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The Parliamentary Under-Secretary of State for Business, Innovation and Skills (George Freeman)
It is a great pleasure to serve under your chairmanship, Mr Percy. We started the debate under Mr Crausby, and I nearly addressed you as him. It is a genuine pleasure to respond to the debate. We have had a gem of a debate; as other hon. Members have observed, we have covered a huge amount of ground, and I think we have covered all the main issues.
The hon. Member for Cardiff West (Kevin Brennan) rattled off a veritable machine-gun volley of questions. A bit like the football results, the answers are coming out of my teleprinter as I begin my speech, and I am confident that, by the end, I will have the detail to deal with all the questions that have been asked.
I thank my hon. Friend the Member for Beverley and Holderness (Graham Stuart) for raising this issue, which he has done with the support of hon. Members from all parties. I also congratulate him on his tenacity. He recently met my right hon. Friend the Secretary of State, along with E3G and the Aldersgate Group. He was also a distinguished member of the Committee that considered the draft Climate Change Bill back in summer 2007, and he served with great distinction for four years on the Environmental Audit Committee. He is not a Johnny-come-lately on this subject, but somebody who has been interested in it for some time.
Despite one or two of the comments made earlier, I am not filling in for anybody. I am here as a Minister at the Department for Business, Innovation and Skills, and I have a long interest in green energy. I served at the Department of Energy and Climate Change as a Parliamentary Private Secretary. In a 15-year career in investment in technology companies, I saw that this country and its economy have great strength in clean tech and green tech. As a Minister with responsibilities for science, technology and innovation at BIS, I know the Department wants to do everything it can to unlock UK leadership in the clean-tech sector. Energy costs are a major issue for UK business, and making sure we have a clean, green, lean, resilient economy for the 21st century is of strategic national interest for the Department. It is therefore a pleasure to respond to the debate on behalf of the Department’s ministerial team.
Unusually, we have the luxury of time this afternoon, although you will pleased to know, Mr Percy, that I do not intend to exceed my great-great-great-uncle Gladstone’s record of speaking for more than three and a half hours in the House. However, I do have the chance to set out the full context and to deal with all the questions that have been raised. If I fail, perhaps I can write to hon. Members to pick up any points I have missed.
I am struck by the degree of common interest among all parties in the House. Everyone present wants the Green Investment Bank to flourish and celebrates the success it has had. We start from a good place; we all want the same thing—a green investment bank that brings about growth in the sector and its activity, taking on UK leadership in that space. I congratulate and thank the chairman, chief executive and staff of the Green Investment Bank for their work. They have taken the initiative and made a great success of it. It is a tribute to them that we are engaged in a conversation about options for what we can do with the institution. We should not overlook that.
Since its establishment in 2012, the Green Investment Bank has committed more than £2 billion to 55 green projects and seven funds, and has pulled in £6 billion of additional private investment. It invests on fully commercial terms, achieving strong returns without the need for soft loans or grants. It does so because it can draw on its specialist expertise to assess commercial risks properly and to identify sound investment opportunities that can provide good commercial returns. That is how it has been able to attract new sources of finance into green sectors for the first time—by demonstrating to the wider market that investing in green can be profitable and is not the preserve only of Government subsidy. Achieving that demonstration effect and attracting new sources of private capital into green sectors are crucial since Government funding alone will not achieve the transition to a clean, green and resilient economy that we all want.
An example of the bank’s success is the important role it played in securing a £500 million financing deal for the Westermost Rough offshore wind farm off the coast of Yorkshire. That is a new offshore wind project in the early construction phase that involves the first use in the UK of new larger and more efficient turbines. It represents a step forward for that important sector. The deal demonstrates what the Green Investment Bank does well—attracting private investment into such important projects. Its leadership has helped to stimulate not just UK or European but global private interest in renewable energy. I looked earlier in the debate at the latest data from Bloomberg New Energy Finance and the eighth United Nations Environment Programme report on global trends in renewable energy investment. The sector globally was up 17% in 2014. That was the first time it was back up in four years, as it had had a quiet three years. It has now raised £270 billion for green energy globally. Renewable power, excluding large hydro, around the world, has gone from between 8% and 8.5% to just over 9%, so there is success globally.
In the UK between 2010 and 2014 we raised £42 billion in the green energy sector and renewable electricity generation has gone from 6% to 19%. That is a stunning achievement in anyone’s books. There are 11,550 firms here in the supply chain, with 460,000 employees. Since 2010, on average, if the peaks and troughs are evened out, more than £7 billion a year has been invested in UK renewables, and renewable energy capacity in the UK trebled between 2010 and 2014. That is in no small part because of interest in the Green Investment Bank and the work that it has done.
Caroline Lucas
I apologise to the Minister because I have another meeting and so will not be able to hear his full reply now; but I will check it in Hansard later. I am sorry.
I have two things to say. First, the Minister was bigging up renewables investment in the UK, but to bring him down to earth I remind him of an article from earlier in the year saying that the UK has just hit a 12-year low in attracting renewables investment. We need to be aware of the context. Secondly, does he agree that a privatised Green Investment Bank will become more risk-averse and therefore contribute to market failures, rather than helping to eradicate them?
