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".

Coders for Corbyn
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Can emojis win elections?

Jeremy Corbyn has claimed his campaign's use of technology would be the "path to victory" in 2020. But can emojis play a meaningful part? 

When photographic campaign badges were first unleashed in 1860, a Facebook commenter posted on Abraham Lincoln’s wall: “What is this? Today’s youth are doomed” and then, a moment later, “You call this news?”*

It might be tempting to react in a similar way to the fact that Jeremy Corbyn emoji – or rather, Jeremoji – are now a thing. Small digital stickers of the flat-capped Labour leader expressing joy and sadness might seem like the End Of Serious Political Campaigning As We Know It, but are they really that different from the multitude of deft and daft political campaign buttons throughout history?

Well, yes. Because there will be a marrow.

Beyond the marrow, however, Jeremoji aren’t actually that revolutionary. Before Kim Kardashian crashed the App Store with the 9,000 downloads a second of her Kimoji in December 2015, we here at the New Statesman created a much-needed Yvette Cooper emoji. Around the same time, Bernie Sanders supporters released BerniemojiThe slightly-less pleasing to the ear Hillarymoji were also unveiled by Hillary Clinton campaigners two months ago, though none of these apps were officially endorsed by their respective candidates.

“We’re not affiliated, we’re totally independent,” says Gregory Dash from Coders for Corbyn, the group behind Jeremoji, and a wider online volunteer toolkit for Corbyn supporters. “A lot of us have social links with the campaign and we ran ideas past them and got feedback but as an organisation we’re totally independent and all volunteers.”

Dash reveals that a variety of professional and amateur artists contributed to the emoji and that unfortunately, as the marrow design is currently being finalised, it won’t be in the first version of the app. Once the app has been approved by Google Play and the App Store, it should be available to the public in the coming weeks.

“Mainly they’re just fun but we’re also hoping we’ll be able to communicate some of the main message of Jeremy’s campaign,” says Dash.

But are Dash and other developers misguided in their attempts to promote sexagenarian politicians via a communication tool favoured by teens? Hillary Clinton has already been mocked for her attempts to capture the youth vote via memes, and has proven on multiple occasions that trying to be “down with the kids” can backfire. Corbyn’s own digital manifesto was met with scorn by some yesterday.

“To be very honest, the emojis are pretty cringy,” says Max Rutter, a 17-year-old from Oxford. “I know that they are targeted towards teens but politics isn't something most teens talk about on social media, and these emojis could only be used in a political conversation. Corbyn doesn't need emojis to get teens on his side, he just needs to stick to his guns and keep telling it like it is.”

A 2013 London School of Economics study on Youth Participation In Democratic Life supports Max’s assertions. The final report found that although in theory young people wanted politicians to use social media more, in practice it led to more negative perceptions of politicians and “an increased perception of the gap between political elites and the young.” Moreover, teens exposed to a social media campaign were less likely to vote than those who only received political flyers.

Jeremoji, then, may not ultimately capture the youth vote, and nor are they likely to make lifelong Conservatives pause and say, “On second thoughts, yes. This Corbyn chap is the man for me.” So what will they achieve?

“We’re hoping to do some emojis around Corbyn’s ten pledges and allow people to share them that way,” says Dash. The app already contains emojis affiliated with the Orgreave Truth and Justice Campaign, a society seeking justice for miners after the Battle of Orgreave in June 1984. Dash also hopes to get emojis supporting the No More Blacklisting campaign and Save Our Steel.

“We want to have it so you go to the Orgreave campaign and you click the emoji and it will give you a little bit of information about the campaign as well,” Dash says. “Emojis then become a tool to communicate all these different campaigns that are going on. There are amazing things going on that the wider Labour membership may not know about.”

Coders for Corbyn seek the approval of each of these campaigns before creating the emoji, as they don’t want to seem as if they’re exploiting campaigns to make themselves look better “like Owen Smith did”. But despite their current affiliation with Corbyn, the group plan to rebrand as Coders for Labour after the leadership election.

“I’m not sure there would be the same demand for Owen Smith emojis, but we'd definitely still be producing Labour themed emojis for people to use,” says Dash, when I ask what he’d do if Smith won.

Dash tells me when iOS10 launches in the autumn, emojis will be available at three times their current size, and will be more like stickers. This means they can communicate complicated messages from various campaigns, and may also lose any potential stigma associated with the word “emoji”. In the late 20th century, campaign buttons like Lincoln’s were replaced by cheaper disposable label stickers. It makes sense for these in turn to be replaced by digital stickers. Even if emoji can’t win elections, they may still prove powerful in raising awareness.

The UK’s currently most used emoji is the despairing crying face. Personally, I see no problem with it becoming a marrow.

*May not strictly be true 

Amelia Tait is a technology and digital culture writer at the New Statesman.