What do Oxford University, inner-city housing associations and Crossrail have in common?
Give up? They are all receiving hundreds of millions of pounds in funding from the European Investment Bank, money that will largely dry up if we leave the EU.
The Luxembourg-based bank, owned by EU member states, is the world’s largest public lending institution, with a loan book two-and-a-half times bigger than the World Bank’s. Last year the EIB lent us €7.77 billion, a record for the UK. The loans are on competitive terms and can be for as long as 30 years.
Britain does so well out of the EIB that it’s odd that Boris Johnson, the former mayor of London and leader of the Brexit camp, is so quiet about it. In addition to Crossrail, which has borrowed £1.5 billion from the EIB, the bank has poured huge amounts into the capital’s infrastructure. Last year its largest single loan to the UK was £1 billion for Transport for London, including funding to upgrade Underground stations and, ironically, Boris’s pet project while he was in City Hall, a network of cycle superhighways.
The EIB last month agreed to lend University College London £280 million to expand its campuses, the most it has ever lent to a university. Oxford University and Edinburgh University have each received £200 million in funding, while Imperial College London has borrowed £140 million. The EIB lent money to four UK hospitals last year and has announced plans to provide £107 million to help build a new super hospital in Birmingham serving half a million people.
An EIB loan for the new 25 km Thames Tideway sewage tunnel is expected to be announced before the referendum. But what will happen to other projects in the EIB pipeline if Britain pulls out of Europe?
The EIB is pencilling in £580 million in loans for UK housing associations later this year. “We would expect those to go ahead, but if a politician highlights that these are the sort of things that could be at risk, I think that is a legitimate claim,” said Richard Willis, an EIB spokesman.
The UK water sector, which borrows almost £1 billion a year from the bank, is also sweating over the referendum. In the absence of the EIB, water firms would face higher borrowing costs and shorter loan tenors. “There is quite significant concern amongst the finance directors of UK water companies,” Willis said. “We are their largest single source of financing.”
Because the exit of a member state from the EU is unprecedented, it is unclear what would happen to the UK government’s 16% shareholding in the EIB – the same stake as Germany, France and Italy – for which it has paid in capital of €3.3 billion since it joined the EU in 1973. There is simply no roadmap for the process. “We would expect that the role of EIB would be one of many issues discussed and covered in lengthy withdrawal negotiations,” Willis said.
Want more InFacts?
Click here to get the newsletter
One thing is certain: the EIB will not call in existing loans as these are legally binding, Willis said. And even if the UK does not keep its stake – the EIB currently has no non-EU shareholders – Britain in principle could still borrow from the bank if we voted to leave. Nearly 10% of the EIB’s loans, close to €8 billion, went last year to non-EU members. Switzerland and Norway, often held up as models for a post-Brexit Britain, have received about €1 billion from the EIB over the past eight years.
However, that is a far cry from the €42 billion that the UK has borrowed from the EIB over the same period. Outside the EU, Britain could kiss goodbye to the sort of big loans it has been securing. “The individual local projects such as the four hospitals and the universities – those are things we really wouldn’t be doing in Switzerland and Norway,” Willis said.
Who would replace the EIB’s billions after Brexit? Unlike countries such as Germany, Britain does not have its own long-term infrastructure bank. The government is slashing public investment, even going cap in hand to France and China to finance the new Hinkley Point nuclear plant. The ability to borrow huge sums from the EIB on favourable terms is just one more benefit of EU membership that will be under threat if we vote to quit the EU.
Edited by Alan Wheatley
Leave a Reply