George Freeman
No, I do not accept that. The hon. Lady’s party is committed to promoting green technologies and investment, but I do not think her insistence that the sector is in decline will be encouraging for investor sentiment. We all have a duty, whatever our policy differences, to contribute to confidence in the sector.
Philip Boswell
The Minister talked about the Government promoting green energy; but there are wind and solar energy subsidy cuts. I was Shell’s contracts lead on the carbon capture project, moving it from Longannet to Peterhead, and with the way things are going I am waiting for a backtracking announcement on that. The Green Investment Bank is a unique British success story, still in its infancy and much admired around the world. Does the Minister agree that privatising it is an exercise in blind ideology, and that it ignores common sense?
George Freeman
The hon. Gentleman has made his point eloquently. Not surprisingly, I do not agree, and I will explain why. Perhaps I can just say something about the rationale for the move.
Several hon. Members have asked why the Government want to move the Green Investment Bank into private ownership if it is already so successful. One or two said, “If it ain’t broke, don’t fix it.” I want to explain why it ain’t broke, and why we want to allow it to go on and succeed. Moving the bank into private ownership is the natural next step for the company, now it has proved itself to be a successful commercial enterprise making a strong rate of return on its investments. We want it to be able to grow and develop its balance sheet, get access to private capital markets and borrow, none of which it can do at the moment, as a public sector entity. It is because we want it to flourish that we want to give it those freedoms.
George Kerevan
Surely it was in the legislation, and in the way the bank was set up, that it could borrow. It is perfectly able to borrow. There is no prohibition on that. It is just that the Treasury does not want that notionally on its books. The bank can legally borrow now.
George Freeman
It could indeed. The difference between us is that the level of borrowing needed in this country has been far too high. The Government’s view is that we need to reduce the country’s borrowings, not increase them, and we want to liberate the bank; we want to allow institutions to grow and flourish without saddling the next generation with more public sector debt.
George Kerevan
I was merely correcting the Minister, who tried to give the impression that the bank cannot at the moment go to the markets and borrow. It can, and I think that the markets would in due course give it all the money it wanted, because it has been so successful. There is no need to change the legal model to enable the bank to borrow. That is my point.
George Freeman
I respect that. The point I am making is that the Government have a strategic commitment to the British people, and it was not the least of the reasons we were returned to office—to get our public debts under control. The hon. Gentleman’s party may take a more cavalier view of public debt, and I respect that, but our view is that we need to get it under control. For that reason, but not only that reason, institutions that can borrow today, thus contributing to exacerbating the public sector debt problem, need to be liberated to get access to the flourishing private capital markets that the Green Investment Bank has played no small part in creating. The figures that I gave earlier on the extent of the global sector are relevant to that.
To complete my comments on the rationale for the decision, I looked this morning at research on market interest, and interest in acquiring a stake in the Green Investment Bank is likely to come from large-scale institutional investors such as UK pension funds, infrastructure private equity funds and sovereign wealth funds—specialist investors with an interest in green infrastructure. The bank has already successfully attracted similar investors into its managed fund for investment in offshore wind. Many of those investors do not currently invest in individual green projects. Allowing them to acquire a stake in the bank will provide a vehicle for them to invest in the area for the first time. That is a part of developing a more active private sector market in renewables and green energy. Through the bank’s portfolio of renewable energy and green infrastructure projects we hope to widen the pool of investor exposure and stakeholders in the sector. The sale of the bank is partly about enabling that new pool of capital to be brought to bear, helping to accelerate investment.
Graham Stuart
Do the Government have any preference, then, as to the number of investors that might come to the Green Investment Bank? He has talked about some taking a stake—perhaps pension funds; but what if a major international bank offered for 100% of the bank, and that was the highest offer? Would they sell to a single institution, and would there then be a danger that that would just be swallowed up in a much larger organisation, so that the purpose of the bank could eventually be diluted?
George Freeman
The overriding principle is that we want to ensure that the bank is put on a footing where it has the freedom to operate and is able to raise the necessary capital without being jeopardised by having an investor base that is too fragmented and small to be effective, or too small or too large an interest to be sustainable. Both of those represent risks. We will need to take a view and ensure that we give it the best possible chance to be able to carry on and fulfil its remit. I will say something about its green remit in a minute.
Graham Stuart
I know that it is difficult and, I imagine, sometimes commercially sensitive but I would like to press the Minister. Is it the Government’s view that the sale to a very large global bank would be a bad thing? He has described it as a risk. I know that the Government will take a view but do they have a view that they can share with the House today? We are trying to find out what the Government are going to do with this bank.
George Freeman
Our view is that we want to give the Green Investment Bank the best possible chance of having a stable and secure future and being able to raise the sort of money that it needs out of the market. Having been an investor myself in much smaller companies, I would say that anyone involved—my hon. Friend is aware of this—will know that there is no perfect shareholder structure. Often having a very small number, particularly if it is one, can create risks of its own. Having far too many small investors can mean that it is a struggle to raise the capital needed. A happy balance will need to be struck, but the judgment will have to give the Green Investment Bank the best chance of fulfilling its remit. I will say something about its green remit in just a moment. My hon. Friend made an important point.
