SNIB losses are mounting, largely for the reasons we warned they would

The creation of the Scottish National Investment Bank (SNIB) is one of Common Weal’s proudest achievements alongside Ynni Cymru - the Welsh public energy company - and the Scottish Lobbying Register - one of the most powerful mechanisms of government transparency in the UK.

However, its actual implementation has deviated quite far from our original blueprint and, as a direct consequence, there are reports this week that the bank has seen rising losses in the past few years. In its latest accounts, the Bank wrote down the value of its investments resulting in a £77 million loss on its accounts compared to a £14.6 million loss the previous year (largely due to the total loss of its investments in the failed Deposit Return Scheme). To be fair, these are accounting losses in the value of its capital rather than direct losses due to expenditure exceeding income (the opposite is true, last year the Bank drew in £34.5 million in income from its loans compared to operating outgoings of £16.2 million) but the downward trend of the value of its investments may place the bank in a vulnerable position. It wouldn’t be the first time that a technically solvent bank was brought down because risky investments collapsed around it.

The reason we warned that this would happen was because of the way we envisaged the bank should be investing in Scotland compared to the way it currently is.

The SNIB is not a normal business bank. It’s a national investment bank. It’s not supposed to be investing solely in the kinds of things that normal business banks invest in. You’ve probably heard of the other kind before. They’re often called things like “tech accelerators” or “growth funds”. They focus on flashy but risky investments that have a chance of paying off big for the country both in terms of monetary return but also in terms of technological innovation or, yes, political prestige. But they also have a high chance of failure. If you want to invest in jetpacks, you have to be prepared for bumpy landings. (SNIB isn’t, to our knowledge, investing in literal jetpacks - take it as a metaphor for flashy but risky technology investments like its actual investments in things like lasers, or datacentres)

There is a place for that in SNIB, but we saw those kinds of investments as the tip of an investment pyramid, underpinned by vital investments in other places that are critically underfunded in Scotland but which are also safer investments, albeit with slower and lower returns. There are plenty of people in the venture capital or equity fund world willing to risk their (or someone' else’s) money on jetpacks. But they want their profits back almost immediately. SNIB was supposed to be about “patient finance”. This requires patience and it requires stability.

So the foundation layer of our blueprint for SNIB was to provide funding for social housing. Our “Good Houses for All” plan called for SNIB to essentially fund unlimited social houses across Scotland. Enough to disrupt the private rental market, provide a house for everyone who wanted one and to build them at such high quality that it eliminated fuel poverty and forced the private construction sector to raise its standards to keep up (why buy or privately rent a cold, damp house when you can rent a social Passive house for less?). Local Authorities can access other means of funding for this plan (such as the Public Works Loan Board) but doing it via SNIB provides SNIB with a baseline of almost guaranteed profit with which to secure the next funding layer - Energy.

Layer two of our vision for SNIB involves aggressive funding in public-owned energy at both a national and a community scale (and everything in between). Once up and running, this too would provide high levels of profit but the large amounts of capital required and the risk of external factors (and reserved powers) interfering means that this is a bit riskier than investing in housing, but with the underpinning of the housing rental income backing it up and the built in demand by the housing FOR the energy, the investments should be stable in the long run. In fact, they should provide enough profit to allow for layer three - everything else.

This is where the jetpack investments come in. Once SNIB is secure enough that it can afford for the risky but flashy investments to fail, then it can start investing in them. This is where our vision of SNIB looks similar to what it’s doing now. The difference is that a few losses in this area of the bank don’t risk bringing the whole thing down with them. What SNIB is doing now is essentially trying to build a roof over the Scottish economy without building the floor of housing and the walls of energy to support it.

Why did this happen? We believe it’s because the Scottish Government ignored a vital component of our blueprint - democratic oversight. Unlike commercial banks, the SNIB is guided not solely by profit and duty to shareholders but by missions created by Scottish Ministers. But the Ministers themselves are easily swayed by promises of jetpacks and at least somewhat insulated from blowback if they fall out of the sky. Our blueprint for SNIB included not a bipartite management system of the bank’s Board and Ministers, but a tripartite one including a Stakeholder Board of representatives including trade union members, community groups and the like. All three Boards would have had a formal role in managing where the bank’s investments would be directed and would report on whether or not its missions were being met.

However, the Scottish Government decided that the Stakeholder Board shouldn’t have that formal role. It should instead be a powerless “advisory” board that would report directly to Ministers who would then either pass its recommendations on to the bank or file them in the bin. They then took almost four years to set said board up. They only had their first meeting in December 2024 and have only had one more since. (Common Weal was not invited to join the Advisory Board).

SNIB is not a normal bank. It’s not there to make a quick buck and a fast return. This is a bank designed to underpin the very fabric of the Scottish economy and to reshape it into something sustainable and which works for the benefit of All of Us. It’s a bank that shouldn’t be considering its future after its next CEO or beyond the next Parliament. This is a bank that should be part of Scotland for decades or even centuries. To do that, it has to take a long and patient view of how it invests and how it makes a return. One where the economy is as safe as houses, not one where jetpacks fall from the skies.