UK Infrastructure Bank Bill [HL]
Tuesday 14th June 2022
(1 year, 10 months ago)
Lords ChamberUK Infrastructure Bank Act 2023 View all UK Infrastructure Bank Act 2023 Debates Read Hansard Text Amendment Paper: HL Bill 3-I(a) Amendment for Committee (Supplementary to the Marshalled List) - (13 Jun 2022)
Baroness Noakes
“(4A) In carrying out its activities under subsection (4), the Bank must ensure that its activities are undertaken only where there is an undersupply of private sector financing in respect of those activities.”
Baroness Noakes (Con)
My Lords, I rise to move Amendment 12 and hope we can pick up a little speed with it. At Second Reading, I raised the issue of the UK Infrastructure Bank’s activities having the effect of crowding out private sector investment. My view is that there can be a role for state-sponsored organisations such as the UK Infrastructure Bank only if there is a market failure which needs to be addressed. The Government appear to agree with this, as the framework document for the bank includes an operating principle that the Bank should
“prioritise investments where there is an undersupply of private sector financing”.
That is, however, only in the framework document; we are coming back to our theme in Committee of what should be in the framework document and what should be in the Bill. It is unsatisfactory for this issue not to be in the Bill. My Amendment 12 is modest, because it states merely that the activities of the bank as specified in Clause 2(4) must be carried out
“only where there is an undersupply of private sector financing”.
I go slightly further than the wording used in the framework document, which refers to prioritising where there is an undersupply of private sector financing, but I believe that the UK Infrastructure Bank should positively avoid those activities which are adequately supplied with private sector finance.
Amendment 14 in the next group, with which I suggested my Amendment 12 be grouped, sticks faithfully to the wording of the framework document and includes the other operating principles, to which we will come. If the Minister prefers the formulation in Amendment 14 when we get to the next group, I certainly would not object, because my priority is to have the issue of crowding out firmly in the Bill. I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, this amendment goes to the core of what the UK Infrastructure Bank should be about, and I am in complete agreement with the noble Baroness, Lady Noakes, about the importance of the crowding out or crowding in of private finance, which was raised by many noble Lords at Second Reading.
I am stepping in to speak on this group because it impinges on the next, in which I have an amendment. The NIC says that the Bank should act as an “anchor investor” and should
“catalyse innovation, support due diligence functions and enable projects of public significance that may not otherwise take off”.
Most of us would agree that if the bank simply competes with or replaces available private finance, then it is a waste of time, damaging, distorts the markets and wastes taxpayers’ money. As the noble Baroness said, it must aim to solve market failures where otherwise good projects cannot be easily financed by the private sector. The Government obviously agree, but have not put this fundamental point anywhere in the Bill.
I support the principle behind the amendment proposed by the noble Baroness, Lady Noakes, but I am not sure that the wording fully captures the crowding-in concept. That may be because the framework document does not do it terribly well either. The amendment and the framework document refer to the bank undertaking its activities only where there is an undersupply of private sector financing. Crowding in happens where private financing is available but the private sector is reluctant to invest, perhaps because of a particular risk. In that situation, we would want the bank to be able to invest, precisely to facilitate the investment of the private sector—to remove the blockage preventing the private sector involvement.
As I said, in the next group, we will come to my Amendment 14, which tries to solve the same problem in a slightly different way by putting the operating principles, which expressly highlight the need for the bank to aim to crowd in private finance, on a statutory basis, but that may not be robust enough for some. The noble Lord, Lord Holmes of Richmond, has proposed Amendment 65, which is also aimed at the same problem, but with only a one-off report at the outset rather than an ongoing obligation, so I think that does not go far enough.
We have different ways to try to achieve the end of ensuring that the bank fulfils its primary purpose of crowding in private sector finance and does not fall into the trap of crowding it out. I am agnostic as to how we achieve it, as long as we get that requirement into the Bill—and that we measure it, which we will come to in a later group. Does the Minister agree that this is a fundamental element and, if so, why is it not in the Bill? If she does not like our wording, could she suggest a different way to achieve it? Would she be happy to meet us to talk it through and try to work out how best to get it in?
Baroness Kramer (LD)
My Lords, I want briefly to join this conversation because, like the noble Baroness, Lady Noakes, and the noble Lord, Lord Vaux, I believe strongly that the purpose of the bank is additionality. It is not to substitute for financing that is available out there, or even to provide it at a freckle below what might otherwise be the market price—although I note that the UK investment bank has to make a commercial return anyway. I think we can help towards that by strengthening the objectives that we discussed earlier, so that it is clear that they focus on those areas which we recognise today are crucial but which are finding it very difficult to access finance. That would be a step forward. I also very much agree with the noble Baroness and the noble Lord that additionality needs, in one way or another, to be in the Bill.
I have one minor caveat, which is that I think it is tricky to craft the language, but that does not mean it is impossible. The reason I say that is that I notice that in the noble Baroness’s amendment, she wants to ensure that the bank carries out its activities only if there is an undersupply. In one of the financings I was deeply involved with, which was one of the very early mobile phone financings in Eastern Europe, we tried to bring in private financing, but until we managed to lock in a commitment from the European Bank for Reconstruction and Development and some KfW money, the private sector was unwilling. Once that kitemark was there, that reassurance that entities which they felt had understanding of both the sector and the potential risk were engaged, private sector money came in. Some of it came in pari passu with the EBRD and KfW. If a person were to look backwards at that transaction, they might say, “Well, wait a minute, private finance was willing to take exactly the same risks that EBRD and KfW were, so, essentially, those two organisations were crowding out private finance”, but the reality was that without their presence, the private money would not come in. So we need to be a little careful about how we frame this, but the underlying principle is crucial.
Lord Tunnicliffe (Lab)
My Lords, I must admit that I do not have a view on this, because it seems to me that if this bank is to be used only when the risk is such that the private sector is not willing to take it, it suddenly involves a definition of the money that the bank will be using and the extent to which it is de facto underwritten by the state. We know that in the past, when Governments have sought to disguise money provided or underwritten by the state, most notably in Network Rail, when a body came along—I think it was Eurostat—and said, “No, I’m sorry, this is a public loan”, the whole basis of that business had to change. I await clarification and hope it meets the test of being capable of being understood by a bear of little brain.
Baroness Penn (Con)
My Lords, I thank my noble friend for her amendment. As she said, it addresses a very important part of the bank’s purpose for being. The Government agree with her intention: the bank has been set up specifically with the purpose of investing where there is an undersupply of private sector finance, and that is why its framework document sets out an investment principle to crowd in significant private capital and an operating principle of additionality. Based on similar institutions both in the UK and internationally, we expect the bank to crowd in £18 billion of private investment, meaning it is expected to support a total of £40 billion of investment in tech infrastructure projects across the UK.
Baroness Kramer (LD)
I have a quick question, the answer to which would be helpful. Unfortunately, we have not seen the strategic plan, which the Minister says will appear before Report. Is she suggesting that if we look at those definitions and they do not meet the standards of additionality that we think appropriate, we will be able to change them, or are we merely taking note?
Baroness Penn (Con)
I am not quite saying that. The Government think that, in this instance, the bank would be well placed to develop and set out its thinking on this, given that, while it is important, there is not necessarily a settled way to measure these things, although there are of course examples of best practice. I am happy to meet my noble friend Lady Noakes and all noble Lords who have an interest in this. I am not predicting that we will solve the problem, but I certainly have no objection to further, more detailed discussion about where we are on the issue. I hope that my noble friend can withdraw her amendment.
Lord Tunnicliffe (Lab)
Perhaps I am confused, but it seems that the bank can produce a soft and appropriate definition, yet in the final analysis that will be examined by the ONS, which will not be soft about it. The ONS will say that this is essentially either a public sector loan or a private sector loan. There will be no greyness there; it will say that A or B is true.
Baroness Penn (Con)
When it comes to the loans from the bank for the accounting purposes and for what is counted as public and private sector, when we discussed it previously, we said that we would expect all financing from loans from UKIB to count as public sector loans and be accounted for on the Government’s balance sheet. I am not seeking to change that position in this discussion. We also had a wider conversation about depending on the nature of that investment. It could draw the whole investment on to the Government’s balance sheet. If I have any of that wrong, I will write to correct it, but I think I am stating our position.
Lord Tunnicliffe (Lab)
My Lords, I would not mind if the Minister wrote again and repeated herself. I might then claw towards understanding.
Baroness Noakes (Con)
My Lords, we have had a short but important debate on this principle. There is nothing fundamentally dividing us on the underlying principle; the issue is how we implement it. I continue to believe that we should search for wording that we can be comfortable with. I accept criticism of the current wording, which I lifted largely from the framework document, and I accept that it is difficult to encompass the shades that you will encounter in real transactions, which often have sequencing involved in them, in determining whether there is an adequate supply or provision of private sector finance.
I am uncomfortable about leaving this simply to the strategic plan, partly because there is no role for Parliament in it. There is a role for the Treasury in relation to conversations with the UK Infrastructure Bank, but not for Parliament. There is a need to understand how best to phrase the principles without getting into the detail—but I accept that the devil will be in the detail in this Bill.
I am very grateful for the offer from my noble friend the Minister of further discussions, which I—and, I suspect, other noble Lords—will be only too keen to take up between now and Report. On that basis, I beg leave to withdraw my amendment.
Lord Vaux of Harrowden
“(4A) In carrying out its activities under subsection (4) the Bank must ensure that its activities are undertaken in compliance with the following Operating Principles—(a) the Bank will work towards achieving a double-bottom line, whereby investments help to achieve the core policy objectives to tackle climate change and support regional and local economic growth, whilst generating a positive financial return to ensure the financial sustainability of the institution and to reduce the burden on the taxpayer;(b) the Bank will operate in partnership with private and public sector institutions and other stakeholders to finance and support infrastructure investment;(c) the Bank will prioritise investments where there is an undersupply of private sector financing and, by reducing barriers to investment, crowd-in private capital;(d) the Bank will be able to provide long-term patient capital through its investments.”Member's explanatory statement
This amendment makes it a requirement that the Operating Principles, as proposed by the Treasury in the UK Infrastructure Bank Framework Document (except for Operational Independence and Flexibility, which are dealt with elsewhere in the Bill) must be followed when the Bank undertakes its activities.
Lord Vaux of Harrowden (CB)
My Lords, I speak to Amendments 14 and 29 in my name. I thank the noble Baroness, Lady Kramer, for her support in these.
Ultimately, these amendments are aimed primarily at strengthening the operational independence of the bank. I explained at Second Reading the importance of the bank being genuinely operationally independent, so I will not repeat those arguments. The Government claim that they agree, and the framework document is clear that the bank should be operationally independent, as is the NIC. However, as drafted, the Bill does not achieve that. In fact, it actively undermines operational independence.
On Second Reading, the noble Baroness, Lady Noakes, referred to the Treasury having its fingers all over the Bill, and that must be right. We have seen the strategic priorities, which include some stuff which can be changed at will. We have the framework document, which can be changed at will and which has no legally binding basis. I am not even sure that it has to be published if it is changed, though maybe I am wrong on that. There are the articles of association, which the only shareholder can change at will. There are no safeguards over the independence of the bank.
Three things are required to ensure that operational independence is a reality. First, the mandate and the parameters within which the bank is allowed to act must be clearly defined—the barriers within which it can operate independently. Secondly, that mandate and those parameters must not be subject to political interference and change without scrutiny on a whim. Finally, the bank must then be able to operate independently without political interference within that mandate and those parameters. If any of those is too weak, you do not have operational independence.
These two amendments are aimed at the first two of those points. The direct meddling in the operations will be dealt with in a later group. Amendments 14 and 29 are aimed at ensuring that the mandate and operating parameters are clear and complete, and are on a statutory basis so cannot be changed on a whim. Amendment 14 brings into the Bill the operating principles that the Government have previously set out in the framework. These are extremely important. You would think that something called an operating principle was precisely the sort of thing that should be on the face of the Bill. These operating principles include the principles that the bank should aim to make a positive return, that it should operate in partnership with the private and public sector when financing investments, and that it should provide long-term finance. Most importantly—here we go back to the discussion that we have just had on crowding in and crowding out—the operating principles state clearly that the bank should aim to ensure that its activities crowd in private investment.