Crucially, the plans are not being imposed by the Government on a reluctant bank. They have the full support of the company and its independent board and chair, Lord Smith of Kelvin, and others. Lord Smith of Kelvin said:
“I welcome this. You can’t keep going back to the Government for more and more money. If we want to build something that is sustainable and durable, we need private capital. This was always going to happen.”
He also said:
“The UK Government led the world in their vision and commitment in setting up the world’s first dedicated green investment bank, so we are delighted to have their support as we enter a new phase and seek additional investors in our business.”
Shaun Kingsbury, the chief executive officer, said:
“That is why I believe the decision announced by the Business Secretary is the right one. It is the option that gives us the best chance of creating the greatest green impact.”
Other important commentators have concurred. Richard Howard, head of environment and policy at the think-tank Policy Exchange, said at the evidence session of the Environmental Audit Committee yesterday that the legislation may not be needed to maintain the green focus, and that if we remove that legislation and allow someone to invest, that investor would come along and invest because they are interested in supporting what the Green Investment Bank is doing. He said that private capital funds have got involved precisely because the bank has a track record in these areas and that they are buying into a pool of expertise in investing in green projects.
The Environmental Audit Committee’s report on green finance in March 2014 said that the Green Investment Bank
“needs to be able to raise significant further private sector capital for investment alongside the Bank’s programmes, and to borrow itself to enlarge the scale of its work…The Government must make an early and clear statement about the Green Investment Bank’s long-term future beyond the 2015–16 horizon of its Spending Review funding settlement”,
which answers one of the points made earlier.
Kevin Brennan
I am grateful to the Minister for giving way. That is all very well but the problem is that is all just opinion. Today, we are seeking more of an assurance that the Minister can guarantee that when the bank is privatised, it will not lose its green focus. Nothing that we have heard so far gives that guarantee. Is he coming to that?
George Freeman
I am coming to that. I have been very generous in giving way. Perhaps I should crack on and then I could answer the points that I keep being asked.
In consultations on the Green Investment Bank in May 2012, Greenpeace said:
“If it’s going to be more than an empty gesture, the bank’s got to have the borrowing powers necessary to support the green shoots of the UK’s renewables industry.”
It recognised that the sector is moving fast.
On the freedom to borrow and to raise capital, by giving the bank access to private funding, we will enable it to grow in accordance with its ambitious green business plan, giving it access to a much greater volume of capital than if it remained in public ownership. I commend that plan to any Members who have not looked at it, as it is a legal document that investors are investing in and will be the subject of all the legal constraints of a company sale. Crucially, it will give the bank much greater freedom to operate, removing a number of constraints that apply to it because it is a Government-owned enterprise, and enabling it to borrow freely on the capital markets without impacting on public sector debt. Hon. Members who take a view that public sector debt is not a national priority or issue will not find that argument compelling. Those of us who believe that that debt is an issue will find it compelling. That is firmly the view of the Conservative party.
In Government ownership, the bank must compete for funding along with all other Government expenditure needs, in a necessarily tight public spending round. We do not want to constrain it because of that. For all those reasons it makes sense for the Green Investment Bank’s investment activity to be funded by private capital where possible and to minimise the need for public funding, which fits with our original strategic policy aim of getting the market to work in tackling green policy challenges. Part of the coalition’s strategic intention was to try to generate, support and de-risk that early green investment market here and globally. As a number of Members have mentioned, the bank has been very successful in that first phase.
I want to touch on the need for repeal of the legislation, which a number of hon. Members have talked about. The reason that we need to repeal the legislation on the bank contained in the Enterprise and Regulatory Reform Act 2013 is so that the company can be reclassified to the private sector rather than remain as a public sector body. That is essential to achieving the benefits of private ownership, including the aim that the bank should be free to borrow and raise capital without affecting public sector debt. It has become apparent that, unless we repeal that legislation, there is a major and uncarryable risk that the bank would remain classified to the public sector, even after a sale, because the legislation will be likely to constitute a continued public sector control over the company’s business. The hon. Member for Cardiff West asked whether this was wise in terms of the drafting of the original legislation that set up the bank. I cannot comment on that because I was not involved in it. Our advice now is very clear. If we want the bank to be able to operate in the way that we do, that piece of legislation needs to be repealed. While the decision was not arrived at lightly in any way, we are clear that it is a necessary step if we are to achieve our aims.
Mr Iain Wright
This is a really important point. Given the Government’s determination to move the bank off the public books, does the Minister accept that there are no safeguards whatever to ensure that a privatised Green Investment Bank will continue with the green purposes that are currently enshrined in that legislative lock in the Enterprise and Regulatory Reform Act?
