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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The Tinder dating app isn't just about sex – it's about friendship, too. And sex

The lines between sex, love and friendship are blurrier than ever, as I found out quickly while using the app.

The first time I met someone using Tinder, the free dating app that requires users to swipe left for “no” and right for “yes” before enabling new “matches” to chat, it was an unqualified success. I should probably qualify that. I was newly single after five years in a committed relationship and wasn’t looking for anything more than fun, friendship and, well, who knows. A few weeks earlier I had tried to give my number to a girl in a cinema café in Brixton. I wrote it on a postcard I’d been using as a bookmark. She said she had a boyfriend, but wanted to keep the postcard. I had no date and I lost my page.

My Tinder date was a master’s student from Valencia called Anna (her name wasn’t really Anna, of course, I’m not a sociopath). When I arrived at the appointed meeting place, she told me I was far more handsome IRL (“in real life”) than my pictures suggested. I was flattered and full of praise for the directness of continental Europeans but also thought sadly to myself: “If only the same could be said about you.”

Anna and I became friends, at least for a while. The date wasn’t a success in the traditional sense of leading us into a contract based on exclusivity, an accumulating cache of resentments and a mortgage, but it had put me back in the game (an appropriate metaphor – people speak regularly of “playing” with the app).

According to Sean Rad, the co-founder who launched Tinder in late 2012, the service was invented for people like me. “It was really a way to overcome my own problems,” he told the editor of Cosmopolitan at an event in London last month. “It was weird to me, to start a conversation [with a stranger]. Once I had an introduction I was fine, but it’s that first step. It’s difficult for a lot of people.” After just one outing, I’d learned two fundamental lessons about the world of online dating: pretty much everyone has at least one decent picture of themselves, and meeting women using a so-called hook-up app is seldom straightforwardly about sex.

Although sometimes it is. My second Tinder date took place in Vienna. I met Louisa (ditto, name) outside some notable church or other one evening while visiting on holiday (Tinder tourism being, in my view, a far more compelling way to get to know a place than a cumbersome Lonely Planet guide). We drank cocktails by the Danube and rambled across the city before making the romantic decision to stay awake all night, as she had to leave early the next day to go hiking with friends. It was just like the Richard Linklater movie Before Sunrise – something I said out loud more than a few times as the Aperol Spritzes took their toll.

When we met up in London a few months later, Louisa and I decided to skip the second part of Linklater’s beautiful triptych and fast-track our relationship straight to the third, Before Midnight, which takes place 18 years after the protagonists’ first meet in Vienna, and have begun to discover that they hate each others’ guts.

Which is one of the many hazards of the swiping life: unlike with older, web-based platforms such as Match.com or OkCupid, which require a substantial written profile, Tinder users know relatively little about their prospective mates. All that’s necessary is a Facebook account and a single photograph. University, occupation, a short bio and mutual Facebook “likes” are optional (my bio is made up entirely of emojis: the pizza slice, the dancing lady, the stack of books).

Worse still, you will see people you know on Tinder – that includes colleagues, neighbours and exes – and they will see you. Far more people swipe out of boredom or curiosity than are ever likely to want to meet up, in part because swiping is so brain-corrosively addictive.

While the company is cagey about its user data, we know that Tinder has been downloaded over 100 million times and has produced upwards of 11 billion matches – though the number of people who have made contact will be far lower. It may sound like a lot but the Tinder user-base remains stuck at around the 50 million mark: a self-selecting coterie of mainly urban, reasonably affluent, generally white men and women, mostly aged between 18 and 34.

A new generation of apps – such as Hey! Vina and Skout – is seeking to capitalise on Tinder’s reputation as a portal for sleaze, a charge Sean Rad was keen to deny at the London event. Tinder is working on a new iteration, Tinder Social, for groups of friends who want to hang out with other groups on a night out, rather than dating. This makes sense for a relatively fresh business determined to keep on growing: more people are in relationships than out of them, after all.

After two years of using Tinder, off and on, last weekend I deleted the app. I had been visiting a friend in Sweden, and took it pretty badly when a Tinder date invited me to a terrible nightclub, only to take a few looks at me and bolt without even bothering to fabricate an excuse. But on the plane back to London the next day, a strange thing happened. Before takeoff, the woman sitting beside me started crying. I assumed something bad had happened but she explained that she was terrified of flying. Almost as terrified, it turned out, as I am. We wound up holding hands through a horrific patch of mid-air turbulence, exchanged anecdotes to distract ourselves and even, when we were safely in sight of the ground, a kiss.

She’s in my phone, but as a contact on Facebook rather than an avatar on a dating app. I’ll probably never see her again but who knows. People connect in strange new ways all the time. The lines between sex, love and friendship are blurrier than ever, but you can be sure that if you look closely at the lines, you’ll almost certainly notice the pixels.

Philip Maughan is Assistant Editor at the New Statesman.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad