The Northern Powerhouse Investment Fund, first announced by then-chancellor George Osborne in 2015, has secured $230m from European Investment Bank.

The UK economy could do with a boost – last week, the Office for National Statistics revealed that business investment had dropped by 1% in the last quarter of 2016, while retail sales growth continues to fall and inflation is on the rise.

The picture surely is not as bleak as many had predicted eight months ago, but a decade on from the financial crisis it is not looking particularly rosy either.

The timing of state-owned economic development agency the British Business Bank (BBB) could therefore not have been better in announcing a few days ago the official launch of the £400m ($500m) Northern Powerhouse Investment Fund (NPIF), aimed at supporting northern England’s economy.

The fund was first revealed by then chancellor George Osborne in his 2015 Autumn Statement, and his successor Philip Hammond in November last year confirmed the vehicle would begin investing early this year.

Osborne, incidentally, was the architect of austerity – the very action that served as the driver of economic inequality in Britain and the nation’s prolonged continuing recovery from the 2007-08 crash.

Arguably, without Osborne’s measures taken in 2010, the NPIF’s scope may not have needed to be as significant as it is – compare, for example, the UK with the US. The latter was able to put up interest rates and is foreseeing more rises, the former was forced to reduce them to the historic low of 0.25%.

According to the BBB, the north contributes a whopping £350bn a year in GDP – almost a fifth of the UK’s economy. Historically, however, government investment in the region has been sparse, something that recent initiatives, such as the £159.5m Finance for Business North East program, have been trying to remedy – and while it has been successful for the northeast, overall the north has still to catch up.

The number of equity deals conducted between 2010 and 2015 in the north has grown by a mere 103% and that rate has not increased since 2013, according to the BBB. The southeast has enjoyed a 290% increase, with particularly strong growth form 2013. In fact, London and the southeast’s share of UK-based equity investments has grown from 44% in 2011 to 59% in 2015.

Similarly, the north received only £260m in investments between 2011 and 2015, but the capital and its surrounding area secured £2.7bn – an increase of 332% over the same time period – in 2015.

While the British Business Bank is putting some of its own money into the Northern Powerhouse Investment Fund’s pot, a real surprise is the involvement of the European Investment Bank (EIB), the long-term lending institution owned by the EU.

The EIB will provide match-funding – a month after deciding it could no longer back Northern Ireland’s investment fund following the UK’s vote to leave the EU. In fact, the EIB is set to supply a total of over £184m in capital.

Jonathan Taylor, vice-president of the EIB, said: “The Northern Powerhouse Investment Fund will unlock the unparallelled innovation, talent and entrepreneurial spirit of the north and build on the world-class strengths of the region.

“The European Investment Bank is pleased to provide more than £184m for this exciting new initiative as part of our commitment to support investment by small business across Europe.”

Indeed, with investors the EIB, the European Regional Development Fund – which is putting up to £140m into the vehicle – the BBB and its British Business Finance subsidiary, as well as the UK Department for Business, Energy and Industrial Strategy, the fund constitutes an odd mix of UK and EU money for a region that voted overwhelmingly for Brexit and should not have expected any more cash from its European neighbours.

Perhaps the thinking in Brussels is that more investment will sway public opinion in a place that has failed to see much of the financial success bestowed on London and the southeast. Although even if that was the motivator, it appears that may be too little too late.

The country is heading for a clean break with the single market thanks to Prime Minister Theresa May’s uncompromising attitude, which has already raised eyebrows across the continent, and this has been further fuelled by parliament failing to amend the bill to protect the rights of EU citizens – a measure that is popular on both sides of the political divide.

Additionally, several constituencies that received significant investment from the EU long before June’s vote, such as Ebbw Vale in Wales, voted to leave anyway. And if the EIB is sticking to its commitments to England, that realisation must be particularly puzzling to Northern Irish politicians who were told they would not be getting the promised £40m for their investment fund because of Brexit.

Although Northern Ireland voted in favour of remaining, maybe it was nonetheless deemed undeserving of cash. Or maybe England lobbied Brussels better – a strange idea, given Westminster’s aversion to the EU and countless comments from parliamentary frontbenchers who have provoked widespread anger. For example Boris Johnson, secretary of state for foreign and commonwealth affairs, last month made disparaging comments about François Hollande, president of France. Last year, he compared the EU to the Third Reich.

The NPIF will be based in Sheffield and will collaborate with 10 local enterprise partnerships, combined authorities and growth hubs, as well as local accountants, fund managers and financial services in order to offer a mixture of debt and equity to SMEs of all stages.

Different fund managers will be responsible for the various types of investment:

  • Microfinance (£25,000 to £100,000) will be provided by Business Finance Solutions, Finance for Enterprise &  Business Enterprise Finance.
  • Business loans (£100,000 to £750,000) will be managed by FW Capital and Enterprise Ventures.
  • Equity (up to £2m) will be managed by Maven Capital Partners and Enterprise Ventures.

The money will be allocated to businesses in Tees Valley, Greater Manchester, Cheshire and Warrington, Cumbria, Liverpool, Lancashire, Humber, Leeds, Sheffield, York, North Yorkshire and East Riding.

Andrew Percy, minister for the Northern Powerhouse, said: “Our efforts to build the Northern Powerhouse are delivering real results for local people, with over 1 million businesses involved, foreign direct investment up by a quarter and 187,000 jobs created in the past year alone.

“This dedicated £400m will help us go even further, supporting smaller businesses across the region to reach their full potential and helping to create an economy that works for everyone.”

Keith Morgan, chief executive of British Business Bank, said: “The north of England has a long and proud history of driving global innovation and economic progress. The region has more high-growth businesses than London and, at close to one-fifth of UK GDP, is larger than the economies of Greece, Denmark, Austria and Belgium.

“The region has enormous untapped economic potential that can be realised by improved funding options and opportunities. The Northern Powerhouse Investment Fund represents a co-ordinated policy approach to help realise this potential across the north.”