George Freeman
I am trying to remember the beginning of the hon. Gentleman’s question. Will I confirm that there are no safeguards? No, I will not confirm that. It will not be set out in legislation in the way that it is at the moment, but there will be a whole series. The shareholder agreement has not been drawn up yet. Despite the earlier comments of the hon. Member for East Lothian (George Kerevan) about articles of association, the funding and raising of subscription moneys for companies like this is a major legal undertaking. The business plan will be a material document in that process. The bank has set out what it is raising money to invest in. That has to be done when money is being raised. That is all subject to incredible legal scrutiny. The investors who are investing in the company have to sign warranties and give undertakings to their own investors that they are investing in what they say they are. Although they will not be set out in legislation, there are a number of safeguards to ensure that the bank will continue to operate in the green investment space.
John Mc Nally
Does the Minister agree with me—this is the firm view of me and the Scottish Government—that the UK Government’s amendments to the Enterprise Bill to remove public sector controls on the Green Investment Bank would require a legislative consent motion in the Scottish Parliament, given the impact on devolved law?
George Freeman
The hon. Gentleman makes an important point about the devolution settlement. I will come to that. I am not ducking it; it is an important point that I will come to.
On the protection of the bank’s green mission and green values, the Government recognise that people will rightly be concerned about whether repealing the legislation means that the bank’s focus on green investment is in any way diluted. Let me be very clear. As the Secretary of State has sought to make clear in his written statements on the matter, the Government’s intention is that, following a sale, the Green Investment Bank should continue to focus on green sectors, mobilising more private capital and further accelerating the transition to a green economy. As somebody said earlier, the clue is in the name on the tin. Green investment is what the Green Investment Bank does and where its value lies, and that will be the basis of its offering and the offer it makes to investors. It is clear from preliminary feedback that potential investors are interested in the Green Investment Bank precisely because of its unique green specialism, business plan and investment track record. We fully expect that potential investors will wish to maintain that focus and will be bound by the prospectus and green business plan that the bank is putting at the heart of that subscription.
As a key part of any sale discussions, potential investors will be asked to confirm their commitment to those values and the plan, and they will be asked to set out how they propose to protect them. The Government envisage that that will involve new shareholders agreeing to retain the specific green objectives in the bank’s articles of association and to ensure that the bank continues to be required to invest in a way that achieves a positive green impact.
The Government also expect that new shareholders will maintain the bank’s existing standards for reporting on its green investment performance and will continue to provide for independent assurance of that reporting. We fully expect that approach to be effective in securing the outcome we want, which is that new shareholders readily commit to maintaining the Green Investment Bank’s green mission and values.
Mr Iain Wright
That cannot be reconciled with the Government’s intention to get the Green Investment Bank off the national accounts. The Office for National Statistics has criteria for determining whether an entity is on balance sheet or off balance sheet, and those criteria will include a Government right to control via contractual agreements and via regulation such that a unit cannot diversify its activities. The Minister can say that the Government intend, wish and hope, but does he accept that they are impotent on the future operations of the Green Investment Bank?
George Freeman
The hon. Gentleman and I are in violent agreement. Let me make it clear that we will not put in legislation or in regulation—
George Freeman
Let me answer the question. We will not put a binding contract in regulation or legislation, but we will ensure—here is the point—that when the Green Investment Bank goes to raise funds in a subscription round, the subscription agreement and all the legal documentation will be based on the bank’s current mission to be a green investment bank. The bank’s green business plan will be a material document in the context of that funding round, and investors will be investing in that mission, that plan and those values. As I have said, we will build in a series of protections to ensure that the vehicle in which they are investing is clearly committed to that green mission.
I want Members to understand that we have taken legal advice, and in order to comply with state aid and Treasury rules on public sector financing, and in order to give the bank the freedom that we want to give it, it is essential that we do not bind it with statutory, legislative and regulatory instruction but ensure that, in its offering to the market, the intention of the bank is clear. That is the right mechanism for us to ensure the bank’s green mission.
Kevin Brennan
Some might observe that assurances were sought ahead of the Royal Mail privatisation and that those assurances lasted about five minutes after the privatisation happened. Leaving that aside, the initial investors may well come in on the prospectus that the Minister is putting before the House today, but there is nothing to say that that will last for any period of time. Within a pretty short period of time, we could be looking at a very different kind of institution. Can he give us any guarantees about that?
George Freeman
I think I have made it clear that I will not commit the Government to giving statutory and legislative guarantees that would constrain the operation of the bank, not because we do not want to see the bank continue doing what it is doing, but because we have been clearly advised that once such guarantees are given, we will not be able to allow the bank to have the freedom that we want it to have or to be able to raise money that does not count towards public sector debt. We have made it clear that we want the bank to continue doing more of what it has been doing, such as investing in green energy and catalysing that market. I do not know whether the hon. Gentleman has seen the bank’s green business plan, which is a clear document. When investors invest in any entity, particularly a bank, the entity has to set out a prospectus and a business plan into which the investors are investing. That document will clearly set out the bank’s green activities. It will be very clear that people will not be investing in a company that can do something outside of that.
