Scottish National Investment Bank: A costly gamble?

They were, chairman Willie Watt said in August, “painful losses” – all £138m of them. 

In its fifth year of operation, three of the Scottish National Investment Bank’s (Snib) early punts had collapsed and the institution was, Watt said, “not where we want to be”.

M Squared Lasers, its first-ever investment, had gone to the wall, as had EV charging outfit Trojan Energy and satellite firm Krucial. Rocket maker Orbex and medtech firm Pneumowave had also entered administration. 

The failures were “regrettable and disappointing”, conceded Snib’s chief executive David Ritchie.

As all investors know, not every project will be a winner. But while most funds attract shareholder scrutiny, Snib’s status as a Scottish Government vehicle marks it out for particular examination. 

Wholly owned by the state, the bank – which has grown from a headcount of just eight to more than 90 – has never ended a financial year in profit and 2025-26 losses were far higher than the £77m net deficit achieved in the previous year. 

The latest results reflected a “challenging operating environment for early-stage businesses”, the bank said. That environment, Watt declared, shows that “Scotland needs investors, like the bank, with a long-term view”.

“The Scottish National Investment Bank is expected to take some risks, but it is important that it delivers results,” said Labour economy spokesperson Daniel Johnson. “These losses must be examined, and the bank’s leadership must continue to work to identify investment opportunities that will deliver for our economy and our communities.”

Established in 2020 to deliver “financial returns and societal benefits” while supporting the transition to net zero, the bank made up part of Nicola Sturgeon’s Programme for Government in 2017 when, in the lingering post-indyref period, the new institution spoke of a confidence in the future that the Scottish Parliament could build. 

Former Tesco Bank chairman Benny Higgins acted as an adviser and the project had a £2bn commitment from ministers, with the money to be provided over a 10-year term ending in 2030, and a view to the bank becoming a perpetual fund. “If we are to succeed in raising our ambition,” Sturgeon told MSPs, “we must do more to address” access to capital investment.

Sturgeon was cashing in on an idea that had long circulated in UK politics. Labour’s 2017 manifesto had included such a proposal for a UK institution and a network of regional operators, and Mariana Mazzucato – a member of the Scottish Government’s council of economic advisers – argued that there was a dearth of “patient strategic finance” around, potentially stifling innovation. 

Then-Scottish Conservative leader Ruth Davidson was sceptical about its potential, questioning why, after a “litany of failure” on the part of the SNP government, Scots would believe that the bank would deliver. 

In the end it received the unanimous backing of the parliament’s parties, despite concern that the £2bn commitment would be too little for bankers to play with.

More than £1.2bn has been ploughed into upwards of 50 ventures since then through debt, equity and fund investments, helping to generate another £1.9bn in third-party investment. In Snib’s most recent year, below-budget operating costs were reported against income of £32m, and a record £374m was invested in Scottish ventures.

Overall, the bank has helped to support more than 3,000 jobs and to build around 1,000 new homes, making investments in all but three of Scotland’s local authority areas. 

Still, profit remains elusive and there is as much political capital at stake as hard cash. 

Everybody has a problem with badly performing loans

“It’s so difficult to do the thing the government was trying to do,” says Professor Robert Webb, who teaches banking and applied economics at the University of Stirling.  

“They’ve lost a lot of money. When you say it out loud to people in Erskine or Edinburgh or Dundee, people go ‘oh my god, that’s a big number’. You can trigger people by putting that number out there, but it’s not an unusual thing.

“Everybody has a problem with badly performing loans. We have to trade that off against the additional economic, social and environmental impacts on Scotland. If that outweighs the money, then you are winning. The only problem is that human beings don’t like to do that because we want things now.” 

First Minister John Swinney insists the institution will prove a long-term benefit to the taxpayer. “The Snib was set up to try to help projects, initiatives and enterprises that carry a higher risk in terms of scale and nature, but which could deliver significant benefits to the Scottish economy,” he told parliament last month. 

“The Snib has supported a number of projects that demonstrate those characteristics. There will be projects that do not succeed. I accept that that can cause public unease, but we must make a balanced judgement about whether the government should operate in this space by encouraging higher-risk investments that can bring higher returns to the Scottish economy. That judgement lies at the heart of the pursuit of economic growth, and the Snib makes an important contribution to that endeavour.”

But on the publication of the bank’s most recent results, Reform’s Kim Schmulian said ministers were “gambling with taxpayers’ money” and Craig Hoy of the Conservatives said the people must not be “left to foot the bill for failure”.