It is extremely important that these four operating principles are part of the mandate—the defined, statutory mandate—under which the bank operates. If they are not included in the Bill, the extent to which the bank is governed by them would not be clear and the Government would be able to change them at any time without scrutiny and, in some cases, without disclosure.
Amendment 14 simply lifts the Government’s own operating principles from the framework document. I have to assume that the Government are happy with them and therefore should not have any great difficulty accepting their inclusion in the Bill. If that is wrong, I would be interested to hear the Minister explain why she thinks that the Government’s own operating principles are inappropriate.
As the debate has gone on, I have become increasingly uneasy. Like the noble Lord, Lord Teverson, was in the first group, I have been rather woefully unambitious with this amendment. We keep hearing, “It’s all right; it’s in the framework document”, or “It’s okay; it will be in the strategic priorities”. But we have also heard that the framework document is a non-binding agreement, which is an interesting concept, subject to scrutiny that is not a definition of scrutiny that many of us have ever heard.
What this really means is that the Treasury can enforce the framework agreement on the bank, but can also change it at any point that it wishes. That is quite the opposite of operating independence. I am beginning to wonder whether we need to bring that framework document into the Bill more widely, on some sort of statutory basis, subject to some form of scrutiny if it is changed. That goes beyond my amendments at the moment. As I say, I have pulled four elements out of the framework document, but I am increasingly of the view that we may need to go further.
Amendment 29 follows on and says that, if the operating principles are to be changed, they need to be subject to parliamentary scrutiny—in this case only secondary legislation, which is of limited value but is better than nothing. I beg to move.
Lord Teverson (LD)
My Lords, as the noble Lord, Lord Vaux, said, I am afraid I am going to offend again in that my amendment is suboptimal. If we are stuck with the level of dependence on the Treasury that there is, I would like to see those directions from the Treasury at least being guided by or having to take notice of the infrastructure commission. This is referred to in the framework document, but also needs to be in the Bill.
Having said that, we are going to have a major debate on governance and independence issues and I suspect that my amendment would be overwhelmed by those points. It is important that there is a major connection between the National Infrastructure Commission and the UK Infrastructure Bank. There needs to be some definite joining up beyond the wish list there may be in the framework document. Exactly as has been said on this before, I like the idea of trying to put it into secondary legislation somehow, but we know that we cannot amend secondary legislation in this House and we rarely reject it. At least any changes going through Grand Committee or whatever is a higher degree of scrutiny and the Government know that.
This amendment is looking for the Minister’s response on how she sees the National Infrastructure Commission practically being taken into account by the Treasury in any directions it makes. This is important, because bodies such as the NIC can go on doing brilliant work but if, at the end of the day, they have no real effect or do not have to be taken notice of, I would rather abolish than keep them. It is an important body, but one that needs to be included in the Bill to make sure that its recommendations are properly taken into consideration.
Lord Thomas of Cwmgiedd (CB)
My Lords, I will speak to Amendment 52, which is essentially to do with accountability and enforceability. One can only make accountable and enforceable something that is clear. I think the statute is elegantly drafted: it is very short, the phrases are chosen with particular objectivity and it reads extremely well.
Moreover, the regulation power is not that extensive and that is to be commended. There is no guidance, which is better still, but an extraordinary feature of this legislative process, to which the noble Lord, Lord Vaux, referred, is the framework document. I tried to look at what the articles of association say, but all that is registered at Companies House is the present status of the bank as a private company. The statute makes provision for the articles of association to say things, and I hope there will at least be a copy of the draft available, but the statute is remarkable in that, as has appeared from the eloquent answers the Minister has given this afternoon, the framework is critical, but is not even referred to in the Bill. That may be a first. It is an extremely important piece of the legislation that is not even referred to in the legislation.
In addition, it is a memorandum of understanding, as I picked up; “memorandum of understanding” is a phrase often used when one does not quite know whether it is legally enforceable or not. On this occasion, the Minister has made it clear that it is in part legally enforceable and in part not. It is profoundly unsatisfactory that the obligations and duties are not set out in an instrument that, first, is brought up to date—as we shall discover later, bits of it are contradictory to the provisions of the Bill—secondly, that we have not seen a draft of and, thirdly, really needs revising. I hate to say this to the hard-pressed civil servants, no doubt reduced in number, who will have to revise this, but it has to be revised. I believe the noble Lord, Lord Vaux, is right: we need to put a provision in the Bill dealing with the framework, because it is integral. It is far more important than the articles of association.
First, we have to get the Bill in a better legal shape, so that all the documents that are necessary for the proper constitution of what is a public bank are properly in the public domain and subject to parliamentary control. Secondly, it is important that there is proper accountability, for both the performance of the bank and the discharge of its duties, and the statute is so elegant in setting out what those duties are.
As the framework document recognises, there is a tension between the various duties the bank has to carry out and the enforcement options, which need to be made very clear. First, the Treasury has a critical role, as the Minister acknowledged at Second Reading. Secondly, there is the question of Parliament. At the moment, there is no proper parliamentary accountability if the base documents that control the bank are not subject to some form of legislative incorporation and scrutiny by this House. Thirdly, there is the position of the courts. From what the Minister said on the previous group, it is clear that, if the bank is not discharging its duties and the Treasury does not tell the bank to do something about it, it becomes enforceable, at the instance of interested parties, in the courts.
The first fundamental area to get right is the legal structure, and it is not right. The second is to make certain we have got the enforcement structure right. We are talking about large sums of public money. More importantly, we are talking about doing something to deal with two of the great crises of the time: climate and environmental change, and trying to bring about better equality between the various parts of our nation.
Baroness Bennett of Manor Castle (GP)
My Lords, I rise to speak to Amendment 68, which appears in my name. We have already had an interesting debate essentially about the operational independence of the bank. Looking around the Chamber, I think there are two noble Lords here who were also in the Schools Bill which we are taking in parallel with this Bill. I was rather struck by the similarity between the two Bills in that a great deal of debate on that Bill focused on what would happen if these powers were given to a Government and then a Government of a hue you did not like came in and exercised them. When I was thinking about that, I was thinking: what if we had a Green Government? Would I want operational independence for the UK Infrastructure Bank? If your Lordships’ House manages to get the objectives right as well as the composition of the board, which we will get to later, I believe we should have operational independence for the UK Infrastructure Bank because democratic control is the issue. As the noble and learned Lord, Lord Thomas, said, this is a public bank, so any steps being taken by the Government in directing it should be subject to full parliamentary scrutiny of a broader and more detailed kind than that which the Minister referred to earlier.
That brings me to my Amendment 68. In responding to some of the earlier debate, the Minister in a way made a point for me because, as the first amendment in this group states, this bank has a double bottom line. Its responsibilities include social justice and the climate emergency. Indeed, under a Green Government I might like to rename it the “Just Transition Bank” because that is essentially what it is setting out to try to do.
The Treasury is the ministry in control of this bank. What does it know about climate, nature, poverty, inequality or regional disparities? The very nature of the Treasury is that it is focused on money and what is called the economy—that mysterious thing outside human existence. What does it know about farming or health, despite the fact that it has a dictatorship over the actions of all the departments that cover them?
My original plan, which I alluded to at Second Reading, was to take the bank out of the Treasury’s hands entirely and put it in the hands of the departments that know about the things that it is supposed to be trying to do. However, the Public Bill Office—and I thank it for its patience and assistance on this—told me that that was, technically, practically impossible. The phrase “A Green Government wouldn’t start here” crossed my lips, but the Public Bill Office came up with Amendment 68, which would ensure that the Treasury fully consults the Secretary of State for Environment, Food and Rural Affairs, the Secretary of State for Energy and Climate Change—I admit to something of a Freudian slip and apologise to your Lordship for the error in this amendment, because proposed new paragraph (b) should, of course, refer to the Secretary of State for BEIS, although whether we should have a department entirely dedicated to tackling the climate emergency is a question to raise on another day—and the Secretary of State for Levelling Up, Housing and Communities.
Lord Teverson (LD)
I support the amendment tabled by the noble Baroness for that very reason. We should have a Department for Energy and Climate Change.
Baroness Bennett of Manor Castle
I thank the noble Lord for his support for my somewhat unintended amendment.
We come back to: what is this bank for and what is the economy for? The bank is supposed to serve the people of this land. The departments that focus on the people and the climate emergency this bank is serving should surely have an explicit statutory role in oversight. I have not been in your Lordships’ House that long, and I cannot count the number of times I have seen a Minister stand at the Dispatch Box and say in response to a question, “Well, I’d love to do that, but the Treasury —” and roll their eyes. That is the way the country is being run, and it needs to change. This could be a small way to step in that direction.
Baroness Noakes (Con)
My Lords, I, too, support a separate Department of Energy and Climate Change, but for a slightly different reason because I think we would then allow BEIS to focus on what it should be doing, which is supporting British industry, productivity and growth in the economy without being distracted by a lot of other stuff.
I want to pick up the point about the extent to which the framework document should be reflected in the Bill. It is quite normal for public sector bodies to have framework documents—they are often called a memorandum of understanding—by their side. That has not been invented just for this organisation. They usually contain a lot of really quite mundane stuff such as following the Green Book and Managing Public Money and a lot of detail about interactions between the sponsoring department and the body. This framework document in many ways goes beyond what you would normally expect to find in such a document, which is why I and others are querying where the balance should be, but I do not think we should look towards importing the whole of the framework document into the Bill or having some kind of approval process because much of it will deal with rather mundane, day-to-day stuff. The problem here is that this framework document has got rather grand and includes things that ought to be within Parliament’s purview. I am sure we will be taking this area forward, and I hope we will have a bit of balance and perspective about ensuring that we do not have statutory overreach.
Baroness Kramer (LD)
My Lords, in his Amendment 14 and the related amendments, which I was pleased to sign, the noble Lord, Lord Vaux, has put operating principles into the Bill, but not operating independence. I understand why, because operating independence is so fundamental to the bank and its integrity, character, nature and how it functions that it falls into a different category from other operating principles, which might change from time to time. If I were told that the operational independence of the bank was a moveable feast in the way that other principles might be, I would be fundamentally shocked. For me, it would undermine the existence and integrity of the bank. I support the amendment that the noble Lord, Lord Vaux, has put in this group because it gives more significance to the operating principles that matter, but I would like in a later group to deal separately with operating independence, which is far more fundamental.
I am not going to spend very long talking about this. Like others, I am persuaded that we need to take some major sections of the framework document and put them in the Bill. I agree with the noble Baroness, Lady Noakes. This is the kind of abuse that we have seen happening with statutory instruments, which used to be really narrow and dealt with regulation and have now begun to encroach widely on policy. In the same way, we have a framework document which ought to be a memorandum of understanding. It is almost a working day-to-day document that exists between two parties so that they do not constantly have to get on the phone to each other to work out what the next step is. However, core characteristics of the bank have been moved into that framework document. I am afraid that I am a cynic and I assume that this is in large part so that it can be changed at will. Nobody has read this out, so I shall so that it is in Hansard. This framework document
“shall be reviewed by the Shareholder and the Company at least every three years and reviewed within six months of the formation of a new government.”
So there is a presumption of change.
“No variation of this Document shall be effective unless it is in writing and agreed by the parties.”
There is no mention of Parliament at all. There is not even a scrutiny mechanism. The document does not even have to be published. We are in the most extraordinary situation of the governance document, which the Minister refers to again and again as the principle underpinning of the key elements of the UK Infrastructure Bank, essentially being outside the purview of Parliament and apparently deliberately so. This is a fundamental problem we have going to have to address.
Lord Tunnicliffe (Lab)
My Lords, I will briefly speak to my Amendment 32 before offering a brief response to the other amendments in this group. I have already raised the subject of jobs, and I am not convinced that the Government are giving this the weight that it deserves. As I mentioned previously, the strategic steer already offered to the bank makes only passing reference to the creation of jobs and no reference to what those roles should look like. There is a significant gap that needs to be closed, and the Treasury’s formal statement of the bank’s strategy priorities is the ideal means of doing that.
