The draft Withdrawal Agreement: funding for infrastructure and innovation projects

Posted in Infrastructure, mining and commodities The Withdrawal Agreement

On 14 November 2018, the Government published the draft Withdrawal Agreement on the withdrawal of the UK and Northern Ireland from the EU, as well as an outline of the Political Declaration on the UK’s future relationship with the EU. Our blog post on the terms of the draft Withdrawal Agreement is available here.

As a consequence of the revocation of its status as a Member State, the UK will cease to be a member of the European Investment Bank (EIB) and infrastructure and innovation projects in the UK will not automatically be eligible to receive investment from the EIB. As things currently stand, it is difficult to determine the impact a loss of EIB funding will have on the UK economy, with both the draft Withdrawal Agreement and Political Declaration silent on the extent of Government funding post-Brexit for such projects. Article 151 of the draft Withdrawal Agreement does confirm however that pre-approved projects signed before the departure date will be unaffected and will be eligible for EIB financial support.

Relationship between the UK and the EIB post-Brexit

After March 2019 the UK will not be automatically eligible for financial support from the EIB. However, all projects and programmes agreed under the current Multiannual Financial Framework (2014 – 2020) will be financed, irrespective of the departure date, until their closure[1]. If the transition period is extended beyond December 2020, the UK will be treated as a third country for the purposes of the Multiannual Financial Framework as of 2021[2]. The UK will remain liable to the EU for the financial operations approved by the EIB before the departure date, including for its contributions to the 2019 and 2020 budget, with its share percentage being calculated as if it has remained a Member State[3]. After March 2019 however, the UK will be entitled to reimbursement of €3.5 billion of paid-in capital in annual instalments until 2030[4].

The UK Government is hoping to secure an ongoing relationship with the EIB post-Brexit to encourage further EIB funding of UK infrastructure and innovation projects, but a formal agreement cannot be determined until the draft Withdrawal Agreement is settled. The Political Declaration published alongside the draft Withdrawal Agreement acknowledges the UK’s intention to establish a cooperative relationship with the EIB in the future.

Funding of infrastructure and innovation projects post-Brexit

The UK Government has confirmed it is exploring possible contingency plans to be implemented if it fails to negotiate a future partnership with the EIB.

In a meeting with the EU Financial Affairs Sub-Committee, the Exchequer Secretary to the Treasury, Robert Jenrick, addressed how projects might be funded in this scenario, with a suggestion that more funds could be committed to the British Business Bank (BBB) for investment in projects of a similar scope to those currently funded by the EIB.  In July 2018, the EU Financial Affairs Sub-Committee launched an inquiry into the UK’s post-Brexit relationship with the EIB, which called for evidence on, among other things, whether the UK should remain a member of the EIB or focus on the Investment Fund to be incubated by the BBB, however a report on the evidence collected has not been published yet.

Another possible solution would be to extend the UK Guarantee Scheme (UKGS), which can issue up to £40 billion of Government-backed guarantees, supporting private investment in UK infrastructure projects. To date, the scheme has issued £1.8 billion of guarantees. It is possible that funding will be awarded to projects which are similar to those that are currently eligible to receive funding from the EIB. However, whether loans will be allocated on the same scale as that provided by the EIB is yet to be confirmed.

How will the termination of the UK-EIB partnership affect future infrastructure / innovation projects?

UK infrastructure projects receive substantial funding from the EIB, with funding in 2017 totaling just over €1 billion. Recent examples of EIB investment in the UK include £700 million for the Thames Tideway project and £250 million towards the construction of the London Array offshore wind farm.

Today, it is unclear how the loss of EIB funding will affect future infrastructure projects. Whilst Government initiatives such as the BBB and the UKGS may provide a degree of comfort, no assurances have been given that such funding will match existing EIB funding, or whether the UK Government will continue to support the types of projects which are currently eligible for EIB support.

 

[1] Article 137(1) of the draft Withdrawal Agreement

[2] http://europa.eu/rapid/press-release_MEMO-18-6422_en.htm

[3] Article 150 of the draft Withdrawal Agreement

[4] Article 150(4) of the draft Withdrawal Agreement

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