Rishi Sunak's new national infrastructure bank is so small that it will have no effect on growth, the government's economics watchdog has said.
In calculations released alongside the budget, the Office for Budget (OBR) responsibility said it had "not adjusted our economy forecast" in light of the bank's creation because of the bank's small size and expected limited impact.
The Chancellor on Wednesday confirmed the bank would be based in Leeds and said it would "finance the green Industrial Revolution, beginning this spring" – also putting it at the centre of the government's "levelling-up" agenda to invest in the regions.
But the OBR said that the bank's impact on economic forecasts would be virtually nil “given the scale of its operations ... and the fact that it replaces only some European Investment Bank activity".
The bank has been allocated £12 billion in funding over five years, which falls short of the £20 billion recommended by the government's own commission.
But it also fails to make up for the funding provided by the European Investment Bank, which has invested around £5 billion a year on average in the UK – including rail lines, school buildings, and social housing projects. The UK lost access to the EIB when it left the EU.
Labour seized on the OBR's warning on Thursday evening, claiming the new bank, whose operations will only reach around 0.1 per cent of GDP, was 147 times smaller than its German equivalent.
The Kreditanstalt für Wierderaufbau (KfW), which the opposition says the UK needs to emulate if it is to stand a chance of fighting climate change, has total assets worth almost 15 per cent of Germany’s annual GDP.
Such state investment banks offer subsidised loans to priority projects with a social good like wind energy and affordable housing.
Ed Miliband, Labour’s shadow business secretary, said: “The Government’s smoke and mirrors cannot distract from the fact we have been left without the green investment we need. We needed climate leadership from government but we got climate failure
“In the year of COP26 when we are wildly off track to meet our climate targets, we needed the Chancellor to put a green stimulus at the centre of the Budget.
"He totally failed to do so. A £1bn cut to the green homes grant, a refusal to help our manufacturers make the green transition and an investment Bank that lacks anything like the ambition we need.
“Far from transformative investment in infrastructure, the Government’s new bank won’t even plug the hole left by the European Investment Bank and will see us trailing way behind countries like Germany.”
In his Budget speech, Chancellor Mr Sunak said: "Our future economy needs investment in green industries across the United Kingdom, so I can announce today the first ever UK infrastructure bank. Located in Leeds, the bank will invest across the UK in public and private projects to finance the green Industrial Revolution, beginning this spring.
"It will have an initial capitalization of 12 billion pounds, and we expect it to support at least 40 billion pounds of total investment in infrastructure."
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