No update yet from Sinn Féin on the meeting they chose to trail a couple of days ago between three of their MEPs, led by the
Derry Northern Ireland representative, Martina Anderson, and “the Vice-Chairman of the European Investment Bank (EIB) Jonathan Taylor”. But let’s hope they were better briefed than the 15 July press release suggests, otherwise the only reaction is likely to be a rolling of eyes by Jonathan Taylor, Vice-President of the EIB, formerly Director General for Financial Services at HM Treasury, and the UK government nominated member of the EIB’s Management Committee. Those last two points are particularly relevant, as will become apparent.
According to the Sinn Féin press release
Martina Anderson said: “I recently took the opportunity to discuss with Johnathan [sic] Taylor, the possibility of funding opportunities such as coupling of projects such as Magee, Altnagelvin, C-Tric for Research and Development and roads and rail infrastructure.
“I then arranged a further meeting with him for this Thursday 17th July along with party colleagues Lynn Boylan and Liadh Ní Riada in Luxemburg to discuss a number of propositions with him.
“The EIB lends money on low-interest, long-term deals for big infrastructure projects.
So far, so relatively inoffensive… Except that, ignoring the fact that her party colleagues are among the opposition parties in Ireland – still a separate EU State – Sinn Féin are actually in a joint-power-sharing Executive in Northern Ireland. Where such decisions would be taken. Has there been any attempt at joined-up government ahead of this discussion of “the possibility of funding opportunities” with the EIB?
The NI Finance Minister, the DUP’s Simon Hamilton, did meet with Jonathan Taylor back in March this year.
However, the Sinn Féin press release continues
“However, the British government blocks the Executive from accessing EIB funding for major projects such as the A5 and A6 and the development of a modern rail network.
Well, there was the not insignificant matter of the Irish Government withdrawal of the proposed €400million from the A5 project, for example, and a subsequent NI Court ruling which led to the re-allocation of NI Executive funds…
Back to the Sinn Féin press release
“It is a crazy situation that councils and deevelopment bodies do have access to the fund while the body charged with job creation and structural projects can’t at this time.
“The new super councils are due to come on stream with increased powers and responsibilities. So it’s an opportune time for me to explore the possible benefits of this source of low-cost finance for essential development projects.
“The University of Ulster’s new Belfast Campus is an example of a project that has benefited from a £150 million loan facility from the EIB, which was crucial in order for the project to proceed.
“We intend to establish exactly what projects qualify for financial assistance and if the British government lifts its ban on Executive access to the EIB, what type of cross-border projects could access funding?”
“Crazy” is one way of putting it… Because there is no British government “ban on Executive access to the EIB”.
But there are consequences.
Which would be abundantly clear to Martina Anderson, et al, if they had been following the recent activities of the NI Assembly Committee for Finance and Personnel who have also been discussing “borrowing from the European Investment Bank and other sources” – most recently on 25 June [pdf file], but also previously on 7 May [pdf file], under the heading “European Investment Bank – Potential Financial Assistance Opportunities for Northern Ireland”.
In both cases, members of the committee received briefing papers from the Assembly’s Research and Information Service. The first briefing paper is listed by the committee, and is available here, the second update is here [both pdf files].
Or they could have had a quick chat with the Finance Committee Chair, their other party colleague, Sinn Féin MLA Daithí McKay. [That’s above their pay grade! – Ed] Indeed.
The second briefing paper gives an outline of the situation [dated 20 June 2014]
1 UK Public Sector Borrowing
This section provides an overview of government borrowing powers throughout the UK, as defined by the prevailing financial framework under the current devolution arrangements (the “Public Finance Framework”). This Framework arises from the prevailing devolution legislation in the UK – namely the Scotland Act 19983, the Northern Ireland Act 19984 ; and the Government of Wales Act 20065.
Under this legislation, devolved administrations across the UK are empowered to borrow for the purpose of managing short-term cash flow. However, NI is the only devolved administration with full borrowing powers at central (Executive) and local government levels. It seems therefore that there is no legislative barrier to the NI Executive borrowing directly from the EIB for capital projects [added emphasis]. At present in Scotland and Wales, only local government authorities are empowered to take advantage of such EIB loans. (For detail about local government powers, see section 3 below).
The following sub-sections set out the current government borrowing powers of each devolved administration and highlight imminent changes, where relevant.
That situation, for the other devolved administrations, is likely to change with, for example, the introduction of borrowing powers via the Scotland Act 2012.
But direct borrowing from the EIB by the NI Executive has consequences for good reason.
As the NI Executive revised budget 2011-15 [pdf file] notes
The main source of funding for public expenditure within Northern Ireland remains the Block grant from HM Treasury, which is funded through the proceeds of general taxation across the United Kingdom.
