Making social science accessible

18 Sep 2023



Stephen Hunsaker outlines the findings of our new report on the UK’s efforts to replace the European Investment Bank post-Brexit, highlighting that the UK Investment Bank is falling short of its targets. You can read the full report ‘The investment gap: the UK’s efforts to replace the European Investment Bank’ here

Four billion pounds. This is the public investment shortfall the UK faced last year alone, in part thanks to Brexit. When the UK left the EU it also ceased to have access to the European Investment Bank (EIB). Four domestic development banks were either established or expanded to replace the EIB’s public investment – but they are yet to close the gap, which could well take a decade.

Many of the most significant UK infrastructure projects – ranging from the Channel Tunnel to offshore wind farms in Scotland to London’s new Elizabeth Line – were funded by the EIB.

Since the UK joined the EC in 1973, the EIB has served as the country’s primary development bank, investing nearly £146 billion (when adjusted for inflation), in over 1,000 projects. From 2009 to the end of 2016, the EIB’s average annual lending was £6.4 billion (inflation-adjusted real terms), reaching £7.5 billion in 2016.

Unsurprisingly, the level of investment shrank post-referendum. EIB funding fell 72% from 2016 to 2017, and by 2019 it had reduced 94%. After Brexit, no further funds have been received.

To address the gap left by the EIB, the UK established three development banks. The UK Infrastructure Bank (UKIB) was set up to serve as the primary replacement for the EIB. In addition, the Scottish National Investment Bank (SNIB) and the Development Bank of Wales (BANC) were established to support the devolved nations. The operations of the British Business Bank – which specialises in small and medium enterprise investment – was also expanded.

The intention was that by 2022 the UKIB would lend £1.5 billion a year. In practice, however, it only lent £0.8 billion last year. The Office for Budget Responsibility has warned that it will likely continue to fall over 40% short of its targets until 2026 and is also unlikely to reach its annual lending goal of £1.5 billion until 2024. Meanwhile, while BANC and SNIB outperformed their targets, their levels of investment are relatively modest – between £100 and £200 million – hence their impact is comparably small.

Even in 2022 – the best performance by the UK development banks to date – only £2.4 billion was invested, of which £1.1 billion was for infrastructure projects. That represents only a third of what the EIB invested in the UK and only an eighth of EIB infrastructure investment in 2016. The scale of the gap can be seen in the fact that the EIB invested more into water alone in 2016 than the UKIB financed in total in the last two years, and that was only 17% of the EIB’s annual UK investment that year.

Development bank investment matters because private sector investment cannot be expected to fill the gap. Development banks provide low-interest, long-term loans to higher-risk and public-interest projects that the private sector is usually less inclined to fund.

Chart showing that since leaving the EIB the UK has only been able to replace a third of public investment

And it is not clear that the UK’s domestic development banks will be able to fill the hole left by the EIB by the end of the decade. They lack staff and expertise inhibiting them from scaling up operations quickly. Nor have they achieved the coveted AAA credit rating of the EIB. Consequently, they lend at higher rates, making it more expensive to lend to public-interest projects.

Finally, the UK banks are relatively poorly capitalised. The EIB is backed with £249 billion of capital. In contrast, the UKIB is backed with £22 billion of capital, the SNIB with £2 billion, and the BANC with around £780 million. It is little surprise that they have financed fewer, smaller, and lower-risk projects than the EIB.

The EIB left a significant gap in terms of both quantity and quality of public investment, especially at a time when public investment is as vital as ever. This leaves the UK with an investment gap that, unfortunately, will not be filled quickly.

By Stephen Hunsaker, researcher, UK in a Changing Europe. 


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