I am once again struck by the sensible nature of many of the suggestions made by other amendments in this group. The noble Lord, Lord Vaux, for example, has made a strong case for strengthening the status of the operating principles and for ensuring that any updates to those principles are subject to the affirmative procedure. The noble and learned Lord, Lord Thomas, put the whole thing succinctly by saying that the framework document needs to go into the Bill. I accept that it may not go in wholly, but its essence needs to go in. I commend to the Minister previously present, and to the Minister present now, that we must convey that to government. Let us not have an ugly scrap on Report but try to reach a consensus on this. If we do not get a consensus, those in the Chamber now will make a consensus of it and force it through.
The questions posed by the noble Baroness, Lady Bennett, are also interesting. The investments made by the bank will cut across different departments, and it therefore makes sense for there to be some role for those other bodies. I am not entirely convinced that we need a formal role for these other departments, but this could make governance matters more complicated than they need to be. However, I hope that one of the Ministers present—I cannot keep up—can clearly outline how the cross-cutting nature of the bank’s work will be recognised by the Treasury.
Lord Teverson (LD)
My Lords, I would gently challenge the noble Lord, Lord Tunnicliffe, on jobs. I have long experience in the far south-west—a deprived area that needs levelling up—of European funding, which always had jobs as its major output. The challenge is not normally jobs because, in the sort of areas that need levelling up, the jobs created by employers are normally low-grade jobs, so that is what you get. The real challenge, particularly on a levelling-up agenda in deprived areas, is actually careers, productivity and high-paid jobs. It is very easy to fill in a jobs return on jobs that are not very skilled or high grade, whereas we need to improve and raise the whole base level. I understand exactly what he is trying to get but I think it is a fundamental problem that we look at these issues in relation to grants, funding regimes, loans or other such systems. That is just a comment from my experience in Cornwall and the far south-west.
Baroness Bennett of Manor Castle (GP)
At the risk of ganging up on the noble Lord, Lord Tunnicliffe, which is not my intention, I would add a supplementary comment to his statement. When we talk about job creation, people will say they are building a new supermarket and that it will create 150 new jobs, but there is never any attempt to account for how many jobs will be destroyed by that development. It surely should be about net jobs.
Lord Tunnicliffe (Lab)
I am sorry; I have tried to be consensual in my responses. My understanding from Her Majesty’s Government—though I am beginning to be somewhat doubtful of this—is that, post Brexit, we were going to do things better than Europe did. I have constantly referred to well-paid, important, skilled jobs, wherever possible in my various amendments.
Baroness Kramer (LD)
I will come very quickly to the rescue. Because we are so often together on finance Bills, I can absolutely assure the House that the noble Lord, Lord Tunnicliffe, uses the phrase “well-paid jobs”, as well as “good jobs” and “quality jobs”, very frequently, even if the short-hand today has been just “jobs”.
Viscount Younger of Leckie (Con)
My Lords, perhaps I may be allowed to intervene with a response. I thank all noble Lords who have contributed to this short debate. The baton has been passed to me temporarily.
The amendments in this group broadly focus on the operational aspects of the bank and so clearly my remarks will seek to address those. I start with Amendments 14 and 29 in the name of the noble Lord, Lord Vaux. The approach of the Bill has been to add in what we think is necessary. We do not believe that setting out the details of the operating principles for the bank, which are set out clearly in the framework document, is required in legislation. I am very aware that this takes us back to a key theme of some of the debates today. I was extremely grateful for the views of my noble friend Lady Noakes—if I heard her correctly—supporting the view that we do not want to get into too much detail in this respect, for a very good reason.
Amendment 32, spoken to by the noble Lord, Lord Tunnicliffe, would ensure that the strategic steer includes a reference to the creation of jobs. I am pleased to inform him that, in the strategic steer issued in March, there were two references to job creation. I of course build upon the comments made by my noble friend Lady Penn in an earlier debate, and indeed the noble Lord, Lord Tunnicliffe, has raised the matter just now. I add to what has been said already two examples I would like to give from the strategic steer in respect of job creation.
First, the bank’s framework document explained this objective as supporting growth
“through better connectedness, opportunities for new jobs, and high levels of productivity.”
Secondly, the bank’s existing objectives are to help tackle climate change, as we know, particularly meeting the Government’s net-zero emissions target by 2050, and to support regional and local economic growth through better connectedness, opportunities for new jobs and higher levels of productivity. I think that these comments play reasonably well in answering the questions raised in an earlier debate, particularly by the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Ravensdale, who is not in his place, and link with the levelling-up agenda. The noble Lord, Lord Teverson, and the noble Baroness, Lady Kramer, are absolutely right that our aspiration, and the necessity, is the creation of high-quality jobs. That is essential as part of our levelling-up agenda.
Amendment 39 in the name of the noble Lord, Lord Teverson, seeks to tie any direction given by the Treasury to the National Infrastructure Commission reports. He raised the relationship with the NIC at Second Reading and earlier today, so I hope that I can set that out and reassure him. The bank is intended to complement the work of the NIC. To that extent, there is a definite joining up, as was referred to by the noble Lord and the noble Baroness, Lady Kramer. It is a complementary rather than a duplicative process, and an assessment of the UK’s long-term economic infrastructure needs. Central government will then decide on any policy response to the NIC’s recommendations, and UKIB will consider the case for providing financing to support projects within the economic infrastructure sectors that are within the remit of both the NIC and the bank.
The NIC provides recommendations to the Government which the Government then act on. It would not be appropriate to remove that part of the process. Additionally, the Government do not have to implement the NIC’s recommendations or reports, so we believe that it is not appropriate to put this in legislation.
Perhaps the noble Lords, Lord Teverson and Lord Vaux, are concerned about the Government directing the bank in a way that is not in line with its objective. That rather paraphrases some of the mood of the debate. That is not possible with the drafting of the Bill at the moment. The bank must comply with its objectives and the Government cannot direct the bank to act in a manner that falls outside its statutory objectives.
The noble and learned Lord, Lord Thomas, tabled the characteristically thought-provoking Amendment 52. I hope I can convince him that the clause as drafted is sufficient. Much policy thought has gone into setting up the bank and detailing its objectives—which reflect government policy—and governance provisions, including provisions to allow the Treasury and Parliament to review its performance.
In the unlikely event that the bank breached its duties and agreement could not be reached via more usual engagement, the Treasury would clearly be motivated to use its powers, including under Clause 8, to enforce those duties. If a scenario occurred where the bank was in breach and the Treasury did not enforce for some reason, Questions could be asked in the House or a judicial review could be brought against the bank or the Treasury regarding use of its powers, and, if successful, give rise to mandatory or prohibitory orders.
Finally, to help the noble and learned Lord, I see no reason for Clause 8 ever to come into use. The framework document goes into some detail in Chapter 5 on the usual process for engagement between the bank and the Government, and any issues would be resolved much before the need to injunct the bank.
I turn to Amendment 68 in the name of the noble Baroness, Lady Bennett. She again raised the importance of independence but also focused on oversight. The amendment would allow other departments that she mentioned to have oversight of the bank. I assure her that the infrastructure strategy very much represents the view of the Government collectively, and should the Treasury need to exercise any of its functions, it would not do so in isolation or in silo, to use the language we might know better.
With those explanations, I hope that the noble Lord, Lord Vaux, will see fit to withdraw his amendment.
Lord Vaux of Harrowden (CB)
My Lords, I thank everyone who has taken part in this short and interesting debate. I do not think the noble Viscount will be particularly surprised that I am not entirely satisfied with his response.
I take the point from the noble Baroness, Lady Noakes. She is right: this is not about taking the whole of the document into the Bill or secondary legislation, but there is a balance. This seems to be one of those situations where the Government are creeping things that are really quite fundamental into areas where they do not get parliamentary scrutiny of any sort. That is unacceptable. As was mentioned, we have seen the same with secondary legislation, but this is a whole new element: there is not even secondary legislation scrutiny. The framework document can be changed at any time at will by the Treasury. The stuff that really matters to the bank should be subject to some form of scrutiny and recognised in the Bill. To me, things that are called “operating principles” clearly fit on that side of the balance, but some of the more day-to-day activities that the noble Baroness, Lady Noakes, referred to are fine.
The noble Lord, Lord Tunnicliffe, talked about the need to find consensus on this and finding the balance. That is really important. Perhaps the noble Viscount or the noble Baroness—I am not sure what the collective noun is for the Lords the noble Lord, Lord Tunnicliffe, mentioned—would be prepared to add this to the agenda of the meeting we have agreed to have. This is a really important area where we have to get the balance right. We cannot have a situation where the Government or the Treasury can change at will things of fundamental importance. Assuming they are prepared to meet to discuss and see whether we can find that consensus, I beg leave to withdraw the amendment.
Lord Sharkey
Member's explanatory statement
This would remove the ability of the Treasury to amend provisions in the Act relating to the Bank’s activities or the meaning of infrastructure.
Lord Sharkey (LD)
My Lords, I will speak briefly to all the amendments in the group. They are in my name and variously in the names of the noble Lord, Lord Vaux, and my noble friend Lady Kramer. I am very grateful for their support.
Amendment 28 would remove from Clause 2 the two Henry VIII subsections, subsections (6) and (7). These subsections allow subsections (4) and (5) to be amended without constraint and without meaningful parliamentary scrutiny.
Subsections (4) and (5) are at the heart of the Bill. The first sets out what the bank’s activities are to be; the second sets a non-exhaustive list of infrastructure for the purposes of the Bill. It is entirely proper that these two elements should be in the Bill. Taken together with the bank’s objectives, they set out government policy. Parliament is invited to debate and scrutinise these elements to consider modifying or otherwise amending them, which is what we are in the process of doing now. But we might be wasting our time: no matter what we say, resolve, add, subtract or amend, the Government can override all of it by using the Henry VIII powers in subsections (6) and (7).
The Government can change any the activities in any way and at any time they choose. They can change the meaning of “infrastructure” in any way and at any time they choose. They can do all this without meaningful parliamentary scrutiny. The suggested use of the affirmative procedure is emphatically not meaningful parliamentary scrutiny, and it is self-serving and disingenuous of the Government to pretend it is. Parliament almost never votes down affirmative SIs; it has done so four times in the last 50 years. It obviously cannot amend them. The plain fact is that the policy or policies embodied in the Bill can be changed by the two Henry VIII powers without constraint and without scrutiny by Parliament.
The Treasury’s delegated powers memorandum offers a kind of explanation for the inclusion of these powers, as it is obliged to do. The lead justification is:
“These powers will allow for the possibility that a future government may wish to change the emphasis of the Bank’s activities for policy reasons and may desire to alter the definitions to support this change”,
which is an unprecedentedly generous legislative text. The final justification for the inclusion of the powers is that it is “considered appropriate”—we heard “appropriate” used earlier in the debate—
“for the powers to take this form, as their whole purpose is to enable change to be made to the relevant aspects of the primary legislation for future policy reasons”.
That is exactly why these powers should not be in the Bill. Once again, they attempt to give the Executive power to make policy before they have decided what that policy is.
The memorandum makes it explicit that unspecified, unscrutinised and unscrutinisable changes to critical areas of policy can be made by the Executive. What is the point of discussing the bank’s activities and infrastructure if these can be changed without constraint and without any meaningful parliamentary scrutiny?
In three reports of the 2017-19 Session, the DPRRC considered the test of “appropriateness” for the use of Henry VIII powers. As I just said, the notion of “appropriateness” is the final justification given by the Treasury for the use of these powers. The Hansard Society, which I had the privilege of chairing for some years, summarised the relevant findings of the three DPRRC reports in its April 2022 Compendium of Legislative Standards for Delegating Powers in Primary Legislation. In paragraph 3.11 on page 18, it notes:
“Loosely drawn powers based on the subjective judgement of Ministers, such as the ‘appropriateness’ test, should be circumscribed in favour of a test based on ‘necessity’.”
There is no necessity here and the Government have advanced none.
