Or at least, part of it will be. After months of uncertainty, during which Cable’s Department for Business, Innovation and Skills (BIS) deliberated over where the bank would go, the verdict confirmed that the front runners had only been Edinburgh and London rather than York or Nottingham.
The solution to split the bank between the two locations seemed a pragmatic one that acknowledges Scotland’s pre-eminence in the field of renewable energy development, but also confirmed that if you are going to leverage billions from the private sector, the only place that you can do that in the UK now is in the City.
Under the terms announced yesterday by BIS, Edinburgh gets the corporate HQ, the responsibility for asset management and the back office, while a London-based transaction team will siphon an estimated £15 billion in private sector funding for the bank’s activities from pension funds, sovereign wealth funds and banks.
The transaction team is thus responsible for pulling together the necessary structured finance deals, which is the main part of what the GIB is supposed to do. BIS decided it was too risky for this to be anywhere other than London, despite the coalition government’s aim of “rebalancing” the UK economy.
As BIS points out, all the banks and other investors that will be putting money into the projects managed by the GIB are based in London and that is where all such transactions are done. You wouldn’t want to force any of these global elites to share a cabin on the sleeper to Edinburgh, would you? Perish the thought.
For the most part, Scots seem resigned to the fact that, following the banking collapse in Edinburgh, this is now the way the world is. “That is where all the action is happening,” said one analyst of London’s pre-eminent position for capital flows. Another said that “we should be grown up about it” and be thrilled that Edinburgh beat 31 other cities bidding to at least co-host the project.
Behind the acclaim was also relief. The announcement spurred speculation over whether the coalition is planning to use the GIB as a pawn in its game to convince wayward Scots of the benefits of the union. But more importantly, it demonstrates that Westminster still has confidence in the development of low carbon technologies and renewables as a key part of the UK’s portfolio of future energy production.
Previous decisions, such as the abandonment the £1bn carbon capture and storage (CSS) test project being developed for the coal-powered Longannet, seemed to suggest that energy cost in these times of austerity was going to become a major issue. Then last week, a previously quashed report that said meeting the UK’s 2020 renewable targets will add £45bn to the UK’s energy costs added heft to calls to ditch them altogether in favour of cheap shale gas and nuclear.
But the GIB, capitalised with an initial £3bn, demonstrates that Westminster has at least shown some commitment to renewables, particularly that which is being promoted in Scotland such as offshore wind farms or other technology such as wave and tidal.
Hard decisions ahead over interest rates
Yesterday was the third anniversary of the UK’s 0.5 per cent base rate, which is three years of special treatment for the UK’s weakling economy as it struggles to recover from the banking crisis and the resulting recession.
The Bank of England’s monetary policy committee (MPC) yesterday agreed to keep the base rate at its lowest ever level and to hold the quantitative easing stimulus at the current £325bn, after all nine members agreed to put in an order for a further £50bn to be sent to the printers in February.
But there is growing concern that the amount of QE being loaded on to the UK’s debt pile will topple the benefits of pumping money into the economy.
Some members of the MPC seem to be turning hawkish, with one member, Martin Weale, hinting that interest rates could go up before 2014, although no-one can rule out even more QE while Europe fumbles.
But with signs that the UK might narrowly avoid another recession this year, the MPC is now between a rock and a very hard place.