Enterprise and Regulatory Reform (Designation of the UK Green Investment Bank) Order 2013
Viscount Younger of Leckie
That the Grand Committee do report to the House that it has considered the Enterprise and Regulatory Reform (Designation of the UK Green Investment Bank) Order 2013.
Relevant document: 9th Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con)
My Lords, the purpose of this order is to designate the UK Green Investment Bank for the purposes of Sections 3 to 6 of the Enterprise and Regulatory Reform Act 2013. Designation means that certain statutory requirements provided for in that Act will apply to the bank.
First, Section 3 of the Act will apply, preventing the bank from altering its objectives unless this is either required by law or approved by the Secretary of State. This will ensure that the bank’s articles of association always remain consistent with the green purposes provided for in the Act. Secondly, Section 4 of the Act provides the Government with a bespoke power to fund the bank. Thirdly, Sections 5 and 6 impose on the bank certain enhanced reporting and publication requirements, including a requirement to report to Parliament if the operational independence undertaking is revoked or materially altered.
This enhanced reporting requirement means that the bank must, for example: report as if it were a quoted company; as part of this, include in its annual report information on its impact on the environment and on directors’ remuneration; and, finally, report on the likely effect of its investment-related activity on greenhouse gas emissions.
The Act specifies that certain conditions must be met before the bank may be designated. I am satisfied that each of these conditions has now been met. I would like to go through these. First, the bank’s objectives, provided in Article 3 of the bank’s articles of association, provide assurance that the bank will engage only in investment-related activity it considers likely to contribute to the achievement of one or more of the statutory green purposes. Secondly, the bank’s objects provide assurance that the bank’s investment-related activity, taken as a whole, is likely to contribute to a reduction of global greenhouse gas emissions, in line with the approach agreed during the passage of the Bill. Thirdly, the bank’s operational independence undertaking was laid before Parliament in July, at the same time as the draft order. Finally, I can also confirm that the bank is wholly owned by the Crown.
In June, the Secretary of State placed a copy of the bank’s first annual report in the House Libraries, providing detailed information about its strategy and approach to delivering its remit and about its activities to date. Designation of the bank will mean there is a statutory obligation on the Secretary of State to lay a copy of the annual accounts and reports before Parliament in future.
The bank has now been operating for one year and in that time it has achieved a great deal. As noble Lords will know, it has a double bottom line of being both profitable and green; it will achieve its objective of mobilising additional private sector investment in green projects only if it can demonstrate such investments make sound commercial sense.
The bank has developed its strategies for investment in relevant sectors and made commitments to green projects in each of its priority sectors of offshore wind, energy efficiency, waste recycling and waste to energy, with the projects supported located throughout the United Kingdom. The bank has to date committed a total of £714 million and has brought alongside over £1.8 billion of additional private sector finance. Information about individual commitments is routinely made available on the bank’s website and in its annual reports. It has made a good start on delivering green impacts, and we would expect this to continue as more of the projects that the bank has supported become operational. There is clearly an important role for the Green Investment Bank to play in mobilising additional private capital into green sectors. That is why at the recent spending review we allocated a further £800 million to it, meaning it now has £3.8 billion of funding for the period to March 2016. We are in the process of seeking European Commission approval for this additional funding and hope to make progress with that further approval in the early part of next year.
By designating the bank, we are bringing into effect the statutory requirements and safeguards that will ensure that the bank will, and can continue to, deliver its green purposes. I commend this order to the Committee.
Baroness Worthington (Lab)
My Lords, I am grateful to the Minister for his introductory comments and for setting the context for today’s debate. It is to be welcomed that the bank is to be designated and is to fall under the statutory controls that were set out in the Enterprise and Regulatory Reform Act. This gives us an opportunity to reflect on some of the events that have occurred over the past 12 months, now that it has been operating for a year, as the Minister stated.
To what degree does the Minister feel that the bank’s ability to perform its task has been affected by recent messages coming from the Government about the desire to roll back on support for green energy taxes and levies? My concern is that the green bank will be only as successful as the policy environment in which it can operate. We will increase risk and reduce profitability for the bank if we do not create the right investment signals about our commitment to low-carbon investment and projects. In the review that we are told is taking place on green levies and taxes, will the impact on investor confidence be fully taken into account and will the Green Investment Bank’s advice, comments and thoughts be sought in that review?
To reflect, we are in a fast-changing environment and energy policy is now at a far more critical stage than it has been. It is important that we do not change course in an unconsidered manner without thinking through the impact that will have on other government policies, including on the Green Investment Bank, which has received many plaudits and cross-party support as regards its objectives and the way it has been set up.