George Freeman
It will be up to the investors and the bank to determine where the green energy market goes in the longer term. None of us in this room is able to predict where the bank should be investing, given the pace of investment. I have seen a number of interesting technologies—hydrogen cells and some of the battery technology are extraordinary stuff—and we want the bank to be free to invest in different sectors.
George Freeman
I will take these two interventions, and perhaps I can then crack through the questions.
Kevin Brennan
I want to ensure that this is on the record. I said “fracking” from a sedentary position, and I think the Minister accepted that it is possible, under the current privatisation plans, that the Green Investment Bank might be involved in investing in fracking projects.
George Freeman
I want to take specific advice, but I will write to the hon. Gentleman on whether any constraints are envisaged on what may or may not constitute green investment. My understanding is that we want to give the bank the freedom to invest in a range of different technologies. Indeed, part of the bank’s mission is to be able to catalyse investment in a much wider range of technologies that will be key to building a 21st-century green economy.
Graham Stuart
The Government announced that they will privatise the bank so that it can access capital, as the Minister has set out. The letter announcing that privatisation stated that the bank will be guaranteed by the statutes. Those statutes have suddenly gone, and promises have been made to the Treasury. It feels as if the Government machine has already decided to privatise this bank, but the basis on which the Government are privatising the bank has changed. Will it be possible to go back? The Treasury is rightly trying to address the deficit and the debt, but there is a conversation to be had, because the bank is not being privatised on the basis that was originally proposed. There is a risk that this thing will not do what we want it to do. The Climate Change Act 2008 commits us to action, and if that action costs more, we would be back to cutting off our nose to spite our face.
George Freeman
My hon. Friend makes a good point, and I know he has raised it with my right hon. Friend, the Secretary of State for Business, Innovation and Skills. It flows from everything I have said that we are determined to ensure that the Green Investment Bank is able to continue being a green investment bank. Given the constraints under which we are operating, we need to be creative in exploring every option. I am open to my hon. Friend’s suggestions about how we might be able to do that in a way that does not compromise the bank’s ability to operate in the way we want.
George Freeman
Well, the shadow Minister should see the list of questions I have been asked, not least by the shadow Minister himself. I will try to answer those questions and, if I fail, the hon. Member for Hartlepool (Mr Wright) can intervene at the end.
I was asked whether the management of the Green Investment Bank would prefer a statutory lock. The chief executive officer allegedly said that he is “agnostic” about privatisation, but he did say that he prefers a statutory lock. He also said that he wants the ability to raise funds from the private sector, and he understands the need to remove the statute and the statutory constraints.
My hon. Friend the Member for Beverley and Holderness asked how the shareholder framework document will change. Clearly, the framework document will need to change as the shareholding changes. When the bank was set up in 2012, the document’s primary purpose was to set out that the bank should operate independently so that the Government could not interfere in its investment decisions and to ensure the bank’s green ethos. Privatisation will further increase that operational independence, but the bank’s green ethos is now entrenched. The Green Investment Bank is what it is, and it is what is in its business plan, which will be a material document in the shareholder subscription round.
My hon. Friend also asked whether the market failures that the bank was set up to address have now improved to such an extent that we no longer feel the bank needs to operate in the same way. He is right that the bank was set up shortly after the banking crisis in the depths of the dark period of 2010, 2011 and 2012, when the economy was moving very slowly, to rectify a lack of long-term liquidity in the market. It is true that long-term funding for infrastructure projects has recovered strongly, as illustrated by the data I gave earlier. There was a lack of specialist green infrastructure investors, particularly at scale, which is what the bank has now become. The bank has helped to support such infrastructure projects, and we intend that the bank will remain a specialist green investor after privatisation. That is what the bank does, and it is what an acquirer will be buying. We want to let the bank off the leash to do more of that.
The hon. Member for Brighton, Pavilion (Caroline Lucas), who is no longer in her place—she gave her apologies—asked whether a profit-maximising bank would be in danger of crowding out investment because it would be just like any other bank. In fact, the Green Investment Bank is already profit maximising; it has turned its first profit. It exists to prove that it is possible to be green and profitable. That is in the bank’s very DNA; we want to show that the green economy is a real economy. That is how we will attract the private sector capital that we need. The GIB’s expertise can do so regardless of whether it is in the private or the public sector, of course, but we want to give it the freedom to raise that money.
The hon. Lady also asked whether other countries are copying us. It is true that we were in the vanguard when the Conservative-led coalition set up the Green Investment Bank, and we have been copied. It is our ambition to be in the vanguard as we take the market forward. We need to raise not just hundreds of millions or billions, but tens of billions—actually, over the next decade or so, we need to raise hundreds of billions—of money for green infrastructure. There is no way that any Government could fund all of it, even if they wanted to. We need to go to the next stage by leading private sector capital into the market.
Several hon. Members, including my hon. Friend the Member for Beverley and Holderness, asked whether the bank cannot raise debt anyway, and whether we had explored all the options. The truth is that equity raising by the bank will effectively score like debt to the public sector once that equity is invested, so this is not just about debt, but about ensuring that the bank has the right financial mix to operate. My hon. Friend also asked about the European fund for strategic investments, a £300 billion pot for capital raising, and whether the bank will still be encouraged and able to access that money.
