The UK’s new infrastructure bank has been heavily criticised for channelling millions of pounds of taxpayer money into third party investment funds rather than projects that support “levelling up” and tackling climate change.
Based in Leeds, the UK Infrastructure Bank was set up last June with £12bn in initial funding to draw private sector finance into infrastructure projects that support the transition to net zero carbon emissions by 2050 and boost regional and local economic growth.
It has not yet published a full strategy but has invested in six projects. This includes £50mn as co-lender to the broadband provider Fibrus, which is delivering high-capacity internet in Northern Ireland, and a £107mn loan to the Tees Valley Combined Authority for its South Bank quay development.
However, it is also investing in third party funds, including a £100mn contribution to a new infrastructure fund managed by Octopus Investments, called the “Octopus Sustainable Infrastructure Fund”. It has also signed a deal to invest up to £250mn in NextEnergy Capital’s £500mn solar fund.
Lord Aamer Sarfraz, the prime minister’s trade envoy to Singapore and a former Conservative party treasurer, said he was sure the bank could play a “valuable role”. But he added: “We need UKIB to do the difficult direct deals, not outsource their responsibilities to third party fund managers as once you invest in a fund you have very little influence over it.
“The point of the bank is to address a market gap in infrastructure investing and it’s not at all clear that it is doing that,” he added.
The comments follow the second reading in the House of Lords last week of a bill that will ensure the bank’s “long-term purpose as an enduring institution”. It is intended to guarantee that the bank is not sold off as happened with another government initiative, the Green Investment Bank, which was sold to the Australian infrastructure investor Macquarie in 2017.
Steve Coulter, head of industrial strategy at the Tony Blair Institute, said the bank was a “big bet by government that they throw a bit of public money at the private sector and it will bring in investment when in all likelihood they risk competing with existing investors, which are already willing to put capital into projects”.
At least two groups of potential investors are understood to have expressed their concerns over the bank’s decisions so far to John Flint, the former HSBC boss who is the institution’s chief executive.
One institutional investor described the decisions as “a bit of joke”. “It’s unclear why they would get a third party manager to raise funds to invest in these projects,” she said. “There is plenty of capital to be deployed out there — the Saudis and Australians are queueing to get into the UK as it’s still a good place to invest.”
Infrastructure investors say that they need the bank to act as a broker — finding, developing and reducing the risk in construction projects and producing a pipeline of projects in which they can invest.
UKIB said that it aims to work with project sponsors such as private companies or local authorities to unlock investment and is planning to publish its strategy within weeks.
“We have sought to deploy our capital sensibly and strategically across a range of product sectors and, as you’d expect, we have partnered with established companies with a track record to make an immediate impact and start delivering on our mandate,” it said.
The bank, which already employs about 120 people, is aiming to more than double staff numbers over the next year. Its initial £12bn in funding was made up of £5bn in equity and £7bn in debt from the Treasury.
A further £10bn will be provided through the existing UK guarantees scheme, which has been used to draw private finance into projects such as the Northern Line Underground extension. However, that was criticised by the National Audit Office in 2015 as delivering poor value for money for taxpayers.
Robert Skinner, head of alternative Investments at Octopus Investments, said the bank’s commitment would be match-funded and that there was a “significant funding gap” in emerging sectors, including green data centres, battery storage and electric vehicle charging, which are “currently not seen as core infrastructure investment opportunities for many institutional investors”.
“With our sustainable infrastructure fund, we are hoping to unlock that much-needed capital,” he said.
NextEnergy declined to comment.