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Scottish National Investment Bank Bill

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Scottish National Investment Bank Bill SPICe Briefing Pàipear-ullachaidh SPICe Scottish National Investment Bank Bill Alison O'Connor The Scottish National Investment Bank Bill will place a duty on the Scottish Ministers to create the Scottish National Investment Bank as a public limited company and to provide it with its articles of association. The Scottish Government intends the Bank to be operational in 2020, subject to Parliamentary approval of proposals. 26 April 2019 SB 19-25 Scottish National Investment Bank Bill, SB 19-25 Contents Executive Summary _____________________________________________________4 Introduction ____________________________________________________________6 Background and context _________________________________________________7 Journey to a national investment bank for Scotland ____________________________7 2017 _______________________________________________________________7 2018 _______________________________________________________________7 2019 and onwards ____________________________________________________8 What is a national investment bank? ________________________________________9 A renaissance in national investment banks ________________________________9 Characteristics of national investment banks _______________________________10 National investment banks close to home _________________________________10 Why do we need it? ____________________________________________________12 Issues constraining economic performance ________________________________12 Rationale for public intervention_________________________________________14 A Scottish solution ___________________________________________________15 How the bank will work _________________________________________________16 What it will and won't do ______________________________________________16 Types of products ___________________________________________________17 Making investment decisions __________________________________________18 Ensuring additionality _______________________________________________18 Expectation of return________________________________________________18 Looking beyond financial returns ______________________________________19 Collaboration and integration __________________________________________19 Stimulating demand ________________________________________________19 Policy landscape alignment and consolidation ___________________________20 Wider coordination _________________________________________________20 Potential areas at a later stage _________________________________________20 What does the bill do? __________________________________________________21 Section details ________________________________________________________23 Sections 1-10 establishment of the bank __________________________________23 Sections 11-20 operational matters ______________________________________25 Missions_____________________________________________________________26 A framework approach ________________________________________________27 International example_________________________________________________27 2 Scottish National Investment Bank Bill, SB 19-25 SNIB's potential missions______________________________________________28 Consultation__________________________________________________________29 Engagement levels __________________________________________________29 Feedback __________________________________________________________31 Equality impact assessment _____________________________________________32 Alternatives options ____________________________________________________32 Classification _______________________________________________________33 Financial implications ___________________________________________________35 Capitalisation ________________________________________________________36 Wider capitalisation context ____________________________________________37 Operational and set up costs _____________________________________________37 Scottish Government Bank Programme___________________________________38 Set up costs for the Bank ______________________________________________39 Scottish Government sponsor unit _______________________________________40 Contribution to operating costs of the Bank ________________________________41 A self-funding bank_________________________________________________42 Wider engagement related to finance ______________________________________43 HM Treasury derogation_______________________________________________43 Securing permission from European Commission to comply with State Aid rules ___44 Appendix A: Key documents for the Scottish National Investment Bank ________45 Appendix B: Wider economic theory ______________________________________47 Characteristics of national investment banks_________________________________47 Rationale for public intervention __________________________________________48 Framework approach to missions _________________________________________49 Appendix C: Glossary __________________________________________________51 Bibliography___________________________________________________________53 3 Scottish National Investment Bank Bill, SB 19-25 Executive Summary Wider context The timeline of the Scottish National Investment Bank starts in 2017 but the idea of a type of development bank for Scotland is not new and goes back to 2013. An Implementation Plan for the Bank was launched in February 2018 and it is intended the Bank will be fully operational in 2020, investing in businesses and communities across Scotland. National investment banks have experienced something of a renaissance in Europe since the 2007-08 financial crisis. There has been a trend whereby private markets retreated from financing the economy, whilst simultaneously the economy itself became increasingly financialised. This trend resulted in public finance becoming more important for capital investments. Much of the Scottish Government's inspiration for a national investment bank draws on the academic work of Professor Mariana Mazzucato. The two most important issues in the Scottish economy that the Bank is intended to address is a need for greater long-term investment in small to medium size enterprises (SMEs) and to improve Scotland's relative innovation performance which lags behind comparator countries. The proposed activities of the Bank go beyond a classic market failure correcting role to include a mission-orientated role to make strategic investments, which focus on solving Scottish societal challenges. Given that current analytical frameworks used by governments to appraise and evaluate policy assume that government interventions are mainly concerned with correcting market failures - it is valid to question from the outset how the Scottish Government will be adapting appraisal, evaluation, and monitoring tools in relation to the Bank. The Bill The Scottish National Investment Bank Bill, introduced to the Scottish Parliament on 27 February 2019, will require Scottish Ministers to establish the Bank, and gives them powers to capitalise it. It also makes provision for the purpose, objects, ownership and governance of the Bank. The Bill describes the relevant powers of the Bank in broad terms but leaves a lot of the detail to the Articles of Association (that is to say the constitution of the Bank as a plc). The Bill does not confer any powers in itself, rather it sets out what the Bank's Articles of Association will have to say about its powers. What the Bill does do is place a duty on Scottish Ministers to establish the Scottish National Investment Bank, as a public limited company, and gives the necessary powers to Scottish Ministers to capitalise the Bank. Scottish Ministers will also be given the power to set the strategic direction of the Bank by the setting of Missions. The Bill places a duty on the Scottish Ministers to provide the Bank with its Articles of Association. It also mandates what is to be in the Articles and the circumstances in which certain provisions can be modified. The Bill also makes provision for the annual reporting and performance review (every five years) of the Bank. The Schedule of the Bill makes provision for the application of public bodies legislation to the Bank. 4 Scottish National Investment Bank Bill, SB 19-25 Section 11 of the Bill gives the Scottish Ministers the power to set the direction of the Bank by the setting of strategic missions. These will be set by the sending of a document to the Bank by the Scottish Ministers setting out the socio-economic challenges that the Bank is to seek to address. Scottish Ministers may set, modify and bring missions to an end by the sending of such a document. The document must be made publicly available and be laid before the Scottish Parliament. However, there is no further parliamentary procedure attached to this requirement, such as a parliamentary vote to approve the document. It is intended that the strategic missions set by the Scottish Ministers will complement the Bank’s objects. It should be noted that if the Bank were legally challenged, it would be the Articles of Association that would be interpreted in a court of law and not the principles of primary legislation. Financial implications According to the Financial Memorandum total costs to the Scottish Administration will be £2,050 million. This includes: • £2,000 million for capitalisation over 10 years (2018-28) • £23 million for the Scottish Government Bank Programme (2018-21) • £5 million set up costs (2020-21) • £4 million for the Scottish Government sponsor unit (2020-23) • £18 million Scottish Government contribution to operating costs (2020-23) The
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