The commentary followed the release not only of the bank’s annual returns, but also an independent report by former mandarin John Elvidge which outlined expectations that Snib would have made losses of around £110m by the close of the 2025-26 financial year. 

“It is a fact that failed investments generally materialise more quickly than major successes, especially when the bank is investing for the longer term,” wrote Elvidge, who spent seven years as permanent secretary to the Scottish Government. 

£2 billion would never be enough

But he painted a picture of a bank hamstrung by the way the state operates, and one with an uncertain future. “Having to deploy capital effectively within the constraints of the public finance framework, which means operating with annual financial contributions which must be deployed within the same year, with very limited ability to carry unused funds from one year to the next, has created significant inflexibility in the bank’s operations, running the risk of distorting decision-making,” he wrote. 

“And having to operate in the marketplace without certainty as to the existence of the organisation beyond 2030 is presenting increasing challenges in terms of forming and managing long-term relationships of trust and confidence with investees and co-investors alike.”

Unlike bodies like the National Wealth Fund, British Business Bank and Homes for England, the Snib lacks public financial institution (PuFin) status and cannot work across financial years, retaining and recycling returns into its portfolio. 

The upshot, Elvidge stated, was that Bute House and Downing Street must work together to allow the bank to “manage, retain, carry forward and redeploy cash balances across years” and raise capital itself “so that it is no longer reliant on continuing capital advances from the Scottish Government beyond 2030”.

Speaking to the Economy, Tourism and Energy Committee recently, Ritchie – who joined in the bank in summer 2020 and was made chief executive in January – said Snib’s £200m-a-year limit brings “difficulties” and that he expected the Scottish Government to make a formal application to the Treasury for PuFin status before the year is out. 

“We are constantly engaged with the Scottish Government about what the future looks like beyond 2030,” he said, telling MSPs that “£2bn would never be enough” to achieve mission aims on net zero, and so third-party sources are vital. 

Snib’s coffers are of course modest compared to similar players on the international stage. Germany’s KfW has a portfolio which exceeds €540bn in assets and its annual investments are worth around one per cent of the country’s GDP. Across the Channel, BpiFrance has more than €100bn worth of assets and ploughed €60bn into investments in 2024.

“Scotland is a country of around five million people – £2bn is a good starting point,” Webb says. “But if you ask 10 different people, you’ll get 10 different answers.”

investing does not lend itself to government year cycles

It’s as much about vision as decision, he argues, pointing to China, where state support for battery technology has allowed the country to reap rewards from the boom in electric vehicles. Authorities poured close to £1bn into developing the sector in 2014 alone, by which time there was a well-developed national strategy which aimed to drive technological advances in battery tech. It is now responsible for 85 per cent of the world’s battery production capacity and a local firm, BYD, leads the global market.

“It’s doing okay,” Webb jokes of the Chinese sector, and says Snib must be understood on its own terms. “Normally you invest in X to get Y, and that benefits the shareholders and you can pay the wages. That’s not the role of this bank, it’s to plug gaps in the Scottish economy where you wouldn’t get investment. That’s quite cool, it’s quite good, but then you get a whole lot of right-wing economists saying, ‘stop that, it won’t work’ and left-wing economists saying ‘of course it can’.”

Appearing before the economy committee, Snib non-executive director Jason McGibbon cautioned that “investing does not lend itself to government year cycles”, and said that the question of becoming a perpetual fund is “an existential challenge”. “We’re absolutely determined to drive the organisation to self-sustainability”, he said, with third-party capital needed to achieve that. 

But it is expected to take years, not months, to drive the bank’s value back above the level of its investments, Ritchie said – something which is a “medium-term objective” for the team, which has changed its investment focus in light of those early failures. “We believe we’re making good progress”, he said, but could not state with certainty when that objective will be met.

Perhaps understandably, Ritchie is keen that people don’t simply “focus on the losses” made. Investment is like a pyramid, he suggested, with the riskiest ventures at the top above broader, safer bets like housing, in which the bank has a zero per cent loss rate. However, there remains much to prove.

The current portfolio includes a stake in Mironid, a Glasgow-based biopharmaceutical firm working on small molecule therapeutics for the treatment of life-threatening hereditary kidney disease. It has put money into ports at Stornoway, Ardersier and Aberdeen, plus Edinburgh-based digital forensics company Cyacomb. All come under one of three headline missions aimed at tackling long-term, persistent challenges in the country: net zero, place or innovation. 

“We see strong demand for our capital, so our pipeline is constantly evolving”, Ritchie told MSPs. “When we look forward in terms of trends, I don’t see that demand dropping.”