That block grant represents a settlement between the NI Executive and the UK Treasury, and includes current expenditure and capital investment.
As the revised budget document goes on to say
3.10 There are currently two main ways in which the gross spending power available to the Executive can be increased above the allocations determined by HM Treasury. These are the Regional Rate and the borrowing power within the Reinvestment and Reform Initiative (RRI).
In the repeated absence of the political will to increase the Regional Rate, the NI Executive has, instead, recently re-profiled and extended the borrowing power within the Reinvestment and Reform Initiative – direct borrowing from the UK Treasury.
If the NI Executive was to exercise the power it has to borrow directly from the EIB for capital projects it would count towards the UK National debt.
For that reason the UK Treasury would, if necessary, seek to offset that borrowing elsewhere – in this case that would be by cutting the Block Grant.
As the NI Finance Minister told the Assembly in January this year
European Investment Bank
2. Miss M McIlveen asked the Minister of Finance and Personnel to outline any engagement he has had with the European Investment Bank in relation to using its financial resources. (AQO 5351/11-15)
Mr Hamilton (The Minister of Finance and Personnel): I thank the Member for her question. I am very keen for the European Investment Bank (EIB) to fund projects in Northern Ireland, and I intend to engage with senior officials from the bank in the coming months on the issue.
I met the European Investment Bank and the University of Ulster last year about the relocation of the Jordanstown campus to Belfast city centre. As the Member may be aware, the university has been in intensive negotiations with the European Investment Bank over recent months. I understand that those discussions are progressing positively.
Miss M McIlveen: I thank the Minister for his response. Will he give us his assessment of the role that the European Investment Bank can play in local investment?
Mr Hamilton: There are huge opportunities for Northern Ireland to avail itself of funding from the European Investment Bank. As I said, the University of Ulster is in ongoing negotiations with the bank. I hope that, in the coming weeks, we will hear that the university has been successful. However, we should not rest on our laurels and take that as the full extent of what we can do with the EIB. The EIB offers projects of the size and scale of the university’s relocation from Jordanstown to the centre of Belfast and the opportunity for funding over a longer period, sometimes at a significantly lower rate than projects could get elsewhere on the market. I am keen to explore other possibilities with the EIB and intend to meet its officials again in the next few weeks.
Without having any specific projects in mind, one area in which there could be huge opportunities is for our reformed local government to avail itself of some of those potential EIB borrowings. If we have bigger councils with more powers, such as the power to regenerate town and city centres, there are opportunities for those councils to work with the EIB, either on individual projects or in bundling projects together in order to avail themselves of cheaper finance and, importantly, to get projects and infrastructures on the ground that will improve the lives of people in Northern Ireland.
Mr A Maginness: I agree entirely with the Minister that there is huge potential. How does he propose to engender the same obvious enthusiasm that he has for the European Investment Bank with his colleagues in the Executive and other government bodies?
Mr Hamilton: As you can see from my January monitoring statement to the House this morning, there is a willingness, and I referred to the allocation of some £35 million in a two-year loan to the University of Ulster for moving into the Member’s constituency. Although the work with the EIB was not contingent on getting that, it sends a clear marker to the EIB that the Executive are serious about working with it to fund potential projects in the future.
We have issues with using EIB funding to build central government capital projects such as roads, schools, and so forth. If we avail ourselves of the funding, it will come off our block grant, and even though it is a lower rate of interest, we would still have to pay the interest so we would be net worse off in the longer term. That is why I think that there is potential for colleges and universities such as the University of Ulster and Queen’s University, which are at arm’s length from government, and for local government, because such finance does not score on balance sheets in the same way. That is why I am keen to meet the EIB to scope out those potentials for Northern Ireland, of which there are many. [added emphasis]
Mr Kinahan: Will the Minister clarify what the EIB could be used for? You just said that it could not be used for building schools. Are there other areas in education where we can use its funding to help schools?
Mr Hamilton: It could be used for schools, but there would be no benefit in that. We could access that money, but, because of Treasury rules, it would score against us, come off our balance sheet and we would have to pay interest. That is not advisable. This sort of work is in the very early stages. The EIB has been around for a while and is showing some interest in Northern Ireland as a place where it wants to invest. We are in a slightly better position with our capital budget than we were a couple of years ago, but finances are short and things are still tight. At a time when private sector infrastructure and construction work still languishes, it is important that we scope out all opportunities.
It is almost a case of central government issuing a challenge to local government, universities and others in the education sector, the health sector or whatever it may be that as long as they are outside government, we are happy to work with them and facilitate their bringing forward any projects and working with them and the EIB to make them a reality.