In his contribution to the debate on the Queen’s Speech, the noble and learned Lord, Lord Judge, spoke forcefully about the need to address the balance of power between the legislature and the Executive, particularly in the use of Henry VIII powers. He concluded his speech by asking
“what is the point of us being here if, when we identify a serious constitutional problem, we never do anything about it except talk? We cannot keep doing that. I just want us to consider the possibility that the next time we have a Henry VIII clause in a Bill that has not been given careful explanation in advance, we chuck it out.”—[Official Report, 12/5/22; col. 130.]
The next line in Hansard reads: “Hear, hear!” This Bill is the next time. Our Amendment 28 would chuck out the Henry VIII powers.
Briefly, Amendments 33 and 34 are both probing amendments and deal with the statement of strategic priorities drawn up by the Treasury. It may be helpful if I deal first with Amendment 34, because this directly concerns whether the Treasury statement is meant to be permissive or directive. In Clause 3(5), the Bill says:
“The Bank must secure that its articles of association provide for the Bank”
to do two things: first,
“to publish and act in accordance with strategic plans which reflect the Treasury’s statement”,
and, secondly,
“to update those plans whenever the Treasury revises or replaces its statement.”
The force of the words “provide for” in the text was not immediately clear. Did it mean that the bank must amend its articles so as to allow the publication of strategic plans and to allow the bank to act in accordance with these plans if it so chose, or did “provide for” really mean “require”? In other words, was this provision enabling and permissive, or was it directive?
I discussed this question in a helpful meeting with the Minister yesterday, and she confirmed that “provide for” in this context was intended to mean “require”. This clarification makes the Treasury’s strategic statement extremely important. It imposes strategic choices on the bank. These strategic choices will determine what the bank actually does; for example, they could decide what weight is given to each of the bank’s two objectives and what weight to give to the bank’s four listed activities.
The Bill requires the Treasury’s strategic statement to be laid before Parliament, but that is the extent of Parliament’s involvement. Parliament will have no opportunity to contribute to the construction of the statement and no means of making productive comment on it. Given that the statement of strategic priorities will largely determine what the bank will actually do, this seems to be missing a trick by keeping Parliament at arm’s length.
It would be easy and, I believe, helpful to hear Parliament’s views on any strategic statement. Our Amendment 33 proposes a way of doing that by having the statement come before Parliament as an SI under the affirmative procedure. There may be other and better ways of involving Parliament that do not seem to trespass on the Treasury’s prerogatives and do not add complexity. The amendment aims simply to gauge the Government’s appetite for the closer involvement of Parliament in the strategic statement process. I beg to move Amendment 28.
Lord Vaux of Harrowden (CB)
My Lords, I will be very brief because the noble Lord, Lord Sharkey, has introduced these amendments eloquently, and I am not sure there is a huge amount to add.
This goes back to what we talked about in the previous group: too much power for the Treasury to change things at will. You cannot have meaningful operational independence if the mandate within which the bank works can be changed without scrutiny and safeguard. The noble Lord, Lord Sharkey, eloquently explained the limitations around the affirmative procedure; we all know about them. Something as fundamental as the basic objectives of the bank should be changed only following proper, full scrutiny using primary legislation. That should not be controversial; it should be fairly straightforward.
Amendment 33 adds an element of scrutiny that is currently missing to the statement of strategic priorities given by the Treasury to the bank. Those priorities are very important. I can understand that it is appropriate that there is some level of flexibility to those strategic priorities, but the idea that they can just be changed at will and filed with Parliament but with no scrutiny, discussion or review just seems wrong. Introducing the affirmative procedure for those makes sense to me.
Lord Davies of Brixton (Lab)
My Lords, I hope the Committee will bear with me; I have taken an interest in the Bill. My interest is narrow: what bearing the Bill has on pension funds. Members of the Committee may not be surprised.
I have raised the issue on a couple of occasions: at the useful meeting we had with the noble Lord the Minister and the noble Baroness, and at Second Reading. On neither occasion did I receive a reply. My question is: how does this organisation fit with the declared intention, expressed by the Prime Minister and the Chancellor of the Exchequer, to see pension funds investing more in infrastructure? Obviously, infrastructure is a good thing, and there is a tendency to feel that the Bill is about infrastructure so it must be a good thing—but in truth the Bill is an empty vessel. We do not know what is in it or where it is going. It is a structure whose purpose and objectives will be revealed in time.
How does this relate to pension funds and the Government’s apparent intention—we are still waiting for them to make clear what they are proposing—to coerce or cajole pension funds to invest in infrastructure? As I say, I raised this at the meeting with the Ministers and at Second Reading. On neither occasion was there any response from the Minister. It just so happens that the day after Second Reading, the chief executive officer of this bank stood up at a meeting of the Pensions and Lifetime Savings Association and expressed what an important initiative this was for pension funds. All I want is a straight answer: what plans do the Government have for the relationship between this bank and their objective to see pension funds investing more in infrastructure? Personally, I am not interested in taking investment advice from the Prime Minister or the Chancellor of the Exchequer, but I think we should be told.
Baroness Kramer (LD)
My Lords, at this stage—I know we are about to take a short break—I just want to summarise where we might be on these constitutional issues, now that this group of amendments has been debated. I think it will be relevant for the Minister to reply on that.
As we learn from this group of amendments, in the Bill the bank is given activities and objectives in primary legislation—but that primary legislation can be changed wholly by statutory instruments. That is the point of a Henry VIII power: primary legislation is overturned by secondary legislation. As my noble friend Lord Sharkey made clear, this can include issues as fundamental as the bank’s activities and even the meaning of infrastructure. It is hard to get more fundamental than that when you are talking about a UK Infrastructure Bank. That is the first point.
Lord Tunnicliffe (Lab)
My Lords, I am grateful to the noble Lord, Lord Sharkey, for tabling and introducing these three amendments on the important matter of parliamentary oversight. I am not inherently opposed to the Treasury’s power to amend the bank’s objectives or the definition of infrastructure. If, as things progress, it becomes obvious that tweaking these would be beneficial, there should be a relatively straightforward mechanism for doing so. However, Amendment 28 gives us the opportunity to probe exactly how the Treasury intends to use the power. Is it simply for the tweaking I have just mentioned, or could the Chancellor suddenly decide to drop the climate change objective altogether? That would be a very different matter, and making such a significant change via regulations—albeit an affirmative SI—would not be acceptable. The other amendments in this group raise related questions, and I look forward to hearing the Minister’s response in due course. It is not Parliament’s role to frustrate the operation of the bank. However, it should be Parliament’s role to debate these important matters as they arise.
Viscount Younger of Leckie (Con)
My Lords, these amendments are all connected to parliamentary scrutiny, particularly in cases where the Bill is creating delegated powers, as the noble Baroness, Lady Kramer, pointed out. I will come on to the specific amendments, but it is worth noting at the outset, bearing in mind her remarks, that the Delegated Powers and Regulatory Reform Committee has found no need to comment—in fact, there has been no comment whatever—on the four delegated powers taken in the Bill. Having said that, I will attempt to reassure her now that, along with previous pledges that a letter will be written on other matters, it may be that we can give more detailed reassurances in writing on these complex but important interrelationship issues concerning the bank and the framework document.
I believe that the intended purpose of Amendment 28 in the name of the noble Lord, Lord Sharkey, is to protect the operational independence of the bank and prevent the Treasury changing the bank’s focus in the future. There may, however, be instances where we need to update the definition of infrastructure or the bank’s functions to ensure that the bank can continue to fulfil its objectives as a long-lasting institution. Let me give an example in which the noble Baroness, Lady Bennett—I see she is in her place—may take some pleasure. New green infrastructure technologies may emerge in the future which we would want explicitly to include in the bank’s definition of infrastructure, to signal to the bank and the market that the bank can invest in these technologies.
Amendments 33 and 34 in the name of the noble Lord, Lord Sharkey, seek to strengthen parliamentary scrutiny of the bank’s strategic priorities and plans, which he outlined eloquently. Amendment 33 would require parliamentary approval for the strategic priorities of the bank, which the Treasury produces, before they come into effect. Although his amendment is certainly well intentioned—I listened very carefully to his remarks, as well as those of the noble Lord, Lord Vaux—I do not believe it is required as the Bill as drafted allows for parliamentary scrutiny of the bank’s strategic priorities by requiring a copy of the statement and any updates to be laid before Parliament.
There is a strong precedent for this already: the Bank of England Financial Policy Committee remit letter, the Financial Conduct Authority remit letter and the Ofwat strategic statements are all laid before, rather than approved by, Parliament. This is an appropriate level of oversight, particularly bearing in mind that the bank is a taxpayer-funded, government-backed institution.
Turning to Amendment 34, I would like to clarify the effect of the clause as drafted. It is necessary to read the clause as a whole, rather than just words in isolation, to interpret its effect:
“The Bank must secure that its articles of association provide for the Bank … to publish and act in accordance with strategic plans which reflect the Treasury’s statement”.
I listened very carefully to the remarks of the noble Lord, Lord Sharkey, and as he rightly said we had a detailed discussion of this issue outside this Chamber. However, in our opinion this is sufficient to ensure that the bank acts in accordance with Treasury steers. The bank’s articles must provide for it to do so, creating both the power and the expectation that it should, and being subject to the usual enforcement controls should it fail to do as provided by its articles. I realise that we may not entirely agree on this issue, but this is the response that I give today.
I listened carefully to the remarks from the noble Lord, Lord Davies of Brixton. I first apologise to him for the fact that I gather he has not had some answers to questions that he posed—I am rather mortified to hear that. I know that I have written a good few letters and I am sure my noble friend Lady Penn has as well, but may we look at which answers have not been given?
I will try to give the noble Lord a response anyway to the points that he raised, which were essentially asking what the bank’s relationship is to pension funds. The National Infrastructure Strategy, which announced the UKIB, also set out how there is a huge opportunity for pension funds to support the UK’s infrastructure ambitions. The bank’s policy design document—its blueprint, if you will—set out how the bank will help to structure deals to attract international investments and unlock capital from institutions such as pension finds. I hope that gives some sort of an answer but, again, I will read Hansard and get some further answers to the noble Lord, Lord Davies, if appropriate.
With that, I would be grateful if the noble Lord, Lord Sharkey, would feel able to withdraw his amendment.
Lord Sharkey (LD)
I thank everybody who has spoken in this short debate. I am of course disappointed that the Minister is disinclined to allow Parliament any meaningful contribution to the Treasury strategy statements. Laying them before Parliament is emphatically not a way of involving Parliament in any meaningful sense. I continue to believe that the bank would benefit from Parliament’s involvement, and we will continue to think of ways that that might be possible and acceptable to the Treasury.
I am even more disappointed by the Government’s insistence on the two Henry VIII clauses remaining in the Bill. The Minister, as I suspected he might, prayed in aid the DPRRC in his defence of the two powers, essentially on the basis that the DPRRC said nothing about them in its report. I would observe that sometimes even Homer nods. In its report of last November the DPRRC said:
“We will always deprecate the use of Henry VIII powers where they appear to have been included in a bill ‘just in case’”.
In this Bill, these two Henry VIII powers are explicitly there just in case—just in case this Government or a future Government want to adopt a different policy.
Between now and Report, we will want to consider how these very broad and unconstrained Henry VIII powers may be limited in scope or sharpened in purpose and application—and consider, of course, whether they should remain in the Bill at all. In the meantime, I beg leave to withdraw Amendment 28.
Baroness Kramer
“(8) The Treasury must lay before Parliament a copy of an undertaking (the “operational independence undertaking”) provided by the Treasury to the Bank for the purpose of facilitating the Bank’s ability to act as its directors consider appropriate in the light of the objects in its articles of association.”Member’s explanatory statement
This amendment would help secure the operational independence of the Bank.
Baroness Kramer (LD)
My Lords, just before we took a break, I tried to give a quick summary of where we were on the relationship between the shareholder—the Treasury and the Government—the UK Infrastructure Bank as a company and Parliament. I will not repeat that sequence, but I think Ministers will have picked up my concern that, at every level, there seems very little role, if any, for Parliament and very little accountability in any form.
