This article presents the case for a state-owned British Investment Bank and discusses its institutional design and capitalisation on the basis of the experiences of the Nordic Investment Bank (BIB). Current supply-side policies aimed at increasing investment in the infrastructure and small- and medium-sized enterprise (SME) sectors are likely to fail because they neglect constraints and market failures on the demand side. In contrast, a commercially operated but mandate-driven public investment bank can mitigate market failures on both sides by not only supplying capital on favourable terms to financially viable projects but also stimulating demand through policy-signalling effects. A focus on offering additionality would be key to the BIB’s success. In addition to the ‘economic case’ for the BIB, this article discusses the ‘political case’: how to make it interesting to a government bent on fiscal retrenchment.
The government should set up a British Investment Bank Commission (BIBC).
In discussion with relevant stakeholders, the BIBC should be charged with hammering out the exact mandate and institutional design of the BIB.
The government should bring existing schemes aiming to boost investment under one roof for easier coordination with, or incorporation into, a future BIB.
The government needs to create a general policy environment conducive to investment. This includes simplifying planning procedures and ensuring that regulation aimed at stabilising the wider financial system does not have unintended negative consequences for viable investment projects.