Report: Blueprint for a Scottish National Investment Bank

New report by Common Weal and NEF will be launched at IdeaSpace on Thursday 13 October, 15.20pm

A SCOTTISH NATIONAL INVESTMENT BANK could be established now by the Scottish Government, and could be a major driver of jobs through long-term, low-interest loans for investment.

‘Blueprint for a Scottish National Investment Bank’, published jointly by think-tank’s the New Economics Foundation and Common Weal, can be read in full here.

It provides a detailed account of what a Scottish National Investment Bank (SNIB) could look like, and the legal, political and economic approach needed to establish it.

The report has been backed by economists and trade-unionists (see quotes below), and builds on the work of Banking for the Common Good, a paper published earlier in the year by Common Weal, NEF, Move Your Money and Friends of the Earth Scotland.

“To illustrate the scale of the potential benefit to the public finances, the report estimates that the Scottish Government would have saved a total of £26 billion if the projects financed through Private Finance Initiative (PFI) and Non-Profit Dividend (NPD) schemes had instead been financed by a Scottish National Investment Bank.”

Using Scottish Government figures for job creation from capital investment, the report states that such a bank could directly support the creation of 50,000 jobs “within just a few years of being established”.

It could also be used for public investment, being part of a strategy to replace costly public-private partnerships. To illustrate the scale of the potential benefit to the public finances, the report estimates that the Scottish Government would have saved a total of £26 billion if the projects financed through Private Finance Initiative (PFI) and Non-Profit Dividend (NPD) schemes had instead been financed by a SNIB.

The report will be publicly launched at IdeaSpace on Thursday, Science Centre 3.20pm, with SNP MP and The National columnist George Kerevan among the speakers.

Other key points include:

- Mandate: The SNIB’s overarching mandate should reflect a broader economic strategy developed in a democratic process, controlled by the Scottish Government, and reviewed periodically.

- Activities: The core activities of a SNIB should be to support investment in infrastructure and SMEs and to direct investment towards innovation for social and environmental objectives, such as climate change mitigation and adaptation.

- Ownership: The SNIB should be publicly owned but operated independently as a fully commercial entity, free of day-to-day political interference.

- Governance: Robust ownership and governance structures should be put in place which promote the highest levels of transparency and accountability, and provide a clear dividing line between the government and lending decisions.

- Capitalisation: The Scottish Government should inject £225m of ‘paid-in’ capital with that accumulated figure over six years being ‘subscribed’, giving a total subscribed capital of £1.35 billion from year one.

- Funding: The SNIB should be allowed to raise funds on capital markets by issuing bonds up to a leverage ratio of 2.5 times the amount of subscribed capital, meaning it could raise £3.37 billion that would be available finance for SNIB loans from year one.

Other practical issues which need to be addressed in setting up a Scottish National Investment Bank include:

- Accounting: The Scottish Government should request changes to budgeting rules to ensure that the lending activities of the SNIB does not score against expenditure limits and divert money from public services.

- EU state aid approval: Securing EU state aid approval would require that the SNIB’s lending is additional i.e. focused in areas that are currently being underserved by the private sector.

- Regulation: The SNIB would likely need to be authorised and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

QUOTES

Laurie McFarlane, author of the report and researcher at the New Economics Foundation, stated: “Meeting the challenges of the twenty-first century requires bold and ambitious plans for financing and directing investment in a smart, inclusive and sustainable direction. However, with public budgets in decline, economic uncertainty increasing and a banking sector still focused on short-term shareholder returns, the need for fresh thinking around investment is greater than ever.

 “We believe that Scotland’s growing political autonomy presents an opportunity to chart a different course to that being pursued in the rest of the UK. In our new paper we have set out how establishing a Scottish National Investment Bank would be the first step towards creating a new ecosystem of banking institutions capable of transforming Scotland’s economy and reasserting the country’s once proud banking tradition.”

Common Weal director Robin McAlpine commented: “This report sets out a clear roadmap for how the Scottish Government could establish a national investment bank. We’ve done a lot of work to show that this is viable and achievable by the Scottish Parliament. The biggest obstacle now is whether there is the will to be bold and make an intervention in the Scottish economy which will have benefits for generations to come - or whether half-hearted compromises will suffice. Scotland’s economy needs real change. Every political party in Scotland should be supporting this initiative.”

“A publicly owned SNIB would be able to shift the direction of the Scottish economy away from short-termism and speculative investment towards longer term and more productive spending and financing.” Professor Andrew Cumbers

Dave Watson, Head of Policy & Public Affairs at Unison Scotland, said: “This paper is a welcome contribution to the debate on public borrowing in Scotland. Our economy needs a significant boost in public investment and current models of non-government borrowing like PPP are ruinously expensive. National investment banks have a proven track record in leveraging the resources we need to increase sustainable investment.”

Andrew Cumbers, professor in the Adam Smith Business School at Glasgow University, stated: “This is a long overdue proposal to address an area of increasingly critical public policy failure - securing long term patient capital to invest in projects of environmental and social value.

“A publicly owned SNIB would be able to shift the direction of the Scottish economy away from short-termism and speculative investment towards longer term and more productive spending and financing. There is immense potential too for such a bank to stimulate productivity, innovation and entrepreneurship among Scottish SMEs."

"At a moment when even Theresa May's government claims to have embraced support for a state industrial policy, now is the time to advance plans for a public investment bank in Scotland to re-boot economic growth. This latest paper from NEF serves as a good starting point and I hope it will be given serious consideration by the First Minister's Growth Commission.” George Kerevan MP

Dr Geoffrey Whittam, Glasgow Caledonian University Entrepreneurship expert, added his support for the report, stating: “The Scottish economy has been suffering long-term decline in key sectors, one of the reasons for this has been the lack of sufficient investment. A SNIB can help to reduce this issue by providing long-term investment in infrastructure projects, investment in key and emerging sectors.”

George Kerevan MP stated in The National last week: "At a moment when even Theresa May's government claims to have embraced support for a state industrial policy, now is the time to advance plans for a public investment bank in Scotland to re-boot economic growth. This latest paper from NEF serves as a good starting point and I hope it will be given serious consideration by the First Minister's Growth Commission. I am delighted to be taking part at the Commonweal fringe debate to launch the paper. The SNP and the Yes movement should always be open to radical new ideas to make a better Scotland."