Empowering Scotland's Investment Bank
Craig Dalzell - January 27th, 2022
Update:- The Scottish Government has now publicly called for SNIB to be granted the borrowing powers it needs. Please keep the pressure on you local politicians to ensure it happens.
Last week, we published Common Weal's response to the ScotWind project – Scotland’s largest auction of offshore wind resources and what we see as a significant step towards privatising our renewable assets in the same way that Scotland’s oil assets were privatised in the previous energy era.
There have been critiques of our response: two of the most substantial are issues that we are aware of and, indeed, addressed in the report itself. The first is essentially that we’re complaining that the best time to plant a tree was several years ago, that Scotland doesn’t have most of the agencies we called for and they couldn’t have been set up in time for the ScotWind auction. It shouldn’t have been a surprise that Scotland has potential wind resources sitting offshore, so the failure to plan for this by building up the agencies required to capture it and to build up the Scottish supply chain to ensure that we can actually capture some of the secondary value from it, is woeful. The final line in our response is a call to correct those failures now, so that we don’t end up in the same situation with “ScotWind 2” or the auction of other renewables assets such as wave or tidal. If the best time to plant a tree was several years ago, the second best time is now.
The other substantial critique was that Scotland lacks key powers to make a nationalised ScotWind happen. One is our lack of power to reform the National Grid but this is relatively immaterial as we have shown that the Grid will have to be reformed regardless of who owns ScotWind. If Scotland lacks the power to enact the reforms then Westminster will have to do them. All that will potentially change is the speed of those reforms.
The largest barrier to a Nationalised ScotWind is Scotland’s lack of borrowing powers. Independence would solve this problem at a stroke but this doesn’t mean that it would be impossible within the constraints of devolution either.
Of the agencies we won at successive progressive party conferences, only one has so far been launched – the Scottish National Investment Bank. However, it has been set up in a manner that effectively limits its ambition. As it is currently instantiated, SNIB can effectively only loan out money that it is given by the Scottish Government. It is currently being funded to the tune of £200 million per year with a plan to build its capitalisation up to £2 billion over its first ten years. This is very similar to the plan we presented in our blueprint for the SNIB which called for £225 million per year over six years.
However, under current UK Treasury rules, the SNIB cannot borrow money to increase this capital amount on its own or, at least, it cannot do so without that borrowing counting against the Scottish Government’s own borrowing limits. Limits which have proven too tight to be of practical use even for normal government investment never mind something of the scale of ScotWind. Had the SNIB been a UK Government project, then these borrowing limits would not be an issue but under the same Treasury rules the borrowing would still count as part of the UK’s deficit and National Debt – something that successive Conservative and Labour Governments have deemed politically toxic. (The story of the PFI programmes resulting from that attitude has been well told elsewhere.)
The solution is to take SNIB’s borrowing “off book”. To give it dispensation from those rules and to essentially treat SNIB as a commercial entity that just happens to be owned by the Scottish Government rather than a department of Government held at arms length. Precedent for this dispensation already exists in the form of NatWest (formerly RBS). Despite recent sell-offs, it remains majority owned by the UK Government yet its activities are held “off-book” and its borrowing is not counted as borrowing by the UK Government. This isn’t an argument for SNIB to make the same banking decisions as NatWest has, but the principle remains the same. To give SNIB that dispensation would be a trivially simple affair and could be done at a stroke of Rishi Sunak’s pen. Once done, SNIB would be able to leverage its current capitalisation, accept investment from funding sources such as pension funds looking for safe harbours for their money and, perhaps, even to issue bonds to allow the public to invest in building Scotland’s future.
Of course, it’s not in the power of the Scottish Government to grant that dispensation unilaterally (at least, unless this argument is overtaken by independence) but it is within their power to campaign for these changes. It has been rightly vocal about calling for increases to its own borrowing limits but so far I have been unable to find any calls for the kind of dispensation outlined above for SNIB – despite both Common Weal and SNIB themselves directly lobbying for this.
Other models of building a “nationalised ScotWind” may be possible if the goal to get round the lack of borrowing powers. If a National Energy Company is set up using the same model as SNIB then its own borrowing powers could be similarly limited – ironically, even if that money came from SNIB. As said, independence and the power to write our own borrowing rules would be the most direct way of doing things and, if the Scottish Government truly aims for us to be independent within a few years, then the initial development work could be funded out of revenue budgets now so that the more substantial capital investment can start as soon as possible post-independence. Another would be to set up the NEC in a way that gets round the rules (for example, perhaps it could be owned by a coalition of Local Authorities rather than the Scottish Government or it could be built as a publicly owned, guaranteed mutual company). A third might be to admit some private ownership under a joint venture and sell just enough of an equity stake to cover the capital costs of the project. Each of these options have their own pros and cons and each of them might end up with different levels or shapes of “public ownership” but it’s almost certain that any of them would have resulted in better outcomes for Scotland than the proposal we ended up with will.
Scotland’s limited borrowing powers don’t just affect ScotWind – almost every big progressive idea that has been pitched to the Scottish political world has been faced with the question “But how will you pay for it?” despite the potential return of any investment. However, this is a barrier that our readers and activists can help us overcome. Websites like Write To Them make it very easy for you to send a letter to your local politicians. Please contact your local SNP/Green MSP(s) and, if you have one, your local SNP MP and ask them to join our campaign to persuade Westminster to give SNIB that vital power to “be a bank”.
Let us know if you get a response. Success here will tear down the largest barrier preventing Scotland from developing the agencies and industries to avoid another ScotWind as well as to build up capacity in other sectors such as housing, transport and other areas we require to build the Green New Deal we deserve. The alternative is a repeat of what we’ve just seen happen to our energy resources last week (and the near-certainty that any “Net Zero” transition we end up getting instead) will see the value of Scotland’s assets be shipped out of this country wholesale...again.