Politics: Would Corbyn Help the Regions?

Jeremy Corbyn is trying to win over the powerful “northern vote” that held such sway in the Brexit result by using a big cash incentive to kick-start investment in small projects outside the London bubble.

Shadow Chancellor John McDonnell (left) revealed the plan for a National Investment Bank a year ago but the economic impact of Brexit as well as the looming end of EU regional development funds are making the proposal even more important to Labour’s plans for the struggling regions, which voted most heavily for Brexit.

The proposed bank is intended to provide £250bn through 12 Regional Development Banks to focus funding in local communities.

“The idea of a National Investment Bank is not a new one, nor one without international precedents,” said a shadow cabinet implementation report. “Different forms of state-backed banks already exist in many countries and sub-regions, including Germany, Canada and North Dakota and a British counterpart should be able to learn from best practice elsewhere in the world.”

Like the German state-owned bank the KfW – which Labour uses as most important role model – the system is intended to help small and medium enterprises with a maximum of 250 employees.

Bank of the North

What is most politically compelling about the pledge is its appeal to the North when a disproportionately high number of Jeremy Corbyn’s Labour MPs and shadow cabinet secretaries are based in London.

McDonnell even launched his idea in the Brexit stronghold of Sunderland, where he said the annual infrastructure spend per head is just £414 in the north-east compared to London’s £5,300.

“Even raising public investment in the north-east to the national average per capita would increase it by £7bn a year,” he said. “We should be aiming for nothing less than a transformation of the economies of the north.”

Meanwhile the Conservative Government has been accused of backtracking on HS3 – the “Crossrail of the North” – while also scrapping the electrification of railway lines in Wales, the Midlands and the north in July.

With the impending loss of EU regional funding the National Investment Bank will be crucial to Labour’s hopes of reaching beyond the London bubble and boosting the neglected areas that voted so strongly for Brexit. Back in the corporate world there is a logic to that idea given that the UK’s utilities, universities and corporate sector receive billions in financing each year from the European investment bank.

Cash Giveaway?

The pledge has an air of providing a big glossy number with its funding hidden away in a jargon of bonds and equity insurance that few will be capable of scrutinising. Is it a real policy or just an election banner?

Labour’s implementation report said “the NIB will follow an on-lending strategy similar to the KfW Mittelstand activity in Germany. The NIB will be funded via its own bond issuance with the backing of a UK government guarantee, following initial equity financing by the Government.”

Meanwhile the UK has a national debt of more than £1,700bn with an annual interest bill of £39bn. The economically minded know that the first step towards increasing savings and investments is generally to reduce existing debts. Buying a phone or car outright works out to be cheaper than buying on a contract if you can afford the initial expense.

Same Response to Old Problem

The NIB appears to be a very close homage to Tony Benn’s National Enterprise Board of the early 1970s, which was also focused on regional investment under Harold Wilson’s Labour government.

A damning report for the Centre for Policy Studies – a right-wing think tank – by Michael Grylls and John Redwood in 1980 slammed the earlier enterprise board as a wasteful state intervention in the economy.

“The view that the markets and the financial institutions of the City of London had failed industry was a recurring theme of the 1970s,” the conservative critics wrote. “There was a vague feeling that a gap existed in the market, in other words that worthwhile companies were not getting the finance they required, and that the alleged gap needed to be filled,” they said.

In practise the NEB is most remembered for propping up the dwindling car manufacturer British Leyland, which was taken into public ownership in 1975 at great expense without ever returning to profits.

The report claimed it was a myth that Westminster was neglecting the regions but the fact that much of its critique could have been written today reveals the sad lack of progress of the more free-market policies adopted in the intervening decades.

“What had been lacking was not the supply of funds but the demand,” it said. “Industry and commerce had been and still are put off by too many major economic uncertainties and political constraints.”

With investment in the UK slowing due to Brexit’s uncertainty, now may well be the time for just such a homegrown funding push outside the bounds of the M25.

by Stewart Vickers

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