Ever since Britain voted to leave the EU in June 2016, UK government venturers have braced themselves for a loss of EU funding. Northern Ireland has now learned that the European Investment Bank (EIB) will no longer be investing in its new fund – the first time a major government venturing deal has fallen apart since the Brexit vote.
Northern Ireland had hoped the bank would serve as a cornerstone investor for its fund, providing a significant portion of up to £40m ($49m) in match funding. But Werner Hoyer, president of the institution, wrote a letter to the country’s finance minister, Máirtín Ó Muilleoir, informing him that the UK’s decision to leave the EU will mean the EIB is unable to support the fund in any way.
The fund was first announced in Northern Ireland’s draft executive budget for 2015-16, and was expected to provide capital primarily for private sector infrastructure projects. Northern Ireland had been in discussions with the EIB over a possible contribution since February 2015, when then finance minister Simon Hamilton said: “We hope that [£40m of executive funding] will leverage in additional finance from, first and foremost, the EIB, [with] which we have been working incredibly closely from roughly this time last year. I pay tribute to the EIB for its engagement and work in the genesis of the fund and throughout the last year.”
Hoyer has now made clear, however, that the EIB can offer only advisory support to help establish the fund. The decision, while not exactly surprising, is noteworthy, as the EIB does invest outside EU member states to secure the union’s interests.
The EIB’s activities span the European Free Trade Association as well as so-called enlargement countries – nations that are potential candidates for joining the EU – plus the Mediterranean, neighbouring eastern countries, sub-Saharan and southern African nations, the Caribbean and Pacific region, central and wider Asian countries and Latin America.
The EIB, as noted in a Global Government Venturing editorial in September, is itself facing tough funding conditions in the future, as the UK is a significant contributor to its capital assets.
Hoyer said in September 2016: “We will have a few years of uncertainty ahead of us during which it will not be clear what will happen to Great Britain and its relation with the EU. And depending on this is, of course, the question of what the relation between Britain and the EIB will be.”
Uncertainty over Brexit has not stopped some major government venturing deals from going ahead. In November 2016, the £145m North East Fund – a public sector initiative to boost job creation in northeast England – signed up the EIB and another EU-backed institution, the European Regional Development Fund (ERDF), which aims to promote economic and social cohesion. But in that same month, Scotland’s state-owned investment firm Scottish Enterprise warned that leaving the EU would mean losing access to funding from the ERDF, a major contributor to the organisation’s coffers.
In the immediate aftermath of the Brexit vote, EU-backed institutions such as the European Investment Fund (EIF) said it would “continue to act within its current statutory remit” and would “not change its approach to operations in the UK”, but would “actively engage with the [EIB] and relevant European institutions to define the EIF’s activity in the UK”.
By ruling out financial commitment to the Northern Ireland fund, the EIB has signalled the start of systemic changes in the UK investment landscape. The EIF may choose to follow this lead.
UK Chancellor Philip Hammond has said he is setting aside capital to make up for the loss of EU funding. The chancellor is allocating £220m to the UK healthcare and life sciences sectors for example, specifically to extend initiatives aimed at universities and small and medium-sized enterprises to commercialise research, but that sum is a drop in the ocean.
The UK Supreme Court offered up a new twist in the Brexit drama on last month, when it determined that without the consent of parliament, Prime Minister Theresa May cannot invoke Article 50 of the EU’s founding treaty to trigger Britain’s exit from the EU. MPs are now trying to add dozens of amendments to the bill parliament will need to approve.
Scotland’s majority party, the SNP, has vowed to table more than 50 amendments to secure various aspects of EU membership, from access to the single market and the protection of workers’ rights to guaranteeing European citizens currently in the UK retain the rights they enjoy today. The SNP also aims to add an amendment that would mean the UK would retain its membership of the EU under current terms if May fails to reach an agreement on the country’s exit terms.
However, it is already a fact that securing funding for UK government-backed businesses is now more difficult than it was before the refendum vote.