The Lib Dems’ shadow chancellor Vince Cable today set out proposals today for the creation of what he’s calling a National Infrastructure Bank.

In his speech to The Civilisation Congress, Vince notes that the UK has one of the worst records for infrastructure investment in the OECD, and argues that there is an urgent need for a step change in infrastructure investment to create jobs, increase competitiveness, promote environmental sustainability and boost the economic recovery. Creating a National Infrastructure Bank – leveraging public funds with private capital – is, he argues, the best vehicle, especially with private investors beginning again to look for good long-term opportunities.

Here are the highlights from Vince’s speech:

There is a big hole in the prospects of the long-term recovery and growth of the UK economy.

Our infrastructure is currently rated 34 th in the world, which is poor by anyone’s standards. The Policy Exchange estimates that £500bn needs to be spent over the next decade on transport, energy storage, broadband and transmissions systems.

But in this recession, infrastructure investment is one of the first things to be squeezed and there is currently no prospect of investment on anything like the scale that is needed.

The Government’s commitment to investing in the UK’s long-term infrastructure needs has been woeful. The Tories at least recognise that there is a problem but once again the public rhetoric is not backed up by any kind of concrete and viable solution.

The PFI model is no longer fit for purpose due to its over dependence on bank finance. Indeed, the current PFIs are having to be underwritten by Government lending. Bank borrowing has become more expensive. Private equity may also be a victim of the credit crunch and, in any event, tends to have a five-year perspective. There is a shortage of Government money for public interest projects where social returns significantly exceed private returns.

The government is cutting back in public investment (by 20% per annum in the next three years).

So what can be done?

I believe that what we need is a mechanism for reducing the cost of capital – through Government guarantees – while tapping in to private savers’ demands for long-term investment. That is why I am proposing the creation of a National Infrastructure Bank.

The idea of an Infrastructure Bank is not new. Bodies like the European Investment Bank already do this on an EU level (and the World Bank in developing countries). There are already institutions in the UK, albeit in a fragmented form with a great deal of expertise in this area. But what I am suggesting would bring the current Government facilities together rather than reinventing the wheel. The Government has already announced Infrastructure UK but the last thing that we need is yet another advisory body talking shop.

A National Infrastructure Bank would tap into the demand from institutional investors – pension funds and insurance companies – for long-term investment opportunities and from retail investors.

Government would provide guarantees but the National Infrastructure Bank would be professionally managed and make investment decisions on an objective, project by project basis. It would not be a nationalised industry.

There are various financing structures that can be envisaged involving different combinations of private and public equity and loan (or bond) finance and different governance structures. The simple point is that large-scale infrastructure financing will not happen, except in exceptional cases, through private markets alone and government cannot afford to fund public investment directly. There are various models available like the European Investment Bank that suggest a possible way forward.

We believe that you can judge a country by the quality of its infrastructure. Our transport system was once the envy of the world: it can be so again. We have masses of talent and skills that need to be harnessed and savers looking for reliable investment opportunities. A National Infrastructure Bank would also help to provide jobs, which in this time of soaring unemployment is more important than ever.

The big lesson from this crisis is that we can’t return to business as usual. The country needs rebuilding and restructuring. An ambitious proposal like this would be a useful and important step in that direction.