For that reason, I drafted Amendment 30. It is not my language; it is language I took from the Green Investment Bank, so we know that it works in law and has a precedent. It might be helpful if I read it into Hansard:
“The Treasury must lay before Parliament a copy of an undertaking (the “operational independence undertaking”) provided by the Treasury to the Bank for the purpose of facilitating the Bank’s ability to act as its directors consider appropriate in the light of the objects in its articles of association.”
I did not include it in my amendment, which I slightly regret, but the relevant Act also says about the Green Investment Bank:
“An order under this section may not be amended or revoked.”
Operational independence is captured in a very emphatic and direct way in that Act. That led to my question, which the Minister will remember from an early meeting: why is operational independence not in the Bill? If I understood the reply—she can correct me if I am wrong —it is because the legal advice was that the other clauses in the Bill would not permit it to be validly included as they contradict it. That is the reading of the summary I gave before the break.
Without operational independence, it will be very hard for the bank to thrive and to have credibility among private investors. I also consider it an underlying principle. As the Government so often make a declaratory statement about operational independence, I do not understand why that is not made much more substantive. Perhaps the Minister could explain why a mere declaration with nothing in place to support it is considered adequate.
At the beginning of Committee today, I also referred to the framework document. I think we have all accepted now that the framework document not only has no standing in law but can be changed at any point by the Government with nothing more than an agreement between the shareholder, in the form of the Treasury and the Government, and the company—that is, the bank. That has to be in writing and agreed between the parties, but there is not even a requirement to publish that change in the framework document.
I also referred to the resolution of disputes between the company and the shareholder. That brings me to the other amendments in my name in this group, which refer to Clause 4, “Directions”, and various consequences related to it. The clause states:
“The Treasury may give a specific or general direction to the Bank about how it is to deliver its objectives. The Bank must comply with a direction. The Treasury must—consult the Bank’s directors before giving a direction, and publish a direction.”
The framework document is quite helpful in taking us down to a more detailed level. When it does that, it talks about the capacity of the board, if it objects to the direction that it has been given, to send a reservation notice in response to instructions from the shareholder that would—and these are the circumstances in which a reservation notice could be given—
“infringe the requirements of propriety or regularity … not represent good value for money for the Exchequer as a whole … be of questionable feasibility or is unethical … be contrary to the Strategic Objectives … result in the directors of the Company being in breach of their legal duties; and/or … not be in the best interests of the Company for any other material and demonstrable reason.”
Some of these are quite eye-opening, such as
“the requirements of propriety or regularity”
and something being of “questionable feasibility or … unethical”, resulting in the directors being
“in breach of their legal duties”.
It also makes it very clear, however, that this could apply to an individual project that the bank sought to fund but on which the shareholder—the Treasury or the Government—decided no. Or it could be the opposite: the bank could decide that it should not fund a project, but the Treasury or the Government decide yes. It is very clear that it applies at that level.
It is hard for me to see how that leads to operational independence in any way, which is why Amendment 30 is crucial. I am not proud, and if there are other ways in which we can achieve it, I would be very happy—but at least it is language that has survived a previous legislative process and supported a bank that was in place for quite a number of years.
I told the Minister at the time that I would use this occasion to try to follow up what looks to me almost like a direction for concealment. As I said, if the bank receives an instruction, it can object with a reservation notice; the shareholder can then override that reservation notice and instruct the bank to go ahead, but it can
“inform the Board who shall undertake the Instructed Matter, without delay”
and
“if asked, explain the Shareholder’s course of action; and … arrange for the existence of the Written Direction or any Oral Direction confirmed in writing to be published (unless the Shareholder has directed in writing to the Company that the matter must be kept confidential).”
That is the clause that particularly troubles me; it is a gagging clause, if ever I saw one.
I also asked the Minister: which executives and non-execs, which members of the board, have signed or are expected to sign non-disclosure agreements—we always get trapped by the name “confidentiality agreements”—or any other kind of agreement that would mean they cannot then go to the media? We have already established that there is no regulator so, without one, if they have signed confidentiality agreements, they have no mechanism and no one to whom they can go to disclose. I am exceedingly troubled by the idea that we have a bank that may be asked to do something that its senior members view as unethical or without propriety—or in fact illegal—under the terms of their duties, but they cannot even speak about it, report it or act in any way. I hope we get some fairly full answers from the Minister on that question, but it is frankly extraordinary.
When you put this whole package together, I cannot see that the current legislation in any way provides for operational independence. It may use the phrase “operational independence”, but that is merely window dressing. I think I have pretty much covered the issues, but I hope other noble Lords will have comments to make in this area. I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, we have had various discussions around operational independence so far, most of which, until now, have addressed the ability of the Treasury to change the mandate within which the bank operates. Clause 4 goes directly to the heart of the Treasury being able to directly meddle in the activities of the bank. It gives the Treasury the right to
“give a specific or general direction to the Bank”,
at any time, and which the board must follow, with the only safeguard being a requirement to discuss it with the board first. As we have heard, it can be pushed through, and any statements of reservation from the board can be hidden. On the face of it, it completely undermines the operational independence of the bank if the Treasury can actually tell it what to do.
The Minister has previously assured us that the Government would only use this ability to direct in rare circumstances, and she has said that there is a precedent for this type of direction clause. However, the Bill does not put any such restrictions on the use of direction—none at all—beyond the fact that it must be within the objectives of the bank. Therefore, those directions could be about whether or not to make a particular investment, or even the terms on which those investments could be made. It would allow the Treasury to insist on the bank financing vanity projects—I used the example of the bridge to Northern Ireland at Second Reading—or even to indulge in pork-barrel politics by directing investment into particular locations for reasons that may not be totally unpolitical.
The bank should not be put into those kinds of positions, and this Bill should not allow that to happen. Frankly, on the precedent argument, I always recoil when I hear, “We did it before”; those precedents were for different organisations and in different circumstances. It is not impossible that we might have actually got it wrong at the time. Just because we have done it before does not mean that we should do it again.
I have given notice of the intention to oppose Clause 4 standing part. I think that the clause is inappropriate, but I can concede that there might be occasions when it might be necessary for the Treasury to be able to direct the bank—I cannot actually think of any specific examples, but I can see that it could be possible. If the Minister can provide good reasons or examples for this right to direct being needed, then I could get comfortable with allowing direction in those clearly defined, limited and restricted circumstances. However, it cannot be right that direction can be given on the current unrestricted and unscrutinised basis. As I have said, that is not operational independence; it is hard to imagine how anything could be less operationally independent.
So please can the Minister explain, quite specifically, why the Government feel that they need this right to direct, and under what real and specific circumstances they can conceive of using it? If so, we can then work around this and try putting some restrictions and safeguards into the Bill to achieve that.
I have also added my name to the four amendments in the name of the noble Baroness, Lady Kramer, which attack the same problem from a different angle: to allow the Treasury to make recommendations to which the bank must have regard, rather than to comply with directions. I would prefer to remove all unnecessary meddling by the Treasury, as it were, but this might be a reasonable compromise. Similarly, the noble Baroness’s Amendment 30 is another important way of trying to get this operational independence well imbedded in the Bill.
Baroness Noakes (Con)
My Lords, as noble Lords know, I criticised the concept of the UK Infrastructure Bank at Second Reading on the basis that it was the Treasury’s plaything and it had the Treasury’s fingerprints all over it. That was against the background of my not really liking public bodies being created to do things that I do not think there is any good reason for. I believe that once we have a public body set up—we accept that there is a reason to create a public body with access to privileged sources of financing—we have an obligation, as government, to put a proper control framework around it to ensure that public money is protected and that we have powers available to us to meet whatever circumstances might arise. So I part company with the two previous noble Lords who have spoken, because I think it is extremely important to have backdrop powers to be used when necessary.
Lord Thomas of Cwmgiedd (CB)
My Lords, I have just three brief observations. The first is that I think the clause of the framework agreement to which the noble Baroness, Lady Kramer, referred is wholly inconsistent with the Bill. The Bill requires the directions to be published; the framework says they can be made confidential. It is plain that the two are inconsistent, and the Bill must prevail. It seems to me that that emphasises the need to go through the framework to actually update it—it is part of the editing process that is needed.
My second observation is that I can see that, to some extent, as the Minister said at Second Reading, there may be circumstances of necessity or urgency. If there are—and, as the noble Lord, Lord Vaux, said, please can we have some illustrations?—those words need to go into this clause, because it seems to me, if I may respectfully agree, that we may need to cut down this power: we cannot use it, as is suggested in article 15, to resolve a dispute. That is not its purpose; its purpose is for something exceptional.
Thirdly, it seems to me that, if those illustrations cannot be provided, then the obvious answer is that it should be a recommendation that should be published. Of course, we all know that if the Government were to publish something sensible for a body like the bank, it would have no option but to comply with it. But it means you give effectiveness to operational independence, but you actually have the steel fist behind the velvet.
Lord Tunnicliffe (Lab)
My Lords, there seem to be ideas all through this Bill, and the drafters have gone to one edge—to take all the power. That is the sense I get from a lot of our discussions tonight. I even had a slight tendency to want to agree with the noble Baroness, Lady Noakes—she should not get carried away; it was very slight. Once again, we have to find the centre to this, which must be something to do with Parliament. I do not have an answer, but I share the concerns. I headed a public body, and I do not remember a clause such as this ever being there; having said that, the Treasury quite openly had a clause under which it could give me directions on achieving things. It did it only once, and the results were so bizarre that it did not do so again.
The amendments tabled by the noble Baroness, Lady Kramer, are incredibly important. Several speakers raised questions about the bank’s operational independence at Second Reading and it is right that we explore the topic in more depth today. In recent weeks, the Chancellor has been quick to point to the independence of another bank—the Bank of England—as justification for a lack of action on the cost of living crisis. Of course, the UK Infrastructure Bank is not dealing with monetary policy. However, if it is acting according to its mandate, why would the Treasury need to intervene? The Government may seek to play this down by claiming the word “direction” is standard terminology, but I think many reasonable observers would be troubled by its connotations. I hope the Minister can provide a meaningful response to the noble Baroness, Lady Kramer, and that we can continue discussing this important matter in the run-up to Report.
My Amendment 36 was put in this group. It has a slightly different intent from that of the noble Baroness, Lady Kramer, and the clause stand part notice of the noble Lord, Lord Vaux, but it does relate to operational independence. This is not intended as an attempt at party-political point-scoring, but in recent times we have witnessed a number of cases and accusations relating to the misapplication of procurement and other regulations. We know that, during the Covid crisis, some Ministers took a personal interest in the awarding of contracts. I am in no way wedded to the form of words used in Amendment 36, but there is room for a prohibition on these kinds of interventions in relation to the bank’s work.
Baroness Penn (Con)
My Lords, as we have heard, these amendments are all connected to the operational independence of the bank or the influence of the Treasury over it. The purpose of Amendment 30 from the noble Baroness, Lady Kramer, as she said, is to protect the operational independence of the bank.
It may be useful for the Committee if I set out why we do not have a clause in the Bill setting out the operational independence of the bank. As a matter of company law, the bank is already operationally independent. It has been operating as such, with its directors having duties to the bank, during the first year of its existence and in making its first seven investments. The Bill sets out the limited circumstances in which the Treasury, as the sole shareholder of the bank, can exercise more direct control over it. One of the main reasons for the Bill, which enshrines the bank’s strategic objectives in statute, is to protect its independence. The Government are not able simply to change its objectives—
Baroness Kramer (LD)
The Minister just mentioned the “limited circumstances” in which the Treasury may give direction. Can she point to those for us? It would be extremely helpful.
Baroness Penn (Con)
I intend to come to some examples, as requested, when I move on to directions.
Baroness Kramer (LD)
To confirm, there is nothing in the Bill that provides a limit; it is just that we will have examples to illustrate a self-denying ordinance—is that correct?
Baroness Penn (Con)
I think the Bill sets out that the Treasury does have the power to issue direction, and it will be published if it is ever used. We have heard about the precedents. Although I know Members of the Committee have different views on the value of that, I thought my noble friend expressed that very well.
