The creation of a national infrastructure bank was first mooted in government circles back in 2008. But the talk became more serious after 2016 when the UK voted to leave the European Union, and the consequent loss of access to the European Investment Bank (EIB). In addition, the National Infrastructure Commission had been advocating the creation of such a bank for some time.
The Treasury launched the UK Infrastructure Bank (UKIB) in June 2021 and in September that year John Flint joined the operation– which was still very small, with around 30 staff – as CEO. In the assessment phase, the team studied the government’s previous foray into setting up an investment bank – the Green Investment Bank (GIB), begun in 2012. In 2017, Macquarie acquired GIB, which in the intervening five years had helped to finance more than £12bn of UK green infrastructure projects.
In the early stages of setting up the Bank, the shareholder looked at models from overseas for guidance, such as the Canadian National Infrastructure Bank, says Flint. He points to other policy banks that UKIB has taken guidance from, such as the EIB. “There’s a broad range of policy banks globally that we can learn from and although they don’t quite face the same challenges we do, we have been able to learn from them to understand what a good national infrastructure bank should look like.”
The agreed mission for UKIB was that it would deploy public money for the purposes of achieving net zero and levelling up: “It’s got to be infrastructure, it’s got to be UK, and it’s got to meet one of our twin objectives,” Flint says.
‘Infrastructure’ encompasses infrastructure assets, technology or networks. The Treasury has given the bank five priority sectors to invest in – clean energy, digital, waste, water and transport. “It will be clear to everybody that clean energy will be by far the busiest sector for us,” he adds.
The notional size of the commitments the bank can make in total is £22bn and the ‘economic risk capital budget’ is £4.5bn – “We can go anywhere on the capital spectrum, but that is the amount of capital that has to be held against ‘unexpected losses’ and a number that ultimately determines the mix of debt versus equity we invest.”
Fracking was in as a policy under Prime Minister Liz Truss’s short tenure, and out once Rishi Sunak took over. But Flint is unequivocal about it: “We will not be doing that. We might do something in the hydrocarbon space such as carbon capture and storage, which would be taking a dirty bit of the industrial system and making it cleaner through the use of new technology.”
The overlap between the twin goals is significant. “That’s largely because a lot of the net-zero strategy the government has articulated involves new industrial clusters that are conveniently located in the areas that need the economic regeneration – the old coal and steel and shipbuilding areas. These areas will be the new industrial clusters for net-zero industries and technologies.”
The bank has 160 staff at present and the make-up is unusual, but in flux as the organisation sets itself up – just 20 are permanent, 45 are secondees and the rest are contract staff. Permanent recruitment activity started in earnest in the past quarter. Much of that will be switching contractors to permanent staff, but once fully operational the bank should have around 300 people.
The Treasury has required that 90% of UKIB staff are based at the bank’s headquarters in Leeds. While he travels to London for a day of meetings most weeks, Flint emphasises that the office in Leeds is not just for show. Of the 30 staff outside Leeds, he says: “A handful will be London-based. We may establish a Scottish and a Bristol office and some small satellite offices around the UK, which will be important for our work with local authorities. But the Treasury is very clear – a big part of choosing a non-London location is to support the levelling-up agenda.”
Also helping with this agenda, the Bank of England and the Financial Conduct Authority (FCA) have plans to move 300 to 400 posts each to Leeds. “There will be a thousand new jobs in Leeds in the next three to five years.”
Score so far
So in the first year, what has it invested in? A month after Flint joined, the bank made its first investment – providing a £107m loan to the South Bank Quay development on the banks of the River Tees, to transform part of the former Redcar Steelworks into a 450-metre quay to service the offshore wind sector. South Bank Quay is part of the Teesworks Freeport project. A month before the UKIB investment, plans for GE Renewable Energy’s wind turbine blade factory on the site were approved; the quay will play a critical role in shipping turbine blades to the Dogger Bank wind farm, 80 miles off the north east coast.
“Our money has gone into developing the capacity, and then you can build all the ancillary support businesses around it, which meets our objectives from either a net-zero or a levelling-up perspective,” says Flint.
In December 2021, UKIB made its first private-sector transaction, providing financing to the initial seed assets of a new £500m fund with NextEnergy Capital. The seed assets are two subsidy-free solar farms in south Wales and Worcestershire. The bank confirmed in August this year that it would be investing up to £250m of match-funding to the fund. Once fully operational, the fund plans to generate 1GW of solar electricity from 30 solar farms across the UK.
“A lot of the solar capacity in the UK is still dependent on government price support. It’s important that all renewable energies eventually transition away from government support and take market risk. So we put a lot of capital towards funding solar capacity in the UK that is subsidy-free.”
The bank has made multiple investments in rural broadband – £100m in Gigaclear (for the Midlands and southern England); £50m in Fibrus (Northern Ireland); and £200m in CityFibre (England and Scotland).
In March this year, UKIB invested £10m in partnership with the West Midlands Combined Authority in phase 1 of the new Sprint Bus Route, a bus priority corridor linking Birmingham City Centre, Solihull and Birmingham Airport along the A45, to stimulate economic development and reduce CO2 emissions.
