Government urged to clarify access to vital infrastructure funding post-Brexit

The Government should set out how it will make equivalent lending alternatives to the European Investment Bank available in England after Brexit, the Local Government Association has said.

As a member of the European Union and a shareholder contributing into the EIB, the UK currently has access to the EIB’s loans and guarantees, which typically help fund small and medium-sized enterprise (SME) development and major infrastructure loans such as housing. The UK has been the fifth largest recipient of the EIB.

The EIB typically offers a cheaper long-term source of finance than is available from many private equivalents, and is often willing to invest in slightly higher risk projects than many commercial lenders, whilst providing greater protection to the public element of the investment.

Under the UK/EU draft withdrawal agreement, from the beginning of the transition period next year, the UK will no longer be eligible for billions of pounds worth of EIB monies reserved for EU members.

Existing projects should continue, however there is also evidence that since the Brexit vote, there has been a significant decline in those seeking EIB support for investing in UK infrastructure. Since the EU referendum, only 39 deals with the UK (collectively worth just under €3.1 billion) have been finalised. In the 18 months before, there were 74 deals, (collectively worth over four times as much, €13.5 billion).

While there have been initiatives on the UK side, such as the launch of the Government-owned British Business Bank in 2014 to support SMEs, there is as yet no detail or assurances that it will match the significant sums currently coming to the UK from the EIB, or the favourable conditions as regards supporting higher risk projects.

Examples of EIB investment are:

• The Housing Finance Corporation has secured a €1 billion loan from the EIB to expand the Affordable Housing Finance Programme which will build over 20,000 affordable homes in the UK across diverse areas such as Wigan, Scarborough, Bradford and Cambridge.
• The EIB has provided a €700 million loan to part fund the Thames Tideway (pictured above), which will improve the sewage infrastructure of the Thames and is the largest investment of its kind in the UK.

Housebuilding is already significantly behind the target of 300,000 a year that the Government has set and losing access to EIB funding could make this even more difficult to achieve.

The LGA is therefore calling on the Government to provide immediate assurances that equivalent lending alternatives will be made available to councils and SMEs, and for the Government to allow councils to self-finance new homes, lift the housing borrowing cap, and allow councils to use 100 per cent of the receipts from Right to Buy sales to invest in new homes.

Cllr Kevin Bentley, Chairman of the LGA’s Brexit Taskforce, said: “The UK’s exit from the EU will have a significant impact on local government, creating challenges that need to be addressed but also opportunities to do things differently.

“Losing access to cheap long-term financing from the European Investment Bank that supports vital investment in our communities is one aspect that needs to be addressed.

“Major affordable housing developments and large infrastructure projects, as well as smaller investments and SMEs, have benefitted enormously from this access. Councils are raising legitimate concerns that losing this funding source could result in a reduction of housing developments, council tax receipts and overall revenue of councils that is used to fund essential services.

“The LGA is calling on the Government to provide immediate assurances that equivalent lending alternatives will be made available to councils and SMEs as well as allowing councils to self-finance new homes, lifting the housing borrowing cap, and allowing councils to use 100 per cent of the receipts from Right to Buy sales to invest in new homes to help mitigate the potential problems currently faced by access to the EIB being reduced.”