To return to the purpose of the Bill, the Government are not simply able to change the objectives or sell the institution without further legislation. The Bill also makes provision for transparency to Parliament and the public around any circumstances in which the Treasury issues directions or statements of strategic priorities to the bank.
Section 172 of the Companies Act also confirms the bank’s independence: it states that the duty of the directors of the bank is to act in the way that is
“most likely to promote the success of the company”
and it requires them to have regard to factors such as the desirability of maintaining a good reputation for the bank, the bank’s impact on the community, the environment, and the need to foster business relationships. A clause setting out that the bank is operationally independent would therefore be unnecessary as that is already the legal default position and has been reflected in the bank’s independence over the first year of its existence, and the process by which it has entered into its initial investments.
Amendment 30 would require the Government to give an operational independence undertaking for the bank. It is, as the noble Baroness noted, a copy of the provision in the Enterprise and Regulatory Reform Act 2013 for the Green Investment Bank. As I have noted, we do not think this is necessary since it is a matter of company law that the bank is already operationally independent, and the Government have been consistent in their statements on this matter.
To respond to the noble Baroness’s point, we believe that the bank’s operational independence is substantive, not a kind of declaratory position, however—
Lord Vaux of Harrowden (CB)
I am just trying to understand more about why the statutory basis of the bank gives it this level of operational independence. I do not think there is anything in the articles which provides that, so where does this come from—I think these were the words the Minister used—as a matter of law?
Baroness Penn (Con)
I think there are two elements to it: the bank is established under the Companies Act 2006, and as a matter of company law is operationally independent, and then, in terms of what this Bill does, the bank—
Baroness Kramer (LD)
I am really confused about why company law would provide operational independence. It would be really helpful if the Minister could address that. I think she just said that it had to behave with proper propriety or reference to its reputation, but that is nothing to do with operational independence.
Baroness Noakes (Con)
Perhaps I could help the noble Baroness: as a matter of company law, shareholders have relatively few powers in relation to how a company is operated on a day-to-day basis. Their powers derive from their ability to pass resolutions, either at annual general meetings or special meetings, but there are no powers within the articles of association, et cetera, for shareholders to intervene, except via the mechanisms of calling general meetings and passing resolutions. Almost by definition, they are not involved in operational matters. I think my noble friend made a fair statement that for a company operating under company law, it is already hard-wired into its structure that shareholders cannot intervene on a day-to-day basis, just because there is no mechanism for them to do so.
Baroness Kramer (LD)
I will just challenge that slightly, because this all goes hand in hand with the direction, which can be specific. We are talking not just about general direction but about specific direction. I am completely unclear that the shareholders of a company could instruct it, for example, to invest in a particular pharmaceutical process to serve a particular customer base. That is entirely within scope; it is equivalent to the language within the Bill.
Baroness Penn (Con)
We absolutely will come on to discuss the power of direction. The basis that we wanted to establish is that the Government have two powers in the Bill: the power of direction and the power to issue a strategic steer. However, setting those aside for one moment, day to day, the bank has its operational independence, and the basis of that is in its establishment as a company subject to company law.
We were debating Amendment 30, which seeks to establish that operational independence in the Bill. The Government believe that that is already provided for in the bank and so does not need to be set out separately in the Bill. However, the noble Baroness is absolutely correct that, if we were to set out in the Bill the operational independence clause that she has taken from previous precedent or somewhere else, we would still need to write into the Bill the two powers that we are going to talk about: the power of direction and the power to issue a strategic steer. Therefore, I absolutely accept that those two powers override in some ways, on those issues where they may be used, the operational independence of the bank.
I was trying to make another point on what this law is doing to strengthen the independence of the bank. As we know, the bank is already up and running. As the noble Baroness quoted from its operational framework, the Government and the Treasury already have the ability to issue it with a strategic steer and with powers of direction. The Bill puts those powers in statute but gives transparency requirements around them. In the establishment of the bank by statute, it is not for the Government to be free to then sell the bank or change it without returning to Parliament. UKIB is a separate legal personality in law, which is what I was trying to establish.
It may be worth moving on to the power of direction. As I said, it is a matter of company law that the bank is already operationally independent, and the Government have been consistent in their statements on this matter. The limited exceptions to this, as set out in the Bill, preserve the Government’s proportionate shareholder rights, which is appropriate for an institution which is in receipt of public funds. As I said to the noble Baroness, I accept that if we were to have such a clause in the Bill, any operational independence undertaken would still need to include the exemptions for the strategic steer and the power of direction.
On Amendments 35, 36, 37, 40 and 41, and the clause stand part objection in the names of the noble Baroness, Lady Kramer, and the noble Lords, Lord Tunnicliffe and Lord Vaux, these would seek to soften or remove the Government’s powers of direction over the bank so that their directions would no longer be binding. I understand that the aim of these amendments is to protect even further the bank’s operational independence. However, it might be helpful if I quickly set out why we have this in the legislation.
The power of direction is one of a small number of exceptions to the bank’s operational independence. It is right that, as a sole shareholder and as the department that must explain the bank’s activities and spend to Parliament, the Treasury exercises limited amounts of control on the bank. Although the Government expect to use this power infrequently, constrained powers of direction are a relatively common feature of similar institutions such as the British Business Bank, HMRC and the Bank of England.
I hope noble Lords will appreciate that the examples are illustrative and intended to set out the circumstances that could potentially justify the use of such a direction in future. There may be aspects of national security where we may need to intervene on specific investments. We may need to direct the bank to invest in a technology that has the potential, if developed, to be particularly beneficial to the environment but may not meet its return on equity targets. That speaks a small amount to a debate we had earlier about the need to meet the double bottom line versus potential further public policy good from taking greater risk than would otherwise be the case. There may be some other emergency scenario where the bank is an appropriate institution to act. It is worth noting that the Department for Business, Energy and Industrial Strategy used a similar power to direct the British Business Bank to organise the Government’s Bounce Back Loan Scheme. Although those are illustrative examples, that final one might demonstrate that it is hard to anticipate all the circumstances in which we may want to use this power. Therefore, setting out greater circumscription of the use of the power is difficult in those circumstances where it is hard to anticipate the unknown of the future.
Should we remove the clause, the Government could still rely on our ability to issue directions as a shareholder and as set out in the framework document. However, crucially, there may be situations where the board could refuse a direction if not in statute, given its obligations under the Companies Act. This would likely lead to unnecessary tensions between the Treasury and the bank, which are best addressed in the way that the Bill provides, by introducing transparency to Parliament and the public over the use of the power of direction.
I committed to coming back to the noble Baroness, Lady Kramer, on issues she raised earlier in Committee. On the use of the power of direction, the Bill sets out clearly the Government’s ability to issue a written direction and the requirement for it to be published. The framework document provides a process that can precede the issuing of a written direction, with a written direction being the final step in a disagreement. As the noble and learned Lord, Lord Thomas, noted, the powers of the Bill to issue a direction take precedence over the framework document with regard to written directions, but I note the noble Baroness’s point about reservation notices. The Government are committed to giving the bank’s board freedom to operate the company in seeking to achieve its strategic objectives. It is not the intention of the Government nor the drafting of the framework document to gag the bank, and I should be happy to discuss the matter further with the noble Baroness ahead of Report.
To pick up the noble Baroness’s point about whistleblowers, UKIB must adhere to the expectations of the corporate governance code, as well as, more broadly, public sector accountability obligations for the conduct and corporate policies that it has as an organisation. This includes having in place a whistleblowing policy. On non-disclosure agreements, or any name they may go by, UKIB is operationally independent but we understand that it has no NDAs in place.
I hope that has answered the noble Baroness’s earlier questions and some of the further questions about operational independence and the Government’s ability to issue a direction to the bank. I therefore hope that she will withdraw Amendment 30.
Baroness Kramer (LD)
I will obviously withdraw in Committee, but I cannot see the harm, only the benefit, of putting operational independence in the Bill, particularly using language that has been well established in a previous Bill. The Minister refers often to precedent. Here is a precedent that I think is quite attractive, and we know that it has been very successful. I see no reason not to make that happen, so that we have not just declarative statements or rely on a very narrow piece of company law. That will be something that we will want to explore.
Moving to the issue of directions, there is some useful language which we might take from the framework document. I see no reason why we should not prohibit disclosures that infringe on the requirements of propriety or regularity, those which are of questionable feasibility or unethical, or that result in the directors of the company being in breach of their legal duties. We could certainly put some constraints on those powers. I was astonished to read in the framework document that it contemplated that directions would indeed fall into all those categories and therefore provide for them. That will be quite interesting. I will be very glad to discuss the issue of gagging orders of various kinds.
Some fruitful ideas that we will want to explore further have come out of this discussion. We always have to take this and all the other constraints that we have discussed in earlier phases of this legislation in context, but I beg leave to withdraw my amendment.
Baroness Noakes
“(1A) The Bank's directors must ensure that the accounts and reports referred to in subsection (1) include a statement of the extent to which the Bank has achieved its objectives as set out in subsection (3) of section 2.”
Baroness Noakes (Con)
My Lords, Amendment 42A amends Clause 6 of the Bill dealing with annual accounts and reports, which is one of my specialist topics. I also speak to Amendment 55 in this group, which is in my name.
Amendment 42A simply requires that the bank’s annual report contain a statement of the extent to which it has achieved its objectives under this Bill. My purpose in tabling this amendment is to ensure that there is an adequate, regular supply of basic information to support parliamentary accountability. The Treasury does not need to rely on formal publications by the bank, it has its own nominee on the board, and it has negotiated its own extensive access rights to information as part of the framework document.
The framework document acknowledges that the bank may give evidence at the Public Accounts Committee or the Treasury Select Committee in the other place and hence envisages the accountability of the bank to Parliament, which must be right. All that my amendment seeks to do is to ensure that there is at least some core, routine, regular information to support that accountability. In passing, I note that the framework document is silent on the role of Select Committees of your Lordships’ House. Can the Minister assure me that there will be no barriers to the bank appearing before one or more of them?
Lord Vaux of Harrowden (CB)
My Lords, I speak to my Amendment 56, which again relates to the crowding out discussions we had earlier. Amendment 55, in the name of the noble Baroness, Lady Noakes—I am pleased we are back on the same side again on this discussion—is aimed similarly, as is the amendment in the name of the noble Lord, Lord Holmes of Richmond, although his is for a one-off report rather than ongoing reporting.
We have already discussed crowding out and crowding in, in some detail. As I have said, if the bank simply ends up becoming a cheaper form of subsidised finance in situations where private finance is already available, we will have failed. The investments it has made so far, including in solar farms, are not terribly encouraging in this respect. Solar farms are easily financed. They are a nice, solid, predictable revenue stream—the perfect thing for private finance—so it is hard to see what benefit the bank brings in such a situation.
To see how effective the bank has been, it is essential that we measure and report on how successful it has been in its fundamental role of being a catalyst to crowd in private sector finance. How much has it crowded in? The amendment from the noble Baroness, Lady Noakes, tries to do this by looking at whether the bank’s activities have been confined to situations where there is an undersupply of private finance. My amendment takes a slightly different approach, requiring an actual assessment or measurement of the amount of private sector finance that the bank has crowded in, and an assessment of the extent to which it has replaced private sector finance that would otherwise have been available.
Looking again at the wording of my amendment, I regret saying that the assessment should be by the Treasury. It would be better if the Treasury did not mark its own homework, but I know we are coming to that later. I am sure the Minister could quibble with the wording, and that it could be worded more elegantly. However we do it, this is a fundamental measure of how successful the bank has been, how effective it is and whether it is a good use of taxpayers’ money. Somehow, within Clause 9, we need to include some measurement of crowding in and crowding out.
The Lord Bishop of St Albans
I declare my interest as president of the Rural Coalition and shall speak to my Amendment 57; I can be fairly brief. This amendment would require the Treasury to rural-proof the bank’s activities as part of its review every seven years. I shall not go over what I said on my earlier amendment as I have already referred to some of the case for rural-proofing. It is very important. It already exists as a tool to ensure that policymakers and analysts assess the effectiveness of their policies across rural areas. All government departments are subject to it, with the aim of embedding the principle that rural communities must be adequately considered when developing policy. The UK Infrastructure Bank ought not to be exempt from this as it is wholly owned by the Treasury.