The Government are aware of the European funding for infrastructure investment, and are examining how best to make use of that facility—my hon. Friend makes a good point. In our view, that does not alter the case for moving the bank into private ownership. We absolutely need to ensure that it can access funding. The Government and devolved Administrations are actively considering, along with other UK institutions, how they can work alongside the bank to maximise the impact for the bank and others of accessing that European funding. The EFSI guarantee can be used by the bank to co-invest in and co-finance with both public and private institutions, so privatising the bank does not in itself preclude benefiting from the European fund.
Graham Stuart
For the record, is the Minister saying that the bank’s change from its current status to privatised will have no impact whatever on its ability to access those funds, to which we are contributing so many billions of pounds?
George Freeman
I would not want to go as far as to say that it will have no impact. What I am saying is that we are actively ensuring that the bank will still be able to access funds from the EFSI. It may have to do so through consortiums with other parties, in a slightly different way from how it did when it was a state-owned bank.
My hon. Friend asked whether citizens would have the opportunity to invest directly. We are exploring all options as part of the sale. I would point out that the bank is still a very young company that has only just broken even, meaning that it is pretty unlikely to have a sufficient track record to attract much interest from the retail market, but we are obviously keen to grow the level of retail investor exposure into the market as it matures. He and others asked whether we and the bank had considered raising green bonds. Issuing bonds is absolutely one of the things that the bank will be free to do if it chooses. At present, it is prevented from doing so, as it would score against public sector debt in the same way as borrowing.
Several hon. Members have asked why we are repealing the legislation. I have touched on this already, but in order to grow in line with its ambitious green business plan, the bank needs the freedom to borrow and access much larger pools of private capital, and it will have that freedom if it can borrow without affecting public sector net debt. That means getting the bank reclassified as a private enterprise and off the Government’s balance sheet. To do so, we must do two things: sell a majority of the company, and repeal the legislation. Otherwise, the company could still be classified in the public sector, even after a sale.
One or two hon. Members have asked why we cannot just retain the bank in Government ownership and allow it to borrow, citing the statement by my right hon. Friend the Chancellor that as and when debt starts to fall as a percentage of GDP, we can release borrowing restrictions on the economy generally, so why not on the bank? The problem is that, in Government ownership, the bank’s borrowing and capital raising would still count against public sector debt. Equally, it still has to compete for funding, along with all Government expenditure needs and with the pressure on the Exchequer, even as we get the debt under control. In my own field of health, for example, health demand is rising substantially, and we want to liberate the bank from having to fight in the Whitehall corridors in the same way as every other Department in spending rounds.
On top of that, private ownership will give the bank much greater freedom to operate, removing a number of constraints. It is worth pointing out that it was always envisaged that the bank should aim to mobilise maximum private capital, and it fits our strategic policy aim of getting the market to work on tackling green policy challenges. As I said, we have the full support of the management and the CEO of the company.
Let me turn to the important question of how we will protect the bank’s green mission and remit in the absence of the legislative lock. As a key part of any sale discussions, potential investors will be asked to confirm their commitment to the bank’s green values, green mission and green business plan, and set out how they propose to protect them. We envisage that that will involve new shareholders agreeing to various specific things: retaining the green objectives in the bank’s articles of association; ensuring that the bank continues to invest in a way that achieves maximum positive green impact; maintaining the bank’s existing standards for reporting on its green investment performance; and providing independent assurance of that.
We fully expect that, as part of a subscription round based on the bank’s offering to the market, its green business plan with clear long-term investment in a range of sectors and projects will deliver the safeguards that Opposition Members have asked for without the need for legislation that would curtail those freedoms. We are absolutely committed to ensuring that the bank continues with that green mission, and I am happy and open to explore mechanisms suggested by any party for safeguarding the bank’s green remit in a way that does not fall foul of those public control tests.
Graham Stuart
On that point, as we all know, when a company goes to market, it depends on the conditions at the time. It is at least feasible that when the bank goes to the market, those who wish to invest on the basis that the Minister is discussing will disappear, leaving those who will simply buy the capital and assets invested and treat the bank as a zombie fund, immediately sacking as many of the staff as possible, running it at a minimal level and calculating a reasonable return. What guarantee can the Government give, if those turn out to be the only buyers around, that they will not stay so committed to privatisation—in order to meet, rightly, the need to sort out the national debt—that they end up giving the bank away to be turned into a zombie fund, not only avoiding innovative green projects but not really developing anything at all?
George Freeman
I will happily give an undertaking that we do not intend to give anything away and allow it to be turned into a zombie fund. My hon. Friend has had conversations with my right hon. Friend the Secretary of State about the matter. The Government, as the owner, clearly have duties in all sorts of ways. We have a fiduciary duty, duties to Parliament, the public account and the law, duties to ensure that we maximise the value of our investment, and political accountability to ensure, as I have stated repeatedly in this debate, that the bank in the new structure can remain an active and committed investor, fulfilling its green values and the specific safeguards that I have just set out.
