Scotland's Not Investing Better

Craig DalzellThe Scottish National Investment Bank has announced its latest big ticket investment – into a company that “spins out” companies that try to develop cancer treatments. But we’re still not seeing the SNIB invest sufficiently into its missions or develop its portfolio beyond flashy, headline-grabbing medium sized companies to support local small businesses or, more importantly, develop sustainable finance for social housing and public energy.The best part of a decade ago now, we at Common Weal identified the massive and glaring gap in the Scottish investment landscape. Scotland does, of course, face limits to its capital projects but the existence of major works like the Queensferry Crossing shows that they can happen. Investment in many businesses is also possible both through public investments ranging from direct grants and deals to various standing pots of money for “business accelerators” and the like. This is additional to various forms of private investment in Scotland’s business landscape. Many of these do come with significant downsides (such as Scotland’s high level of foreign business ownership and subsequent profit extraction) and the rapid pace of investments which can leave businesses scrabbling to pay back loans before they have stabilised their newly expanded operations.The gap lies in long-term, sustainable and patient finance of the kind that is common in Continental Europe – particularly in Germany, where local and regional investment banks help to support not just businesses but the entire ecosystem of their local economies.This is what prompted us to call for a Scottish National Investment Bank and to write a blueprint for how it should operate. We called for the bank to be initially funded by the Scottish Government to the tune of around £200 million a year for at least a decade and for it to be freed from the Government’s borrowing limit straightjacket so that it could leverage in funding from other sources such as pension funds or possibly even offering savings bonds to the Scottish public.We were clear throughout all of our lobbying of Government that the SNIB should not become another “business accelerator” looking for quick returns or investment in flashy headline-grabbing projects but that it should be a bank that thinks in terms of decades and centuries rather than weeks and months. We’ve had enough of the RBS-style “killing floor” that asset stripped profitable companies because the value of their buildings could be flogged off for more than the value of their debts.To make this kind of patient investment work though the bank has to accept that some of its loans will be to people whose ventures fail despite everything going for them. Thus, if the bank wants to invest in something flashy and promising, then it also has to invest in something extremely boring and stable. In both cases, these should be investments that wouldn’t otherwise happen if not for the patient principles of the SNIB.This caused us to call for SNIB to be “mission-led” rather than looking for pure financial return and for those missions to be developed and overseen in a democratic way. They also need to support each other. We saw three primary missions that would fulfil these principles.The first is housing. Scotland has a chronic housing problem. We don’t have enough houses, they aren’t built well enough and those who own them often don’t maintain them well enough for their tenants. Even folk who own their homes face increasing unaffordability due to rising prices and rising costs of mortgages. Scotland could fix this by building the best possible eco-homes and paying for them over the entire lifetime of the house. Councils can already theoretically do this through things like the Public Works Loan Board but they face the same capital borrowing limits as the Scottish Government does and, as I say, doing it through SNIB makes other borrowing possible there too.The next stage is to invest in public energy – this might be a nationally controlled public energy company of some description as Wales is currently launching or it could be investments in local and community energy. As I mentioned last year, my village is currently facing the UK’s largest solar farm being built on our doorstep, a £150 million project that will be owned entirely by a Spanish company (until they flip it to the highest bidder) and promising next to nothing in terms of community benefit. Imagine SNIB offering our village a £15 million loan – well within the scale of the kinds of loans it offers to business – to buy a 10% stake in that farm. That would be sufficient for the community to own enough electricity capacity to completely power our own needs – even assuming we all get electric cars, electric heat pumps and don’t put solar panels on our own houses too (another thing that SNIB should absolutely be helping to fund!).Only then, once the foundations of the bank and of the economy it is trying to support, can SNIB sustainably and patiently invest in riskier proposals such as innovative businesses that struggle to find finance elsewhere or companies that are pushing in a direction that aligns with principles such as a Scottish Green New Deal. Without those strong foundations SNIB will be vulnerable to failure – as highlighted by the money lost to the failure of the Deposit Return Scheme.SNIB is one of Common Weal’s major policy successes (along with the aforementioned Welsh public energy company) so even though the version of it that we actually got has gone down a different path, that its remit is far narrower than we envisaged, its current missions quite out of step with those we initially put forward (this is something that Scottish Ministers could change with the stroke of a pen) and our plans for democratic oversight of the bank were entirely ignored (we don’t even have the public stakeholder group reporting to Ministers that we were initially promised), we still feel a stake in making this project work as well as it deserves to. This is not and never should be another pot of money designed to generate headlines for a day then fail without causing too much damage to the election polls. We’ve had enough of that kind of “investment” in Scotland. SNIB should be the foundation of a Scotland that works for all of us, one that lasts beyond all of us, and one that we can all feel the benefit from as it builds Scotland up around all of us.