MORE than 50,000 jobs could be created within the first few years of a Scottish National Investment Bank (SNIB) being established – a move that could potentially offer billions of pounds of savings to the public purse, according to a report published today.
A blueprint for a Scottish National Investment Bank, from the New Economics Foundation and Common Weal think tanks, sets out what the SNIB could look like, along with the legal, political and economic approach needed for the Scottish Government to establish it.
Economists and trade unionists have backed the idea, which it is claimed could be a major driver for jobs through long-term, low-interest loans for investment.
It comes in the week that leaked documents showed Scotland’s biggest bank RBS, allegedly had a strategy of running down struggling small businesses through asset-stripping.
New Economics Foundation researcher Laurie MacFarlane, author of the report, said: “Meeting the challenges of the 21st century requires bold and ambitious plans for financing and directing investment in a smart, inclusive and sustainable direction. However, with public budgets in decline, economic uncertainty increasing and a banking sector still focused on short-term shareholder returns, the need for fresh thinking around investment is greater than ever.”
He added: “In our paper we have set out how establishing a Scottish National Investment Bank would be the first step towards creating a new ecosystem of banking institutions capable of transforming Scotland’s economy and reasserting the country’s once proud banking tradition.”
The report uses Scottish Government figures for job creation and capital investment to show how the SNIB could directly support the creation of 50,000 jobs “within just a few years of being established”.
As part of a strategy to replace costly public-private partnerships it could also be used for public investment. In an illustration of the potential benefit to public finances, the report estimates that the Scottish Government would have saved £26 billion if projects financed through the Private Finance Initiative (PFI) and Non-Profit Dividend (NPD) schemes had instead been financed by a SNIB.
Common Weal director Robin McAlpine said the report sets out a clear roadmap for how the Scottish Government could establish a national investment bank.
“We’ve done a lot of work to show that this is viable and achievable by the Scottish Parliament,” he said.
“The biggest obstacle now is whether there is the will to be bold and make an intervention in the Scottish economy which will have benefits for generations to come.
“Scotland’s economy needs real change. Every political party in Scotland should be supporting this initiative.”
The report sees the SNIB as publicly owned but independently operated without political interference and with the ability to direct investment towards innovation for social and environmental objectives.
It would be funded by the Scottish Government, but also allowed to raise funds by issuing bonds on capital markets.
With a mind to recent banking scandals, robust governance structures would be incorporated, promoting the “highest levels of transparency and accountability”.
Dave Watson, head of policy and public affairs at Unison Scotland, said the paper was a welcome contribution to the debate on public borrowing in Scotland.
He said: “Our economy needs a significant boost in public investment and current models of non-government borrowing like Public-Private Partnerships are ruinously expensive.
“National investment banks have a proven track record in leveraging the resources we need to increase sustainable investment.”
Professor Andrew Cumbers, from the Adam Smith Business School at Glasgow University, said: “This is a long overdue proposal to address an area of increasingly critical public policy failure – securing long term patient capital to invest in projects of environmental and social value.
“A publicly owned SNIB would be able to shift the direction of the Scottish economy away from short-termism and speculative investment towards longer term and more productive spending and financing.”
Dr Geoffrey Whittam, a Glasgow Caledonian University expert on entrepreneurship, added: “The Scottish economy has been suffering long-term decline in key sectors, one of the reasons for this has been the lack of sufficient investment.
“A SNIB can help to reduce this issue by providing long-term investment in infrastructure projects, investment in key and emerging sectors.”
Writing in The National last week, George Kerevan said now was the time to advance plans for a public investment bank in Scotland to reboot economic growth.
He said: “This latest paper from NEF serves as a good starting point and I hope it will be given serious consideration by the First Minister’s Growth Commission.”
“I am delighted to be taking part at the Common Weal fringe debate to launch the paper.”
The report will be publicly launched at IdeaSpace, in the Science Centre tomorrow.
How SNIB would work
Mandate: The SNIB’s overarching mandate should reflect a broader economic strategy developed in a democratic process, controlled by the Scottish Government, and reviewed periodically. Activities: The core activities of a SNIB should be to support investment in infrastructure and SMEs, and to direct investment towards innovation for social and environmental objectives, such as climate change mitigation and adaptation. Ownership: The SNIB should be publicly owned but operated independently as a fully commercial entity, free of day-to-day political interference. Governance: Robust ownership and governance structures should be put in place that promote the highest levels of transparency and accountability, and provide a clear dividing line between the government and lending decisions. Capitalisation: The Scottish Government should inject £225 million of “paid-in” capital with that accumulated figure over six years being “subscribed”, giving a total subscribed capital of £1.35 billion from year one. Funding: The SNIB should be allowed to raise funds on capital markets by issuing bonds up to a leverage ratio of 2.5 times the amount of subscribed capital, meaning it could raise £3.37bn that would be available finance for SNIB loans from year one.
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