Even then, the precise nature of the rural-proofing contained in this amendment is far weaker than the guidance to which most government departments are subject. Rather than require rural communities to be suitably considered in investment decisions, this amendment simply places a duty to review any disparate or adverse impacts or discrimination towards rural areas with respect to the bank’s activities. This would offer a framework for the Treasury to judge UKIB’s activities so that rural communities are adequately accounted for as part of its review. If rural-proofing requirements are good enough for the Treasury, they are more than apt to cover UKIB. This amendment would help to reassure rural communities that their concerns will be considered by UKIB and that at a minimum they will not be negatively impacted and will, we hope, be supported by the bank. When the Minister responds, I hope she will be able to offer some reassurance that the activities of the UK Infrastructure Bank are already covered by the current rural-proofing guidance to which the Treasury is subject. If they are not, how will the Government ensure that the bank will be properly rural-proofed in a similar manner to all other government departments?
Lord Holmes of Richmond (Con)
I shall speak to my three amendments in this group, which all concern reporting requirements for the bank. Amendment 64 takes us back to inclusive by design and asks HMT to produce a report within six months on how the bank is achieving it in its investment and to look across the whole of the UK infrastructure and put a plan together for how all of it can be made inclusive. Does the Minister agree that infrastructure investments which are not inclusive would not only fail the public sector equality duty and thousands, potentially millions, of people but should de facto also fail the economic test set for all the bank’s investment?
On Amendment 65, perhaps we should feel positive because crowding out has already encouraged the crowding in of three amendments on this area. My regret on my amendment is that I have put it in the singular rather than suggest the continuous reporting requirement. As other noble Lords have set out, it is a fundamental issue for the bank. To that end, will the Minister reiterate what is said in the blurb on the bank about what multiple can be returned on investments? More than that, as real investments have now been made by the bank, what multiple and what actual level of funds have been crowded into those investments?
Returning to my Amendment 15, I remind my noble friend that, when it comes to nature-based solutions, investments in peat projects return £4.60 to the pound while those in woodland projects return £2.80 to the pound. Does my noble friend the Minister agree that both these levels are above what the bank is setting as its multiple return on investments made?
My final amendment, Amendment 66, is very brief; it simply asks for a report to be placed on the rate of interest that the bank determines to charge. Can my noble friend share some of the detail underpinning the basis points that have been determined at this stage for the bank’s investment level? How will that sit alongside other investment funds, and how will it compare with where previous funding would have come from, such as the Public Works Loan Board, et cetera? How has that interest rate been arrived at? Will a report be placed within six months of the passing of this Act on how it has run in that period?
Baroness Kramer (LD)
My Lords, I will speak first to the generality and then to my amendment in this group. As to the generality, all the proposed changes or enhancements to Clause 9—reviews of the banks, effectiveness and impact—seem significant and important; it is a clause that we definitely need to improve. The two areas that reviews currently have to cover, namely
“the effectiveness of the Bank in delivering its objectives, and … its impact in relation to climate change and regional and local economic growth”,
are interesting, but they have not covered even a small portion of the questions raised on the floor just today. A much more comprehensive review strikes me as exceedingly worth while and something one would anticipate the bank to be eager to deliver.
My Amendment 67 deals with the UK Infrastructure Bank. I admit that it arises from a frustration that the national infrastructure strategy is not on a statutory basis. Our cycling and walking strategy is on a statutory basis but not, apparently, our national infrastructure strategy. It seems important that, if any respect is to be given to that strategy, it should be linked in some way to the work of the UK Infrastructure Bank. Where there are differences, we should at least be aware of them, and that could lead either to the strategy being amended or indeed to a rethink of some of the objectives of the bank.
I am trying to take some steps on what others have described earlier in various ways—to pull together things that seem to cover the same territory, rather than constantly having fragmented reports going in one direction, funding in another and decision-making in another. It seems that the review mechanism may be the lightest-touch way to pull together these various strands and give us a sense of coherence about what is happening with the development of infrastructure in this country.
Lord Tunnicliffe (Lab)
My Lords, we can know whether the bank is meeting its objectives and strategic priorities only if the periodic reviews of its work cover the right areas. We will turn to the timing of the reviews shortly, but the number and range of amendments in this group suggest a scepticism around the current provisions. As I said during an earlier debate, we have no desire for parts of the Bill to resemble a shopping list. However, Clause 9 is currently incredibly high level, to the point where it provides virtually no steer whatever.
At a minimum, I urge the Minister to seriously consider Amendment 56 in the name of the noble Lord, Lord Vaux, and Amendment 67 from the noble Baroness, Lady Kramer. These requirements would add value. I imagine that some of the other amendments in this group, although tabled with the best of intentions, will be covered by other mechanisms, including the bank’s own annual reports. I hope the Minister can clarify that.
Baroness Penn (Con)
My Lords, as we have heard, these amendments all relate to the reporting on the bank and the content of any statutory review of the bank. Amendment 42A, in the name of my noble friend Lady Noakes, seeks to ensure that the bank’s annual accounts and reports will contain a statement on the extent to which the bank has achieved its objectives. I hope I can provide some reassurance that UKIB already has obligations to publish in its strategic plan details of how its strategic objectives are being fulfilled, as well as how its activities meet its operating and investment principles.
There were also a number of amendments detailing what the statutory review of the bank should look into. Amendment 55, from my noble friend Lady Noakes, Amendment 56, from the noble Lord, Lord Vaux, and Amendment 65, from my noble friend Lord Holmes, all relate to the additionality of the bank and how it will work to crowd in private investment, not crowd it out. In response to my noble friend Lord Holmes, I am happy to restate that it is our expectation that the bank will crowd in £18 billion of finance from £8 billion. The evidence to date is that £300 million could have unlocked £500 million of private finance.
As I said previously, how effective the bank has been in meeting its objectives, including additionality, is a really important point and one I would expect the statutory review to look at. I also re-emphasise to noble Lords how seriously additionality is taken by the bank itself. As I mentioned, I would expect to see in the bank’s strategic plan, published later this month, a list of KPIs that it will use to measure its impact. One of those will be on the private finance it has brought in.
On Amendment 57, from the right reverend Prelate the Bishop of St Albans, the bank takes its obligations to providing regional and local economic growth across the UK, including to rural communities, very seriously. As I mentioned, the bank will have a number of KPIs to ensure that it is meeting its objectives and will detail these in its upcoming strategic plan. I appreciate that I have not seen the strategic plan either, but if the right reverend Prelate would like to discuss that further having seen it, I would be very happy to do so.
Amendment 64 is on the review of inclusive infrastructure. The bank carefully considers the impact of its decisions on those sharing protected characteristics, in line with its legal obligations and its strong commitment to promoting fairness. It has a rigorous process in place to ensure that it complies with its legal requirements under the public sector equality duty in the Equality Act 2010. Impacts on protected characteristics are appropriately flagged and assessed before the granting of loans.
Amendment 66 is on reporting of the bank’s lending. The bank can already determine the level of its own investments in line with its capitalisation and annual limits that are agreed in its framework document. The bank will report on its lending in its annual report and accounts, which will be published and laid before Parliament.
Amendment 67, from the noble Baroness, Lady Kramer, suggests that we conduct a review of the bank to ensure it continues to meet the aims of the national infrastructure strategy. I can provide the noble Baroness with some assurance that this is precisely what the Government will do when they review the bank as part of the arm’s-length body review in 2024-25. Further to this, the National Infrastructure Commission will publish its second national infrastructure assessment next year, and the Government will consider future updates to the national infrastructure strategy in view of this assessment. We will continue to ensure that the bank is made aware of how its work can complement the Government’s long-term infrastructure strategy, including through the statutory strategic steers, powers for which are contained in the Bill.
I therefore hope that, at this stage, my noble friend Lady Noakes can withdraw her amendment and that other noble Lords will not move theirs.
Baroness Noakes (Con)
My Lords, I thank my noble friend the Minister for that response. We have had an interesting, short debate. This is rather a varied group of amendments. There is only one link between them, in that they are all about reporting. Apart from that, a lot of different issues are raised—not all of which I will comment on, because they were not covered in my own amendments.
I will deal with the issue of crowding out or crowding in. The noble Lord, Lord Vaux, and my noble friend Lord Holmes of Richmond have a concern around this. My noble friend said that the report under Clause 9 would cover this, but the report under Clause 9 is about how well it has achieved its objectives. The objectives are very clear in Clause 2: to help tackle climate change et cetera, and to support regional and local economic growth. It is not an objective to achieve a crowding in or avoid crowding out. That has been the heart of one of the problems. I hope that when we have our further discussions on crowding in and crowding out, which we have already established that we will have before Report, we can cover this aspect. This is part of the whole problem of how to express the additionality requirement and then how to measure it and report on it. It is part of the same theme, so I will not labour it further now.
My Amendment 42A was about having something in the annual report and accounts on how well the bank is achieving its objectives. I am not at all clear that this is met by what my noble friend said, which was something to do with the strategic plan and the KPIs. Tomorrow I will read carefully in Hansard what she said, because I probably did not concentrate quite as hard as I should have. I do not think she answered the question, and I may well want to return to it either on Report or with her before Report. On that basis, I beg leave to withdraw.
Baroness Kramer
Member’s explanatory statement
This amendment would change the maximum number of board members from fourteen to thirteen.
Baroness Kramer (LD)
My Lords, I recognise that the Clock is moving rapidly, so I will be quite speedy. These amendments are reasonably self-evident. With the amendments that stand in my name here, I have tried to set what seem obvious principles for the way in which a board of directors is set up. That is, as covered by Amendments 43 and 44, to make sure that the total number of board members is an odd number, not an even number. With a board of directors, it is surely appropriate to be as certain as possible that the chair’s casting vote will be used as rarely as possible. Hopefully, decisions will not be so contentious that the board is completely split, but where that happens it is far healthier to have a resolution provided by an odd number of members than to have to look again and again to the chair’s casting vote. It is quite curious that 14 is the proposed number of directors. Now and again, we would find ourselves looking to the chair, and I think that would be genuinely unfortunate. It is not the most important issue in the world, but it seems to me that some decent housekeeping would not hurt here.
I also want to be sure, in Amendment 45, that the majority of board members must be non-executive directors. It does not speak to that in any way and, given that the board can be as small as five, you could easily see a situation in which three of the members were executives and only two were non-execs. It seems a simple principle.
Probably my most significant amendment in this group, on an issue that has been addressed by others, is Amendment 49. We have talked before about the importance of having the right range of skills on the board—people of independence, and people with expertise and knowledge. Amendment 49 simply asks the bank’s chair to keep under review such characteristics and, if he feels that there are gaps, to take steps to address or mitigate those shortcomings.
It is important to put that responsibility on the chair and not just to say, “Well, Treasury will take care of that. The Chancellor of the Exchequer appoints everybody and therefore he will decide what kind of skills are necessary”. We have talked about the operational independence of the bank. Frankly, if the chair cannot even guide what kind of skills he needs to be on his board, we are once again underscoring that there is no operational independence. It seems to me a standard and normal responsibility for a chair, and I simply ask that there be an opportunity for that to happen here.
Lord Vaux of Harrowden (CB)
My Lords, I will be very brief in speaking to my Amendment 46, but first, let me say that I support the amendments in the name of the noble Baroness, Lady Kramer. Frankly, they seem like normal, good practice and it is almost surprising that they are not already in the Bill.
Amendment 46 is very simple. The bank’s activities will cover the whole of the UK, including the devolved nations. I welcome that—it is a really good thing—but while allowing the bank to operate in the devolved nations, the Bill gives absolutely no right at all to the devolved Governments to have any say in how it operates. I would be completely opposed to giving veto rights or anything of that nature, but I do think it would be appropriate to allow them at least some input into the bank’s direction. As someone who lives in Scotland, I am not the world’s greatest fan of the Scottish Government, but devolution is a fact and we have to live with it and work with it. The devolved Governments have perfectly reasonable interests in how investment is directed in their countries.
