The Scottish Government put forward draft legislation on 27 February to establish a Scottish National Investment Bank (NIB), following a consultation in late 2018.
The NIB is designed to provide a new route to finance for firms which currently find it difficult to access the levels of capital they need to invest in and grow their businesses, as well as helping them leverage further investment from private sources. It will also have a role in supporting the delivery of low carbon targets.
The Scottish Government intends that most of the bank's lending will be on commercial terms (such financing is not ordinarily regarded as constituting state aid). Where the NIB gives financing at lower than commercial rates, this may be allowable state aid.
Structure and funding
The Bill authorises the Scottish Government to establish the NIB as a public limited company and to capitalise it as they consider appropriate. Initial funding of £2 billion is proposed for its first 10 years of operation.
All of the NIB's initial funding will come from the Scottish Government - there will not be any issue of publicly-available bonds or shares. However, establishing the NIB as a public limited company (rather than a private company limited either by shares of guarantee) allows the NIB the flexibility to do so in future, as well as allowing it to pay dividends to the Scottish Ministers if it generates a profit, although bringing in private investment (or indeed privatising the NIB altogether) would require primary legislation.
The setup of the NIB allows the Scottish Government to take advantage of a mechanism called "Financial Transactions" - essentially, funds which the Scottish Government can borrow from the UK Treasury interest-free for the purposes of making loans to, or investments in, private undertakings. As such the NIB will be prohibited from lending to public bodies.
Administrative autonomy and restrictions
The intention is for the NIB to be operationally and administratively independent from the Scottish Government, albeit within the parameters set by the legislation, and "strategic missions" set by ministers. However, as a body set up and funded by the Scottish Government, the NIB will be subject to a range of public sector policies and constraints.
It will be required to aim for 50% of its non-executive directors to be women and to abide by any direction of the Scottish Ministers regarding public sector pay policies, such as limitations on senior-level pay and living wage requirements.
It will also be subject to public sector ethical standards, freedom of information laws, and governance laws, as well as additional duties under forthcoming secondary legislation making it subject to the "Fairer Scotland Duty" and the public sector equality duty.
Relationships with other bodies
Scottish Enterprise's existing Scottish Investment Bank, which leverages private investment and links businesses with private sector investment partners, will be rolled into the new NIB structure together with a range of other "access to finance" activities run by the Scottish Government and various agencies, in order to provide a "one stop shop" for accessing public investment.
Otherwise, the NIB is intended to work alongside Scottish Enterprise, Highlands and Islands Enterprise and the new South of Scotland Enterprise Agency, with each agency helping to build awareness of the NIB as an additional funding source available to businesses in Scotland seeking investment.