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".

Getty
Show Hide image

“It feels like a betrayal”: EU citizens react to Jeremy Corbyn’s migration stance

How do Labour-supporting European migrants in the UK feel about their leader wanting to control EU migration?

“This feels a bit different from the man I had campaigned for,” says Eva Blum-Dumontet. “It felt like he was on the side of the group that matters, regardless of whether they were actually going to make him gain voters or not. He was on the side of what seemed right.”

Blum-Dumontet is a 26-year-old EU citizen who has been in the UK for five years. She works as a researcher for a charity and lives in north-east London’s Walthamstow, where she is the local Labour party’s women’s officer.

She joined Labour just before the 2015 general election, and campaigned for Jeremy Corbyn during his leadership bid that year. She spent one and a half months that summer involved in his campaign, either phone banking at its headquarters at the Unite union building, or at campaign events, every other evening.

“When he suddenly rose out of nowhere, that was a really inspiring moment,” she recalls. “They were really keen on involving people who had recently arrived, which was good.”

“Aside from the EU, I share all of his views”

Blum-Dumontet voted for Corbyn in both of Labour’s leadership elections, and she joined Momentum as soon as it was set up following Corbyn winning the first one in 2015. But she left the group two months ago.

She is one of the roughly three million EU citizens living in the UK today whose fate is precarious following the EU referendum result. And she doesn’t feel Corbyn is sticking up for her interests.

Over the weekend, the Labour leader gave an interview that has upset some Labour-supporting EU migrants like her.

Corbyn reiterated his opposition to staying in the single market – a longstanding left-wing stance against free market dominance. He added that his immigration policy “would be a managed thing on the basis of the work required” rather than free movement, and, in condemning agencies exploiting migrant workers, he said:

“What there wouldn’t be is wholesale importation of underpaid workers from central Europe in order to destroy conditions, particularly in the construction industry. You prevent agencies recruiting wholescale workforces like that; you advertise for jobs in the locality first.”

Corbyn also emphasised that Labour would guarantee the rights of EU nationals to stay in Britain – including the right of family reunion – and that there would still be Europeans working here and vice versa. But, for some in his party who hail from Europe, the damage was done.

“I feel like he’s now trying to signal more and more that he’s not on all sides, he’s on the side of people who are just scared of migrants,” says Blum-Dumantet, who will nevertheless stay in the party to try and change the policy. “The idea that he is willing to engage in this whole dog-whistling immigration fear feeling is a bit disturbing.”

She stresses that, “aside from the EU, I share all of his views”, but adds:

“I feel like he’s chosen his socialist utopia – and I don’t mean that as a bad thing; I’m a socialist as well – over the reality of the concrete lives of three million people. For us, this is not about some abstract ideal, it’s about our lives, whether we can get jobs here, whether we can stay here. And for the sake of his ideal, he’s sacrificing that. That does feel like a betrayal.”

***

Other EU migrants who initially supported Corbyn also feel let down. Sabrina Huck, the London representative of Labour’s youth wing Young Labour, moved here from Germany in February 2014.

Having joined the party that year, she voted for Corbyn in the first leadership election, “particularly because of things like being an internationalist, talking about migrant solidarity”.

Huck, 26, who lives in south London and works in public affairs, began to change her mind about him she discovered his Eurosceptic views. “It’s kind of my fault because I didn’t really do the research properly on him, I guess!” she laughs.

“I understand the argument that we have put downward wage pressure on some jobs”

Now, she feels “disappointed” in Corbyn’s comments about “wholesale importation” of workers. “The way he articulates himself – it doesn’t sound like what I wanted to hear from a Labour leader, particularly somebody who’s been a proud internationalist, proud migrant rights campaigner,” she tells me.

“I think the way he was making his point about wages was laying the blame way too much with workers and not with the bosses, basically.”

Huck notes that Corbyn is against the single market because of his socialist view of the EU as a “capitalist club”, rather than concern about borders. But she feels he’s using “the immigration argument” to sound mainstream:

“I feel like he’s using it as an opportunity to further his own ideological goal of leaving the single market by tying that to an argument that goes down well with the Leave-voting public.”

***

However, other Labour-leaning EU migrants I speak to do not feel Corbyn’s genuine motive is to bring immigration down – and are more understanding of his comments.

“I appreciate and understand the argument that we have put downward wage pressure on some – particularly blue collar or poorer paid – jobs, that is the nature of mass migration,” says a 29-year-old Czech who works for the government (so wishes not to be named), and has lived here since 2014. She believes his comments were made to “appeal to the hard left and Ukip types”, and has left the Labour party. But she adds:

“I can understand how communities suffering through a decade of stagnant wage growth and austerity are looking for a scapegoat, easily found in the form of migrants – particularly in a country where minimum wage and labour protections are so weak legislatively, and so poorly enforced.”

She also is sceptical that a “mass deportation” of EU migrants from Britain is likely to happen. “The optics are too bad, at a minimum,” she says. “It would look too much like the 1930s. What would the government do? Put us all on boats back to Europe?”

“I kind of shrugged off those comments and they didn’t bother me massively”

“I think they [Labour] are feeling their way around the issue [of Brexit] and are listening for public sentiment,” says Agnes Pinteaux, a Hungarian-born 48-year-old who moved to Britain in 1998. “But reconciling their hardcore Brexit support, those who just hate immigrants, those who want ‘sovereignty’, and those who want Brexit ditched altogether is going to be impossible.”

“I think the debate about the ethics of free movement of labour is a legitimate one, but it has to be rooted in human rights and dignity,” says Anna Chowrow, a 29-year-old third sector financial manager who moved from Poland to Scotland in 2007, adding:

“I was thrilled when Jeremy Corbyn was first elected Labour leader, and I have admiration for his principled approach. [But] I am in disbelief that these comments – akin to ‘British jobs for British workers’ – were made by him. The dehumanising language of ‘importation’ and ‘destruction’ is beyond disappointing.”

***

Finding EU citizens in Britain who are entirely sympathetic to Corbyn’s comments is difficult. Forthcoming defenders of his stance are hard to come by, suggesting that it’s a minority view among Europeans living in Britain. But there are some who continue to back him.

“I like Jeremy Corbyn’s authenticity. He comes across as genuine and honest, and I agree with most of his ideas. Contrary to the majority of politicians, he’s actually not afraid of coming across as a human being,” says Teresa Ellhotka, 24, who moved to the UK from Austria in 2016 and works in PR.

“His ideas and visions are, in my opinion, still very progressive”

“I kind of shrugged off those comments and they didn’t bother me massively,” she says of Corbyn’s stance on EU migrants. “My mind about Jeremy Corbyn hasn’t changed drastically as his ideas and visions are, in my opinion, still very progressive and I admire that he is dedicated to change but in a human way, and doesn’t suggest fighting fire with fire – as many other politicians, and people, seem to do.”

Ellhotka admits to being “a little surprised, as I did not expect this stance from him at all”, but feels there has been “so much back-and-forth” on the issue that she’s stopped worrying about what politicians say.

“Nobody seems to know what exactly is going to happen anyway.” The only thing, perhaps, that all politicians – and their voters – can agree on.

Anoosh Chakelian is senior writer at the New Statesman.