Whilst the Government has indicated an intent to maintain a relationship with the European Investment Bank (‘EIB') post-Brexit, concrete plans for how it intends to do so have yet to be announced. Antony Smith considers the impact that loss of EIB membership could have on the UK construction industry in our latest Global Vantage article.

The European Investment Bank (‘EIB') is the European Union's bank, owned and controlled by the EU's member states. Since 1973, the EIB has financed over 1,000 projects in the UK, with a lifetime investment of more than €118bn. Whilst the Government has indicated that it will look to maintain a relationship with the EIB post-Brexit, it has yet to outline concrete plans for how it intends to do so. With Brexit now only a few months away, it seems increasingly likely that, at least in the short-term, EIB investment will not be guaranteed post-Brexit. This raises the prospect of a significant funding gap in the construction industry.

Perhaps the most ‘ambitious' option mooted to ‘pick up the slack' should EIB membership be lost is for the Government to introduce a domestic EIB look-a-like (a “British Investment Bank”). National investment banks are not a novel concept, with institutions that promote investment within domestic economies already established both in Europe and beyond. See, for example, the Nordic Investment Bank or the Development Bank of Japan. Indeed, the Scottish Government recently announced plans to create a Scottish Investment Bank (‘SIB'), operative by the second half of 2020. However, to implement this concept on a UK-wide scale would almost certainly take time and significant up-front investment.

In the short-term, existing Government initiatives offer a more readily available option for project funding post-Brexit. These include the UK Guarantees Scheme (UKGS), which can issue up to £40 billion of guarantees to infrastructure projects that are ‘nationally significant'. The UKGS ‘is open to until at least 2026', and has to-date issued £1.8bn of Treasury-backed financing for projects. Whilst the ‘nationally significant' threshold clearly limits the circumstances in which the UKGS will be available for project financing, it is undoubtedly a step in the right direction in terms of Government support for infrastructure.

Absent intervention from the State, the private sector could have a greater role to play in financing infrastructure projects. In this respect, it has been suggested that post-Brexit we may see a return to the Private Finance Initiative (‘PFI') model, which was abruptly axed by then-Chancellor Philip Hammond in 2018. However, for some projects, particularly those viewed as ‘riskier' or with a broader social aspect, private sector funding may not as easily accessible as EIB funding. Such projects have generally benefitted from the EIB's wider social aims. Further, the terms on which finance is offered by the private sector are unlikely to be as favourable as that which are currently available through the EIB.

As negotiations regarding the UK's future relationship with the EU continue, it is vital that the Government recognises the positive contribution that EIB membership has made on the domestic construction industry. Whilst alternative project funding may be available to some post-Brexit, it is difficult to see how these sources, in their present state, represent a long-term solution to the EIB funding gap. If our construction and engineering sector is to continue to prosper, then it seems inevitable that Government action will be needed.

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