In May, it committed up to £100m as cornerstone investor on a match-funding basis in a new fund alongside Octopus Investments. The Octopus Sustainable Infrastructure Fund, which has a target close of £400m, will provide growth capital to companies looking to roll out sustainable infrastructure projects in sectors aligned to the bank’s mandate, including battery storage and electric vehicle charging.
And as the energy crisis began to unfold/unravel, in July UKIB announced that it would be supporting the £2.4bn NeuConnect project to develop the first undersea energy link between the UK and Germany. UKIB will provide the UK side of the project with £150m, alongside £1bn from other UK lenders. The German side of the deal is structured in a similar way. This ‘invisible energy highway’ will facilitate the movement of electricity between the UK and Germany, enabling the exchange of surplus energy from renewable sources such as solar and wind. Supported by the EIB, the interconnection will have a capacity of 1.4GW, and should benefit consumers in both countries with lower energy costs.
The Treasury allocates resources to UKIB and worked up the strategy with the team. But ultimately the bank has a delegated investment mandate, which means it can invest up to certain amounts without any further Treasury involvement. “It’s very important for ministers to be able to say they are deploying public money correctly and that decisions are being taken independently of politicians. And to be absolutely clear, I have not received any pressure from anyone to do anything. We are left to just make the judgements we think are right for the bank, without having to think about what a minister or a particular constituency or a political party might want. We’re professional and we’re operationally independent.”
UKIB has some similarities to GIB, but there are many differences. UKIB is bigger at inception and has a much broader mandate. Most importantly, post-Brexit the EIB no longer deploys capital in the UK, which it was still doing when GIB was set up.
“I am laying the foundations for an enduring institution,” says Flint. “HMT has been very clear that this will be a permanent part of the landscape. The government does banking in a number of different pockets already – the British Business Bank, UK Export Finance and British International Investments and Homes England, for instance.
“The key advantage is that if we do our job well, we’ll be crowding in significant private sector capital and accelerating investment in the infrastructure needed for net zero or levelling up. The government cannot afford to do all of this on its own. It will require the private sector to play a very significant role. We’re a new agent that will help the market become confident with the risk profile. Net zero will be led by governments around the world. Our role is to amplify those policy ambitions through the judicious deployment of public money.”
The recruitment challenge
Once fully up and running, around one third of staff at the bank will be in the front office – in origination, portfolio management or advising on local authority lending. The other two thirds will be in finance, risk and operations. “Front office is the main underweight area,” says Flint. “The most developed part of the bank is strategy, policy and impact functions, as we were able to lift some brilliant civil service secondees from other government departments.”
Now UKIB needs to recruit bankers – who have a skillset that does not exist in the civil service to any great extent. “For us, there are three factors in recruitment. First, the mission and purpose of the bank is very compelling, and in targeting net zero it is completely of the moment. Second, a negative: our pay and reward framework is benchmarked against the bottom quartile of the private sector, which of course is still pretty good for the public sector.”
The third factor is location. Junior and senior level response has been strong, but the middle less so. “They feel it might not be the right point in their career to step out of the private sector and move to Leeds. If we’d set up in Newcastle, Liverpool or Bristol, we’d have the same challenge. Recruiting the right people will take that bit longer.
“We will have a slightly higher turnover than the private market. We don’t expect people to join and be here for the rest of their careers. People will come, learn a skill, deliver something for us, then perhaps go back to the private sector. But if they want to learn how to conduct infrastructure transactions driven by net zero in the UK, this will be the place to be.”
The executive team
Chief executive officer
In 1989, with a degree in economics from Portsmouth Polytechnic (now the University of Portsmouth), he joined HSBC as a graduate trainee. Over a 30-year career, he rose to group chief executive. He became UKIB’s CEO last year. “My privileged career path at HSBC allowed me to develop as a generalist,” he says. He spent almost 20 years on the trading floor, on fixed income and derivatives trading, and the next 10 in retail banking, wealth management, asset management and treasury.
David LunnChief operating officer
Former Europe director at HM Treasury. Before this, he was in UK Financial Investments, managing government investments in the Royal Bank of Scotland, Lloyds Banking Group and UK Asset Resolution.
Chief finance officer
CFO of the Canada Infrastructure Bank, which she was instrumental in establishing, from 2018 to 2021. She is a Deloitte-trained accountant, who also worked for the Royal Bank of Canada.
Chief people officer
Head of HR at DVB Bank for 20 years, she is on the board of the City Women’s Network and non-executive director at the Association of Foreign Banks, having chaired the HR committee for over 10 years.
Head of banking
An experienced senior banker, who has worked for asset manager LGPS, Lloyds and UBS.Peter Knott
Chief risk officer
An experienced impact investor who spent 10 years with the Green Investment Bank, and before that Standard Chartered and JP Morgan Chase. He trained as a chartered accountant with Deloitte and is a non-executive director of the Scottish National Investment Bank.