A new report says action is needed to safeguard the UK Infrastructure Bank’s long-term future.
The Public Accounts Committee has released a report on the creation of the UK Infrastructure Bank.
It assesses the bank’s initial performance and makes some important recommendations to strengthen the bank’s independence and operations.
For instance, filling staffing gaps and developing detailed KPIs to measure success, which would help protect the bank’s future.
The ICE looks at the key findings and what they could mean for strategic infrastructure planning in the UK.
1. The bank got up and running quickly, but this created risks
The huge infrastructure investment challenge meant the project benefited from a clear rationale from the outset. It took just 10 months of planning to establish the bank.
It made six deals in its first full year worth just over £1 billion, was made able to lend to local authorities and published its first strategy after wide consultations.
But the pace also created significant risks.
The committee highlights weak corporate governance arrangements at the outset.
The bank had no audit and risk committee early on to determine whether investments were correct. Corporate governance has since improved, but early deals had to be low risk.
2. Staffing shortfall undermines capacity and independence
The bank is intended to be operationally independent, but the pace at which it was set up has hampered this.
As well as the corporate governance issues, it continues to rely on Treasury systems, staff and approvals.
As of November 2022, there were only 16 permanent staff members at the bank working alongside around 150 Treasury secondees and contractors.
The plan is to scale up to 270 staff by September this year, but this is ambitious.
The lack of permanent staff and expertise means the bank is unable to deliver the more complex, direct equity deals the sector needs.
3. Conventional investments are not delivering on the bank’s mandate
The low-risk approach means the bank’s deals to date have been mainly in conventional infrastructure investment, such as broadband rollout and solar farms.
However, the typical role of a national infrastructure bank is to crowd-in finance to more risky endeavours that the private sector would not consider.
Currently, the bank, is not doing this.
The committee says the bank will only deliver on the government’s ambition and wider objectives if it moves beyond making these “safe” investments.
It’s also operating without any KPIs beyond a financial return target, which was set by the Treasury.
Therefore, there’s no indication of what ‘success’ is defined as for the bank and no way to inform its future monitoring and evaluation.
The committee recommends the bank develop a more detailed investment strategy and a full suite of performance metrics and targets.
4. It’s unclear when smaller local authorities will benefit
The bank’s mandate includes capacity building through advising local authorities on infrastructure projects.
It has launched three pilot projects with the aim of creating solutions that are replicable across all local authorities.
However, these pilot projects are all with large-scale authorities – Greater Manchester, West Yorkshire and Bristol.
Smaller authorities are likely to need the most advice and support, but it’s not yet clear how they will benefit. Without a clear plan, the risk is that they will be left behind.
5. The bank’s future is far from secure
Ultimately, the report argues that the Treasury and the bank haven’t put in place the conditions for the bank to be successful and long-lasting.
There’s no guarantee the bank will be self-financing, as the Treasury has planned, after 2026.
This leaves big question marks over whether the Treasury will provide further funding – especially with public finances being squeezed.
The committee calls for a much more defined long-term ownership plan to be created.
Without this, they are concerned the bank could ultimately be sold to the private sector, as happened with its predecessor, the Green Investment Bank.
The ICE’s view
There was a clear need in the UK for an infrastructure bank, something that the ICE had long called for. The report rightly commends the Treasury and the bank for acting quickly to fill this gap.
However, the pace clearly created risks that have undermined the bank’s initial performance.
The committee has identified key gaps that need to be addressed to secure the bank’s long-term future. These include having a detailed set of KPIs to measure success.
The ICE thinks this should be tied to the National Infrastructure Strategy (NIS), which provides a roadmap for the UK’s long-term approach to infrastructure.
In ICE’s written evidence to the committee, we recommended adding a formal mechanism in the Infrastructure Bank Bill for setting up and regularly updating the NIS, placing it on a statutory footing.
This would give the bank a long-term set of defined priorities that are based on clear national needs, aligned with net zero and levelling up goals.
In case you missed it:
- The ICE welcomes responses to a consultation on improving the UK’s infrastructure climate resilience.
- We reflect on our recent ‘Financing Net Zero’ Next Steps Programme online panel debate.
- The ICE hosted an expert roundtable with the National Infrastructure Commission to help inform the UK’s second National Infrastructure Assessment.
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