John Mc Nally
The Minister mentioned that all parties would be involved in the discussions. As a Member of the third party in the House, I am taking it for granted that we will be involved in those discussions.
George Freeman
To clarify, I was not suggesting that we have a round table on the subject; I was merely extending an open offer to anybody who has any suggestions, in addition to the safeguards that I have explained, about ways to ensure that we deliver what I set out as the Government’s clear objective, which is to ensure that if the bank is put out for subscription, the subscription makes it clear that the bank exists to deliver its mission. We are all ears, but it must be within the context of the Government’s strategic policy intention of liberating the bank from the constraints of being defined as a public sector asset, and thus liable to Treasury lending requirements.
Mr Iain Wright
The Minister talked about agreements. What will be the legal status of the agreements with potential new shareholders of the Green Investment Bank?
George Freeman
For any investor entering into a subscription agreement, the parties will be the current owners, the operating company, the bank and the other investors, so the shareholder agreement will be crucial. It is binding in law and if anyone has ever seen a subscription agreement pack, they will know that it is lever-arch files-worth of papers. However, the central point is that all the parties in that agreement come together to agree what they are investing in, and what the objectives and aims of the company are, and that is set out in the articles of association and in the subscription agreement.
We hope that there will be a substantial range of serious investors who are committed to this space and to subscribing investment moneys into the bank’s green investment plan. They are not investing in a casino or any of the things that conspiracy theorists might imagine this thing could go on to be, including a “zombie” handing out money. They are investing in a specific commercial venture, and the directors of the company will have to put a prospectus out to the market, and they will have to warrant it legally themselves, personally as well as in the usual way. So, the subscription process, in and of itself, affords significant protections to us all, as shareholders and parliamentarians.
The issue of the Government’s ambition of retaining a stake in the bank was raised; I am trying, Mr Percy, to deal with all the points that were raised this afternoon. We will consider all options for a sale and we will be guided by the ultimate test of what achieves best value for the UK taxpayer, and what best fits with the strategic intention of allowing the bank to continue to be a leader in the green investment market and to pull in private finance. I am not in a position to commit this afternoon to a particular level or stake; I do not suppose that anyone would expect me to do so. We need the flexibility to do what best achieves that value for money and the best outcome for the bank.
It is important to note that, in any event, the Government’s retaining a stake while also securing declassification would not give Her Majesty’s Government the power to exercise control over the company; it would merely provide a stake in the company. Before anyone asks, the advice we have had has been very clear that retaining special shareholder rights that would enable the Government to veto corporate policy decisions would effectively amount to state control, and would bring us back to the problem that we are trying to get around. The Government could only have the same rights as any other shareholder in the company.
Here come the tickertape answers to some of the questions that have been put. The hon. Member for Cardiff West asked if I could comment on whether the off-balance sheet treatment is the only reason for the repeal of the legislation. It is the central reason why we need to do it; it is a necessary technical step to liberate the company from the constraints that would otherwise apply. The reason for wanting the bank to be able to operate in the private market is broader than that; we want it to access private capital and to be freer to develop in that growing market.
The hon. Gentleman also asked how much we would expect to raise from a sale. He will not be surprised to learn that I am not in a position to tell him today what that figure would be.
George Freeman
Proceeds will depend on how big a stake is sold, on the outcome of negotiations with investors about the value of the company and on how the company’s business plan is judged. We will need to be satisfied that any transaction represents value for money for the taxpayer, and fits with the Government’s wider policy interests and with the best interests of the bank. The hon. Gentleman would obviously not expect me to speculate this afternoon on what figure we would expect and thus undermine the process.
Importantly, the hon. Gentleman also asked me about the £1.8 billion of funding that is left. As he has highlighted, the bank can carry on for at least another year, given that it has £1.8 billion—roughly—in reserves; he suggested that after that period it could start recycling capital. The truth is that to grow its business and invest in accordance with its green business plan, the bank will need access to a much greater volume of capital from a wide range of sources.
The hon. Gentleman asked why there was urgency about this process. What we do not want is to get to a point where the bank has no reserves and badly needs capital. Anyone who has raised money knows that the time to raise it is not when there is no choice but to raise it, because money is desperately needed, but when a company is in a strong position, and has a pipeline, assets and a good track record. We think the bank is in that situation now. We are confident that we can attract private capital into the bank because of its track record and because it is operating successfully.
Graham Stuart
I am grateful to the Minister for giving way again; he is being very generous with his time. My understanding is that the funding agreement runs out in March next year, and that the steady state activity of the bank for the last couple of years is £700 million to £800 million a year. There is not clarity about what happens from 1 April 2016 onwards, and the bank will have no access to that £1.8 billion; according to my calculations, the reserves were more like £1.5 billion, but whatever the exact figure is, it will be quite a lot of hundreds of millions of pounds. Perhaps the Minister, while answering other questions, might seek advice elsewhere about this issue; I would be grateful if he could respond to me about it. I am interested to know how the bank will be taken care of between its current funding provision running out in March 2016 and whatever date it is sold, and how we ensure that there is not a chilling effect.
