UK Community Investment Bank

Background

Governments have invested heavily in large scale infrastructure for centuries. From Bazalgette’s sewers to the motorway system, and even the ongoing roll out of high-speed internet, it is infrastructure that has been the bedrock of the country’s economic development. Afterall, you can’t be a service economy without being able to get to your customers. The recently founded UK Infrastructure Bank is a continuation of that ambition. It has access to £12 billion capital and £10 billion in Government guarantees and has a mission to invest strategically in large scale physical infrastructure projects that might not otherwise be supported by the market. The aim is to create sustainable economic development while supporting net zero environmental targets.

Nonetheless, this is not the infrastructure that underpins most of our day-to-day experiences. We need to treat the village halls, community centres, pubs, sports teams, cafes, museums, theatres, religious centres, maker hubs, parks, local radio stations and newspapers with the same seriousness as we do our hundred-million-pound projects. It is small-scale community infrastructure that defines where we live, the friends we make, and the opportunities available to us. These are the catalysts for transforming neighbourhoods into communities, thereby reducing burdens like crime and illness, and founding innovative small businesses that drive the UK’s economy.

One demonstration of their intrinsic value is the significant price differences — often many thousands of pounds — of house prices in areas with access to these forms of community infrastructure to areas without them. Yet building, maintaining, and developing them is made excessively difficult as — due to their very different value chains — they find it impossible or prohibitively expensive to borrow even small amounts of money from the private sector. This leaves them reliant on donations, good will, and the vagaries of Government grant schemes — hardly an efficient way to run such important services.

The importance — and fragility — of these community centres was dramatically demonstrated during the Coronavirus crisis. Many of us turned to these centres for survival, just as the centres themselves risked closing forever. For some forms of community infrastructure the Culture Recovery Fund announced in July 2020 was available to try and stop them sliding into bankruptcy. In the first tranche this operated as a mixed economy approach with budgets of £500 million in grants and £270 million in loans – primarily for organisations requiring larger funding amounts – with extremely favourable terms of “up to 20-year repayment, an initial repayment holiday of up to four years, and a 2% interest rate per annum”. As of March 2022 the Fund has given £892 million over multiple rounds to over 3,500 organisations. It is challenging to fully assess the Fund’s impact from publicly accessible data at this stage. However, it is notable that many organisations that received funding have reopened to serve their local communities again.

There is ongoing work in this area, most notably allied to the Government’s “Levelling Up” agenda. This has created several significant funding schemes like the UK Shared Prosperity Fund that is due to spend £2.6 billion by March 2025 and the Community Ownership Fund which is committed to spend £150 million by March 2025 to support community groups to buy organisations like sports teams and pubs. These are positive steps, as is DEFRA’s snappily titled Platinum Jubilee Village Hall Improvement Grant Fund worth £3 million by 2025. While Government grants mechanisms are often laudable in ambition, they are all too often uncoordinated, excessively narrow in scope, and have a requirement for funding to be spent by the end of one financial year. Buying a local pub, fixing the roof on the village hall next door so that local businesses can work there, and turning the car park in-between into a community garden will involve at least three separate grant bids all with their own administrative processes. That’s assuming there are relevant schemes running that year, of course. Few private businesses could run with such complicated and clunky funding streams.

The Bank

The UK Community Investment Bank, however, would revolutionise how Government funds local community infrastructure. It would be a wholly government-owned but operationally independent policy bank operating to Government defined strategic imperatives (e.g. that the bank should prioritise projects supporting the green economy) with two overarching aims:

1) To create sustainable local economic growth

2) To create more vibrant, integrated, and liveable communities

It will seek to deliver flexible strategic investment in the creation, maintenance, and ongoing development of community infrastructure across all four nations of the United Kingdom. A one-off capital injection of £1 billion would put the Bank on a sustainable financial footing for decades to come while producing significant added value to the UK’s communities and economy. A proportion of this capital would be ringfenced for each region, with a second pot allowing for need-led investment as required.

This national approach has numerous benefits compared to more regional approaches via local authorities. This includes consistency of approach which avoids the possibility of a postcode lottery, sustainable investment where profits from loans in the Southwest can be invested in the Northeast and vice versa, and the opportunity to encourage certain types of infrastructure (e.g. flexible innovation spaces or tool libraries) on a national level.

Loans will be offered at favourable terms otherwise unavailable in the market to local community groups, cooperatives, parish councils, and charities, as well as businesses that can demonstrate their role as local hubs. Where multiple groups are working on a series of interconnected projects (such as the pub, community centre, and garden proposed above) they would be able to seek one shared loan. Thereby maximising flexibility and economies of scale.

The vast majority of loans are likely to be in the tens of thousands of pounds, however the Bank will have capacity for microfinance thresholds of low thousand or even hundreds of pounds as well as up to £1 million where appropriate. Loan applicants would be required to provide business cases laying out both the financial and public benefits resulting from each investment. For example, the pub/village hall/garden scheme would need to demonstrate the economic advantages (e.g. increased tax revenue from new businesses and a sustainable pub business) and the community benefits (e.g. improved health outcomes in the area thus reducing demand on the NHS). Funded organisations would be free to operate in partnership with private sector loans, grants, donations and other income streams in order to allow for maximum flexibility.

The repayment structure will seek to balance the recognition of the public good generated with putting the Bank on a sustainable financial footing and thereby ensure long term sustainability. Depending on the nature of the investment needed loans will be provided on a combination of two repayment strands:

1) All loans will have a long-term repayment period starting at ten years, low rates of interest, and (if required) a repayment holiday — similar to the loans provided under the Culture Recovery Fund. Where appropriate and affordable, for example where projects will result in significantly larger profits for organisations, repayment rates will be proportionately higher. This results in revenue returning to the Bank over the long term to allow for reinvestment outside the confines of public sector Spending Reviews.

2) Where appropriate, a Community Benefit Calculation (CBC) will be implemented — community infrastructure is often not run for profit yet provides many other forms of return on investment. The CBC would be based on a formula that takes those wider systematic benefits into account as ‘repayments’ on a quarterly basis. This would reduce the loan amount in line with wider systemic returns brought about increased tax income (e.g. where an investment creates space for local businesses to thrive) and reduced costs elsewhere across Government (e.g. where the NHS see lower demand for mental health services).

The UK Community Investment Bank is a truly innovative and practical next step for Government investment in communities across the UK. The scale and adaptability of this policy will support innovation and investment this have the potential to improve the lives of millions.