation shafts, toilet facilities and the fitting of low-energy lighting.

Marvel of engineering

The clock mechanism itself is remarkable. In its 162-year history it has only had one major breakdown. In 1976 the speed regulator for the chimes broke and the mechanism sped up to destruction. The resulting damage took months to repair.

The weights that drive the clock are, like the bells and hammers, unimaginably huge. The “drive train” that keeps the pendulum swinging and that turns the hands is driven by a weight of about 100kg. Two other weights that ring the bells are each over a tonne. If any of these weights falls out of control (as in the 1976 incident), they could do a lot of damage.

The pendulum suspension spring is especially critical because it holds up the huge pendulum bob which weighs 321kg. The swinging pendulum releases the “escapement” every two seconds which then turns the hands on the clock’s four faces. If you look very closely, you will see that the minute hand doesn’t move smoothly but it sits still most of the time, only moving on each tick by 1.5cm.

The pendulum swings back and forth 21,600 times a day. That’s nearly 8m times a year, bending the pendulum spring. Like any metal, it has the potential to suffer from fatigue. The pendulum needs to be lifted out of the clock so that the spring can be closely inspected.

The clock derives its remarkable accuracy in part from the temperature compensation which is built into the construction of the pendulum. This was yet another of John Harrison’s genius ideas (you probably know him from longitude fame). He came up with the solution of using metals of differing temperature expansion coefficient so that the pendulum doesn’t change in length as the temperature changes with the seasons.

In the Westminster clock, the pendulum shaft is made of concentric tubes of steel and zinc. A similar construction is described for the clock in Trinity College Cambridge and near perfect temperature compensation can be achieved. But zinc is a ductile metal and the tube deforms with time under the heavy load of the 321kg pendulum bob. This “creeping” will cause the temperature compensation to jam up and become less effective.

So stopping the clock will also be a good opportunity to dismantle the pendulum completely and to check that the zinc tube is sliding freely. This in itself is a few days' work.

What makes it tick

But the truly clever bit of this clock is the escapement. All clocks have one - it’s what makes the clock tick, quite literally. Denison developed his new gravity escapement especially for the Westminster clock. It decouples the driving force of the falling weight from the periodic force that maintains the motion of the pendulum. To this day, the best tower clocks in England use the gravity escapement leading to remarkable accuracy – better even than that of your quartz crystal wrist watch.

In Denison’s gravity escapement, the “tick” is the impact of the “legs” of the escapement colliding with hardened steel seats. Each collision causes microscopic damage which, accumulated over millions of collisions per year, causes wear and tear affecting the accuracy of the clock. It is impossible to inspect the escapement without stopping the clock. Part of the maintenance proposed during this stoppage is a thorough overhaul of the escapement and the other workings of the clock.

The Westminster clock is a remarkable icon for London and for England. For more than 150 years it has reminded us of each hour, tirelessly. That’s what I love about clocks – they seem to carry on without a fuss. But every now and then even the most famous of clocks need a bit of care. After this period of pampering, “Big Ben” ought to be set for another 100 or so years of trouble-free running.

The Conversation

Hugh Hunt is a Reader in Engineering Dynamics and Vibration at the University of Cambridge.

This article was originally published on The Conversation. Read the original article.