George Freeman
My hon. Friend makes an important point. A key part of the rationale for proceeding with this move now is that the bank’s momentum—its existing status—is a strength; it is an asset rather than a liability in the context of the bank’s fundraising. So we are actively looking at everything we can do to ensure that clarity about the bank’s status, position and momentum is provided to potential investors. It is not in our interests that there is confusion, and we are addressing that issue.
Kevin Brennan
I am still not entirely clear what the Minister meant in his answer about the £1.8 billion, in particular whether that money will remain available for use by the Green Investment Bank or is likely to be returned to the Treasury at some point. Could he just make that clear?
George Freeman
Yes, I will happily respond to the hon. Gentleman. There is a slight circularity to this process, because we want to ensure that the bank is in the strongest possible position to raise the maximum possible amount. We are currently in discussions with Her Majesty’s Treasury as part of the spending review and as part of preparing what we want to be a highly successful fundraising exercise. So the bank, the Treasury and the Department for Business, Innovation and Skills are in a conversation right now about how best to structure things, so that we maximise the chances of the bank being able to raise money successfully and to continue the momentum with existing projects, because that is a key part of the asset and of the strength of the offering that we want to put to the market.
The hon. Member for Falkirk (John Mc Nally) made an important point about Scotland. We are of course talking to the devolved Administrations; in fact, I understand that my right hon. Friend the Secretary of State is speaking to Scotland’s Deputy First Minister later today. Obviously, I will not pre-empt that conversation, but such conversations are ongoing.
I will wrap up by saying that we have had a really excellent debate this afternoon. Again, I thank my hon. Friend the Member for Beverley and Holderness—
John Mc Nally
I am very grateful to the Minister for giving way again. At yesterday’s meeting of the Environmental Audit Committee, the chief executive officer of the bank stated quite clearly that he was happy to retain its headquarters in Edinburgh, with the staff. Can the Minister give us a reassurance that he agrees with the chief executive on this issue, which is an extremely important concern for us?
George Freeman
The hon. Gentleman makes an important point. Obviously, it is for the bank to make sure that it is in the right location. We originally put it in Edinburgh because, as he well knows, Edinburgh is a great centre of finance. It is one of the great capital centres of the UK and has a great history of green energy investment.
It is ultimately for the company itself to decide where its HQ is. I will just politely point out that the best thing that the Green Investment Bank could have in terms of investor security is security about the status of the United Kingdom. If that status was clear, I think that there would be a very strong prospect of the bank remaining in Edinburgh and happily raising money as part of a country with a great devolved Administration in a strong UK.
Mr Percy, I want to highlight—
George Freeman
I will happily give way again to the hon. Gentleman. [Laughter.]
John Mc Nally
That should probably be part of the Scotland Bill; we need more powers in Scotland on our way to independence.
George Freeman
I hear what the hon. Gentleman says; I simply highlight the potential contradiction between his first intervention and his second. It is the risk of Scottish independence undermining investor confidence in a business such as this one in Edinburgh that is counterproductive. However, we will not agree on that issue this afternoon.
I will just summarise matters, as it were, at a higher level. We have heard some really important messages this afternoon, and there has been a degree of agreement about the importance of getting this bank into a position where it can take the success of its first few years and go on to the next stage, to be a pioneer in bringing private capital into this market.
I was very struck by what the hon. Member for Hartlepool said, and I thank him for his kind words about my appointment to BIS. He referred to how well the bank has been doing and applauded that. However, he said he had been concerned that when we set the bank up it should be a bank and not a fund. That is an important point. We want this bank to be able to be a proper bank and to syndicate and grow in the years ahead.
The hon. Member for East Lothian said, “If it ain’t broke, don’t fix it,” and wondered whether there was some alternative agenda. I know that conspiracy theories are popular in this House—we all indulge in them occasionally—but I again assure him that there is no conspiracy here. The Government will be held to account for the success of the bank, which we set up. We want to be able to report back at the end of this Parliament that we liberated the Green Investment Bank from the constraints of a tough public spending round and allowed it go into the private markets and lead in the burgeoning green economy.
The hon. Member for Cardiff West spoke about the success of the bank. As my hon. Friend the Member for Beverley and Holderness highlighted, it is not often that two Front Benchers sitting on opposite sides congratulate each other on the success of initiatives. The hon. Gentleman asked me a lot of questions, which I hope I have dealt with. If I have not, I will happily deal with any outstanding ones later in the day.
We had very few incidents of party politics in the debate, but I have to close with a wry smile, because at one point the Government were accused of being prisoners of public accountancy convention. That accusation could certainly not be made about the previous Labour Government: they left us borrowing one pound for every four we spent. The former Chief Secretary to the Treasury thought it was funny to leave a note saying that there was no money left. A former Leader of the Opposition said he did not think the previous Labour Government spent too much and the current shadow Chancellor is committed to the overthrow of capitalism.
I am delighted to be opposite the hon. Member for Cardiff West, who did not speak such rubbish this afternoon. We have had a good debate, in which we have all agreed that we need the Green Investment Bank to go from strength to strength.