You have asked a fundamental question—and a really smart one, if I may say so. In academia, researchers often do not understand that, and pretend that there is a financing gap. The committee might have heard of the financing gap, or what is sometimes called the credit crunch. That is false: there is plenty of finance out there. However, there are often two other problems. First, there is not enough quality finance—the patient, long-term finance that the bank will provide—and secondly, there is not enough demand for finance, which is definitely seen in the small and medium-sized enterprises space. There are not enough SMEs that want to innovate and grow, and there is a lot of status quo behaviour.
I go back to my point about crowding in. The bank alone will not be able to do anything; it has to be seen as an instrument across what we would call investment-led growth strategies. We should not forget that the United Kingdom is a part of the world that continues to grow through consumption-led growth, not through investment-led growth, and so private debt through disposable income is back at the record levels of just before the crisis. If we are to transform from a consumption-led to an investment-led growth strategy, the question is whether there is a desire to invest. Is there a demand-side problem, as Mr Lockhart has said?
We recommend that the bank be structured not just as a machine that hands out money to whatever sector, business or organisation asks for it, but in a way that is targeted much more at solving societal challenges, and is framed in a mission-oriented way. Historical evidence shows that that would crowd in private finance, if the bank were to do it in an ambitious way.
The problem in many countries has been that indirect incentives such as tax incentives, guarantees and subsidies are used, but that approach assumes that the private sector already wants to invest. If it does not want to invest, all that indirect incentives do is increase profits. However, there is no profits problem—there is an investment problem.
Ideally, the SNIB would crowd in business investment by increasing the imagination of the business community and its perception that there is, through the future finance instrument, if it is structured in the ways that we advise, an exciting new future that it can get involved in—in terms of mobility, clean growth and an ageing society—and that there will be long-term profits to be made, and aid for businesses to get into that space.