Local authorities have called for government action after a Brexit shadow crept over a major source of long-term funding.
The Times this week reported that the European Investment Bank has effectively imposed a moratorium on new long-term loans to the UK.
Although the EIB disputes the language used by the newspaper, it confirmed to Room151.co.uk that approvals for UK projects are taking much longer than before the independence referendum.
An EIB source said: “There is no formal moratorium on EIB lending in the UK, contracts have been signed since Article 50 was notified in March and we expect to sign further contracts before the end of the year.
“However, given the unprecedented nature of Brexit we are currently undertaking due diligence, covering legal issues, environmental standards and the EIB’s privileges and immunities.”
The bank said that the extra checks are needed to ensure contracts cover eventualities that might arise after the UK leaves the European Union.
A number of existing loan deals with local government are already agreed, and are not under threat.
Call for government action
However, authorities affected by the delay have called on the government to provide alternative sources of funding at similar rates to the EIB if the source did dry up.
Richard Paver, treasurer at the Greater Manchester Combined Authority said his organisation is currently hoping to raise £350m from the EIB towards the £350m Trafford Park Metrolink extension.
He emphasised the importance of ensuring local authorities have access to EIB loans or an equivalent.
He said: “We would be concerned if the message is that they have shut for new business.
“As you will know, the Department for Communities and Local Government consulted some time ago about a further infrastructure loan concession through the Public Works Loan Board (PWLB) which would potentially have given some small benefit.
“If EIB have effectively withdrawn from infrastructure funding [in the UK] then it would be important Government makes something available which more closely replicates [the] EIB for large infrastructure projects.”
Greater Manchester currently has £450m of current EIB loans towards transport infrastructure and urban regeneration projects.
The bank also recently provided £102m to London Borough of Croydon – the first ever loan from the bank exclusively for investment in schools by a UK local authority.
Simon Hall, Croydon’s cabinet member for finance and treasury, told Room151: “As councils like us nationwide are already experiencing a revenue funding crisis, the last thing we need is a capital funding crisis.
“With the EIB soon to leave the scene and the government focusing its capital investment in high-speed rail, we need government reassurances that the rest of us won’t get left behind.”
He said the council has had discussions with the bank about new projects and said that if EIB funding dries up, it “may affect our ability to deliver schemes that would be so valuable to residents”.
€2bn of EIB loans to councils
Figures from the EIB show that over the past five years, EIB long-term loans worth more €2bn have been made where local authorities have been the counterparties, or directly involved.
The UK is currently a 16% shareholder in the bank and the future of this holding is set to be discussed as part of the overall negotiations on Brexit.
In June, the chancellor Philip Hammond said that he wanted to ensure EIB funding continues for the remainder of Britain’s time in the EU.
“I want that access to EIB funding to continue while we are members of the EU on equal terms, so I am engaged with EIB and will provide the assurances it needs to sustain the flow of EIB and European Investment Fund funding to UK businesses and projects,’ he said.
Councils and other public bodies borrowing from the bank are required to find match funding for the bank’s investment.
As with the PWLB project rate loans, borrowers must also provide a clear definition of the project and an end date by which time repayments must be made.
Infrastructure schemes
The bank has recently loaned cash to a number of local UK infrastructure projects including £480m to the Greater London Authority towards the Northern Line extension project.
London Borough of Enfield is establishing its own energy company, using £6m of funding from the EIB at a rate lower than PWLB.
In April last year, in the run-up to the Brexit referendum, a spokesman for the EIB told Room151 that it was in discussions on funding transport projects in Merseyside and Yorkshire.
The EIB was also in discussions with the Local Government Association about its LG Develop collective borrowing vehicle, before the project was scrapped.