In some ways, I see the role of the Department of Finance, and of the Executive as a whole, as facilitators and enablers of projects so that we can reap the benefits from them, as we have, in a way, with the University of Ulster.
Mr Boylan: Go raibh maith agat, a LeasCheann Comhairle. Will the Minister expand a wee bit on how the new council structures could access that funding? Will he issue guidance or provide support on that?
Mr Hamilton: Local government reform is principally the responsibility of the Minister of the Environment, but I appreciate that this is not an area of work that the Department of the Environment focused on historically. I can understand why, at this stage, the Department of the Environment would be keen just to make sure that the RPA happens within the time frame set out for it. However, if the Executive wait until after reform and the 11 new councils are in place, an opportunity will have been lost at least to have a conversation to engage councils in the potential of the EIB and other ventures to bring in outside money to develop local infrastructure.
My understanding is that council borrowing powers are now less restricted as a result of the Local Government Finance Act a number of years ago. I think that the Member was still on the Committee at the time. Obviously, the new councils will have bigger rate bases and more power to spend that bigger rate income. There are huge opportunities, as can be seen, for example, in Scotland, where they have ramped up their infrastructure spend over the past number of years. By and large, that was done not by central government but by councils. Given the Treasury’s treatment of that expenditure, I want us to work with local government to enable councils to get into a stronger position where they could work with the EIB, the private sector or others to get investment for infrastructure in their locality that would not only improve their area but have a beneficial impact for the whole of Northern Ireland.
A point he repeated to the NI Assembly in April, after his meeting with Jonathan Taylor
Mr Weir: I thank the Minister for his response and the good news contained in it. Will he give us some detail of his recent meeting with the European Investment Bank (EIB)? Could its funding assist in our capital spend?
Mr Hamilton: I thank the Member for his supplementary question. I had a very productive engagement last week with senior officials from the European Investment Bank. It is fair to say that they are incredibly keen to do more business in Northern Ireland to build on the very successful loan that it gave to the University of Ulster to allow it to relocate the bulk of its Jordanstown campus to the centre of Belfast. A loan of some £150 million was given for that. It is very keen to build on that.
There are other opportunities across a range of infrastructure areas for which that we might be able to avail ourselves of funding from the European Investment Bank. A note of caution, however, is required: there may be a perception that we can put that sort of money into road, hospital or schools infrastructure, for example. We certainly could, but there would be ramifications elsewhere in the Budget of getting European Investment Bank funding, such as having to pay back a loan. I think that I have mentioned this in response to Mr Cree in the past: the money that we would raise via a loan would have to score on our Budget. We would see a commensurate drop in our capital budget coming from Treasury, and we would also have interest to repay on any loan. We have to be incredibly careful about where we would deploy any finance we were to get from the European Investment Bank. However, I am very keen to follow up on the positive engagement last week and to scope out what other opportunities might be there. [added emphasis]
But direct borrowing is not the only way to access loans from the EIB. It is perfectly possible for the Executive to use that facility without impacting on the Block Grant.
For example, that’s precisely what DRD did in 2006 with a loan of £61 million to upgrade sections of the M1 and M2 motorways around Belfast.
Or in 2007, when a loan from the EIB of £121 million was secured by DRD “for the design, construction and maintenance of improvements to a 120 km section of the A1, A4 and A5 trunk roads in Northern Ireland.”
Interestingly, the European Investment Bank wasn’t mentioned in the Northern Ireland Minister for Regional Development’s press release at the time. Who was the NI Minister for Regional Development in December 2007? Martina Anderson’s other party colleague, Conor Murphy, then MLA, now MP.
In both cases, those loans were made possible by “30-year Concession” agreements between the NI Executive Department for Regional Development and the companies involved in designing, constructing and maintaining the works – aka Private Public Partnerships (PPPs/PFIs).
But those partnerships have had consequences too. As the NI Audit Office reported in January this year – The Future Impact of Borrowing and Public Finance Commitments
According to today’s report, the Executive has, up to March 2013, accessed £2 billion of borrowing through the Reinvestment and Reform Initiative. Annual repayments have doubled in the past five years to £100 million in 2013 and are expected to peak at £140 million a year from 2016 to 2021. While borrowing is intended for financing Northern Ireland’s substantial infrastructure investment programme, recent expenditure funded from Reinvestment and Reform Initiative borrowings highlights the need for more clarity and transparency.
The Report records that the current 39 operational PFI contracts have built up an estimated £7 billion of commitments against future years’ departmental resource budgets, costing an average of £245 million each year until 2030. However, there is currently no central collection of PFI costs and commitments or dissemination directly to the Assembly or its Committees. [added emphasis throughout]
[One of the recent expenditures funded from RRI borrowings was the shareholders in the Presbyterian Mutual Society… – Ed] Indeed.