Secondly, given that we have now had a year of operation, to what extent are the priority areas that have been identified for the bank sufficiently broad to enable it to invest in a wide enough portfolio of projects? Despite the fact that £740 million has been committed, I have heard that that investment has slowed down in recent months. The investment is very much front-loaded and a large part of it is taken up with one investment in the Drax biomass conversion project. However, in recent months fewer projects seem to have come forward. Is that because the range of investments is too narrow? I would be interested to hear from the Minister what could be achieved if the list were broader. I am sure that that would involve discussions in Brussels around state aid and what is allowed to be invested in. I would be very interested to hear whether discussions are already under way as I am sure that it will take time for any changes to be secured in Brussels.
The other question I would like to raise is around the Green Deal. I understand that the Green Investment Bank has a role to play in supporting the Green Deal. However, as we know, the Green Deal has not got off to the flying start for which we had hoped. That is regrettable. There is a question for the Government now as to what we can do to improve the performance of the Green Deal. One of the problems is that the interest rates being offered on the financial package are far higher than those set by the Bank of England, and that is deterring people from taking out the financial package. I think people are interested because a large number of people are seeking the advice of Green Deal assessors but they are not going on to take out the financial package. Can something be done under the Green Deal to help that? Given that the profit margin it needs to return is only 3.5%, could there be a way in which the Green Investment Bank could be used to bring down the cost of financing? I think that we would all welcome that and I am sure that it would drive more people towards taking up the Green Deal.
As we have said a number of times before, a bank needs to borrow in order to be a bank. It is regrettable that we do not have a bit more clarity over when the bank will be allowed to borrow. If the supply chain of projects is not as great as we had hoped, the Labour Party would want to give the bank more flexibility in relation to borrowing. In fact, the Leader of the Opposition said in his speech at the conference this summer that he would give the bank full borrowing powers. The Government have set criteria to be met after which the bank will be allowed to borrow but it seems to me that those criteria are rather harsh. It could be that they are never met and that our deficit reduction plans curtail the bank too much. However, if we were to free up the bank, that might well help us to meet our deficit reduction plans quicker, so there is definitely something to be said for looking at that again and providing more clarity as to when the bank can become a more fully fledged bank. I look forward to the Minister’s response.
Viscount Younger of Leckie
I thank the noble Baroness for her general support for this statutory instrument, as well as for her helpful questions, and I will endeavour to answer them.
First, the noble Baroness brought up the effect of a desire to roll back green taxes. She asked whether the tax review would damage investor confidence and whether the Green Investment Bank would contribute to the review. The Government are looking at how to get people’s energy bills as low as possible to help hard-pressed families; she will know that this is a tack that we are taking. We have already increased competition and brought new players into the market to offer consumers real choice, and the most vulnerable are getting direct help with their bills this winter. We will continue this work to make sure that consumers are getting a good deal. No one is talking about changing support for large-scale renewables or feed-in tariffs, which are essential for investor confidence in the renewables sector and our commitments to a low-carbon economy. It is a bit too early to say what the review’s outcome will be, but it will take account of the effect on green investment.
Baroness Worthington
I thank the noble Viscount for his answers and apologise for the number of questions. It would be good to carry on the correspondence in writing.
One thing that I did not quite hear an answer on was: could something be done using the Green Investment Bank to bring down the costs of borrowing for the Green Deal financing? I do not expect an answer now because it is something that needs quite a lot of consideration but it is important that the use of the Green Investment Bank is maximised to try to make these policies successful.
On the pipeline of projects, I hope that the Green Investment Bank is able to provide feedback to the Government on how it perceives this conveyor belt of projects can be improved. I sense that this is all tied up with the Energy Bill that is currently being finalised. One of the key issues in the Energy Bill is strike prices—what the level of support is going to be for different technologies. Knowing how interested the Green Investment Bank is in offshore wind, I encourage the Minister to listen to what it says about the number of projects that can come through under the current proposed strike prices.
With regard to the Government’s backing of offshore wind, we have seen a steady decrease in estimates of how much offshore wind we are going to see. That has unsettled the investment community and might have something to do why there is not the healthy conveyor belt of projects that we might want to see. I do not expect a reply on that either, I just urge the Minister to consult the Green Investment Bank and to work with colleagues in DECC to ensure that the offshore wind industry is supported, because it is so important for investment in the UK and for jobs in areas that are in desperate need of regeneration.
Viscount Younger of Leckie
I will most certainly reply to the noble Baroness on her first, more broad-ranging question. I think that will be an interesting reply, giving the Government’s position but also acknowledging the importance of green energy. I certainly look forward to doing that. I will reflect on the other points the noble Baroness has made and get back to her with some clear answers on those issues, including the very important point about offshore wind. With that, I commend the order.
The Deputy Chairman of Committees (Baroness Andrews) (Lab)
My Lords, because the annunciator was running 10 minutes behind, Members taking part in the next debate will not have had a fair chance of getting here. We are waiting for one Member; we have sent out a search party. Perhaps we could adjourn for 10 minutes or however long it takes her to get here.