Which may be why the current focus by the NI Finance Minister is on” local councils, particularly after reorganisation and the RPA”, as well as “the private or non-public sector”. As he said in the NI Assembly in response to a question in April this year from Martina Anderson’s other party colleague, Sinn Féin MLA Daithí McKay.
Mr McKay: Go raibh maith agat, a Phríomh-LeasCheann Comhairle. I thank the Minister for his answer, particularly his comments about the European Investment Bank. Does he see anything in the delivery of possible projects coming out of the EIB that will, in the short to medium term, impact on our economic recovery? Also, what opportunities does he see in working with the new councils to try to draw down some of those funds from the EIB?
Mr Hamilton: There are some. We had a good discussion about some projects that are already working their way through the early stages of the pipeline and that would have a very positive impact on the economy in Northern Ireland. A lot of energy infrastructure projects are already being discussed between network and grid companies and directly with the EIB. That underscores the point that it is not just central government trying to raise money, perhaps using the European Investment Bank. This is money that is also available to the private or non-public sector. I very much encourage the energy companies to try to take up the opportunity that might well be there. Obviously, there is a huge range of experience elsewhere in Ireland and the United Kingdom and right across the European Union. There are opportunities for energy that can be availed of quite quickly through the European Investment Bank.
The Member is right to highlight the opportunity that is presented by our local councils, particularly after reorganisation and the RPA, which will, of course, create much bigger councils with bigger rate bases. There will also be a change towards better borrowing powers and, importantly, more powers, including a power of regeneration. I held a seminar in the Department a couple of weeks ago with senior officials, chief executives and finance directors from a large number of the local councils. I am keen to continue that type of engagement to try to make them aware of the opportunities that EIB funding and financial transactions capital funding potentially present. Into the future, our councils, given their greater powers post-RPA, should be an increasing driver of infrastructure investment in Northern Ireland. I am keen, at these early stages, to use the good offices of the Department of Finance and Personnel to encourage them down that path. [added emphasis throughout]
Mr Dallat: I listened carefully to the Minister. One billion pounds is a lot of money — enough to make the Minister as popular as Santa Claus. Does this mean that there might be some additional funding for new schools, which are badly needed?
Mr Hamilton: To reiterate the point that was made to Mr Weir: we could certainly use the money from the European Investment Bank or other sources in the private markets to invest in schools infrastructure, just as we could use it to invest in roads or health. The complicating factor is that schools projects, for example, are taken forward by our Education Minister. The way that those are treated in our budget means that they would have to be done in a private finance initiative-type format, which is actually quite expensive at the minute and would require the expenditure of current resource expenditure to pay back the interest over 20 or 25 years or whatever the term might be. As the Member will appreciate, our budget is tight because of cuts coming from London that are particularly focused on our expenditure budget. So, given the price and the reducing current expenditure budget, it is not as attractive an option now as it might have been 10, 15 or 20 years ago. That does not mean that it might not come back in vogue in the longer term.
The benefit of accessing funding from the European Investment Bank or others is that, if we can fund some of the projects that we might have done ourselves through central government funds and capital funds, and that is done perhaps through local government — to pick up on the point from the previous Member who spoke — that might release some funds in our conventional capital budget that could instead be spent on new schools, hospitals, healthcare centres or road infrastructure. It might free up resources elsewhere that we could deploy for some of the projects that the Member talks about. [added emphasis]
The European Investment Bank, Europe’s long-term lending institution, has agreed to provide a funding contribution of GBP 175 million towards the completion of the motorway link between Glasgow and Edinburgh. The investment programme will include both completion of the M8 motorway between Scotland’s two largest cities and major improvements to the M73 and M74.
Drivers will benefit from reduced congestion as well as safer and quicker journeys as a result of the new M8 M73 M74 Motorway Improvements Project. The scheme will create hundreds of jobs during construction and, once complete, will significantly reduce congestion on one of Scotland’s busiest road networks. Long-term employment opportunities will also be created throughout the 30 year operation and maintenance of the new roads. Advanced works are currently underway and the road link will be designed, built, operated and maintained for 30 years following award of a concession agreement by the Scottish Government.
Here, however, that would require
dysfunctional polit-bureau NI Executive agreement…
As for one of the questions posed by the Northern Ireland MEP, Sinn Féin’s Martina Anderson, about “what projects qualify for financial assistance”? From “EIB at a glance”
As the largest multilateral borrower and lender by volume, we provide finance and expertise for sound and sustainable investment projects which contribute to furthering EU policy objectives. More than 90% of our activity is focused on Europe but we also support the EU’s external and development policies. [added emphasis]
[Sounds wonderful! Where do I sign up? – Ed] That’s what they said about PFIs…