It seems to me that the easiest way to achieve this is just to allow the devolved Governments to be represented on the board of the bank. Amendment 46 would simply allow the devolved Governments each to appoint a director to the board. That way, they would have the ability to represent their legitimate interests without introducing any veto rights or anything of that nature, which, obviously, we should avoid.
If we want to keep this union together, we need to recognise that the devolved Governments have legitimate interests, and we need to try to work together.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a pleasure to follow the noble Lord, Lord Vaux, and to find myself in broad agreement with him on a number of areas of this Bill, if not always on the details—as with our views on the Scottish Government, which, of course, has Green Ministers among its members.
My amendment is rather similar to his, although perhaps not quite so expansive on the devolved Administrations. It says that
“a director must be appointed”
jointly by
“the governments of Scotland, Wales, and Northern Ireland”.
It specifies two other directors, one of which would be appointed by the Climate Change Committee. I am a little disappointed that the noble Lord, Lord Deben, is not in his place, as I would be interested in his view on that. The third director—there is a deep irony here, and I should point out that I tabled this amendment some 10 days ago—would jointly represent Natural England, Nature Scotland and Natural Resources Wales.
In a sense, this is another way of getting at the issue I was trying to get at earlier. The Treasury does not really have expertise on environmental and social issues and devolution, and the same can be said, often, of bankers. This is an attempt to ensure that the directors really do have that expertise.
However, events have forced me to reflect at this point on the fact that a lot of our earlier discussions were about the operational independence of the bank. It is rather telling that Natural England was, of course, an independent body, and over the last decade it has gradually lost its independence under the hold of Defra. It was deprived of its independent online presence and its own press office in 2012, and in 2018 its former chair, Andrew Sells, confirmed that the body is no longer independent.
It has emerged in the last week—buried deep in a consultative proposal that campaigners have only just uncovered—that the Government are consulting on dismantling Natural England. That has caused a great deal of concern but it is a real demonstration of so many points that noble Lords have been making about how Governments can have structures that are supposed to hold them to account and somehow, through a process over a decade or so, effectively dissolve those structures.
This is an attempt to deal with the issues that the noble Lord, Lord Vaux, has already covered well. I also point to the Second Reading speech from the noble Lord, Lord Wigley. I will not go through it in detail but what he said there was that the bank needs to work with the grain of devolved Governments, regional and local government. Looking at this amendment now, I wonder if I should not also have put “a representative of local government” in it, but that is something to think about for Report.
Lord Thomas of Cwmgiedd (CB)
My Lords, there are obviously different ways of trying to ensure two things. On one, expertise, my long experience of bankers has persuaded me that they are not the right people to be exclusively on this board. One needs someone with the expertise of addressing the objectives of the bank. That is critical. The second is to keep the union together and it is no use saying—I hope that we will not get this from the Minister, who has been so receptive to many points—“Don’t worry, we’ll all do the right thing”. I come from a school where if you all agree on what the right thing is, why do you not write it down?
That is really what I am saying: let us write down that you should have experts in the various areas central to the bank’s objective and make provision for those who live in the devolved nations to feel that the bank is acting in their interests. Here, the question of perception is critical. The idea that the Treasury carries on as before is, to my mind, not apposite in the current time. I would hope that the way in which I have phrased my amendment might be slightly more acceptable to the Treasury in that it would leave it with the decision while giving it objective standards. One can but hope.
Baroness Noakes (Con)
My Lords, I shall make just a couple of comments. I support the noble Baroness, Lady Kramer, on her Amendment 45, which requires there to be a majority of non-executives on the board. My noble friend the Minister will doubtless say that the UK Infrastructure Bank will have to comply with the UK governance code, and therefore it has to have a majority of non-executive directors. But any public body that is set up always has the provision that there is at least a majority of non-executive directors on the board. It would be good practice to replicate that for the appointments here, given that we are dealing with those appointments in statute anyway.
I am not attracted by having odd numbers on the board. If there had been a problem, it would have surfaced in the UK Corporate Governance Code before now. The plain fact is that if there ever is a situation where a board is split, no chairman will use a casting vote to push something through. Boards simply cannot operate on that sort of basis. Normally something is withdrawn, people regroup and compromise is reached. It is just not a problem in practice, so we do not need to reflect it in the Bill.
One thing I really want to do, I am afraid, is to disagree with the noble Lord, Lord Vaux of Harrowden, on giving appointment rights to First Ministers in the devolved Administrations. I completely accept that the devolved Administrations will want to feel involved but I prefer the formulation in the amendment of the noble and learned Lord, Lord Thomas of Cwmgiedd, which is about recognising that a knowledge base is important to have on the board. Another and more normal way of doing it is to have a consultation option available to take the views of the devolved Administrations.
However, it is really important to avoid having representatives on boards. It will destroy the collective nature of the board if you have people parachuted in from outside with their only virtue being that they were a political appointment. It is really important to preserve the nature of the board as being an area—picking up what is in these other amendments—to bring together the skills and experience necessary to have the right decision-making processes.
Lord Tunnicliffe (Lab)
My Lords, I have two interests in this group, having tabled Amendments 48 and 51, but I shall take them out of order as one is general and the other more specific. Amendment 51 is linked to the one tabled by the noble Baroness, Lady Kramer. It seeks to ensure that the bank’s board comprises individuals with knowledge and experience relevant to its objectives.
The second strand of the amendment is arguably more important as it suggests that the board should have knowledge and experience of the nations and regions of the United Kingdom. This is a slightly different proposition from those of the noble Lord, Lord Vaux, and the noble and learned Lord, Lord Thomas. It is vital that the nations of the United Kingdom are properly involved in this process. However, it is equally important that the bank appreciates the very different needs of England’s regions. The Bill sets the objective of achieving regional growth, yet there is no mechanism within it to ensure either a fair split of investment activity across the nations and regions or to address entrenched regional imbalances. Appointing the right board members may not directly address those concerns, but it would at least move things in the right direction.
Returning to the theme of jobs, my Amendment 48 proposes that at least one member of the bank’s board should be a workers’ representative. From previous debates, we know that the Government’s ambition is for jobs created through UKIB funding to be well-paid, secure, and so on. Surely the most effective way of ensuring that the bank supports the right forms of employment is for its board to have somebody with a track record of representing working people.
The Minister will resist the amendment, but in doing so, can she tell me precisely what alternative mechanisms are in place to ensure a voice for workers? I suspect there is none, once again calling into question the Government’s commitment to improving employment practices and rights. Labour wants the bank to be a force for good in all nations and regions of the United Kingdom, creating the highly skilled, secure jobs of the future. The Chancellor talks a good game, but he is falling back on his rhetoric in the Bill. I hope the Minister will reconsider.
Baroness Penn (Con)
My Lords, before turning to the detail of the amendments, I will give a short update on the bank’s recent appointments, as it has recently appointed its first non-executive directors, who all have extensive expertise in the bank’s areas of interest.
These include Bridget Rosewell CBE, who brings experience as a director, policymaker and economist, with roles in the M6toll company, Northumbrian Water Group and Network Rail, among others. Also appointed is Nigel Topping, who will bring a unique mix of experience across manufacturing businesses in the UK regions and industrial transformation to the zero-carbon economy. He was most recently appointed by the Prime Minister as the high-level climate action champion for COP 26, where he launched the Race to Zero and the 2030 climate breakthroughs.
The bank is also ensuring that it recruits the necessary technical expertise, including welcoming its first lead climate advisor, Professor Andy Gouldson, an internationally recognised expert on place-based climate action, who will work with the bank to shape its impact. Noble Lords may also be interested to know that the bank’s chief risk officer, Peter Knott, is a non-executive director at the Scottish National Investment Bank. I have no doubt that the board will be able to act in the interests of the whole United Kingdom when carrying out its duty.
I turn to the detail of Amendments 43, 44 and 45 in the name of the noble Baroness, Lady Kramer. As she said, Amendment 43 would change the maximum number of directors on the bank’s board from 14 to 13. I can see the logic for doing so, to prevent a tie in a board meeting vote. However, as set out in the articles of association and in line with market practice, quorum for board meetings is lower than the total number of directors and, in a scenario where there is a tie, it is the chair of the meeting who takes the deciding vote—again, as is standard market practice. This is set out in paragraph 92 of the bank’s articles of association. Furthermore, reducing the maximum board size to 13 limits the bank’s flexibility to have committees with separate membership. Amendment 44 would require the number of directors to be an odd number—again, with a similar intention to that of Amendment 43. On both these points, as my noble friend Lady Noakes said, there is nothing in the corporate governance code about these matters. The same arguments apply to what would happen in a tie for Amendment 44 as for Amendment 43, with the chair having the ability to cast the deciding vote.
Amendment 45 would require NEDs to hold a majority on the board. This is very sensible, and is in the framework document and the corporate governance code. When drafting this legislation, as we have discussed, we have sought to strike a balance between what is sufficient to be in the framework document and articles of association, and what needs to be in the Bill. The bank will report on compliance with the corporate governance code annually through its report and accounts, which are published in Parliament.
Amendments 46, 47, 48, 50 and 51 are all related to the experience of the board. Amendment 51, in the name of the noble Lord, Lord Tunnicliffe, and Amendment 50, in the name of the noble and learned Lord, Lord Thomas, would ensure that the bank has the right expertise to fulfil its objectives, and has appropriate regional experience. Amendment 46 from the noble Lord, Lord Vaux, is similar, although it allows the devolved Administrations to recommend their own nominee for the board. Amendment 47 from the noble Baroness, Lady Bennett, is a combination of the two, with recommendations on directors coming from the Climate Change Committee, the devolved Administrations, Natural England and relevant devolved bodies.
I understand that these amendments all seek to ensure that the board has adequate representation to meet its objectives. I reassure the Committee that non-executive directors are recruited in line with the guidelines set out by the Office of the Commissioner for Public Appointments and were selected based on the skills that they could bring to the board around UKIB’s mandate and objectives. I understand why the noble Lord, Lord Tunnicliffe, is minded to have a non-executive representative of workers, as set out in Amendment 48, but I hope that he will see with the appointments to date and the process that appointments must go through that this is not necessary.
The Government are committed to ensuring that the bank delivers for all four nations, and the Treasury has engaged with the devolved Administrations throughout the set-up of the bank, and will continue to do so to ensure that the bank delivers for all nations of the UK.
Lord Thomas of Cwmgiedd (CB)
I think that the Minister mentioned the appointment of someone with knowledge of Scotland, but what about Wales and Northern Ireland? Is the Treasury taking active steps to do something about representation on the board from someone with detailed knowledge of Northern Ireland and Wales?
Baroness Penn (Con)
My Lords, I believe that there are a number of different routes by which the bank can ensure that it works closely with the devolved Administrations.
Lord Thomas of Cwmgiedd (CB)
The reason why I asked the question was to do with public confidence from Northern Ireland, Wales and Scotland. That is critical at this stage of keeping the union together. I know that the Minister, who is very helpful on this Bill, may not be able to answer that tonight, but I shall return to this issue with detailed questions on Report, or press an amendment.
Baroness Penn (Con)
I understand the noble and learned Lord’s point, and recognise that I have been given notice that he will return to it at Report. All I was simply going to say was that I understand the point about confidence, which can be achieved in a number of different ways. His amendments suggest one of those, and I was seeking to describe some of the other ways in which UKIB has approached this in collaboration with the devolved Administrations and will continue to do so. I just note that we are seeking legislative consent for relevant aspects of this Bill.
Lord Vaux of Harrowden (CB)
Given that this consultation has been happening with the devolved nations, can the Minister give us some flavour of how that has gone and what the reaction from the devolved nations has been?
Baroness Penn (Con)
My understanding is that it has been very constructive, but perhaps I can write to noble Lords setting out further detail on that.
Amendment 49 in the name of the noble Baroness, Lady Kramer, would ensure that the bank’s chair must keep the board under review to ensure that it continues to perform adequately. I think it goes without saying that I agree with the policy of this, but again believe that it is set out sufficiently within the framework document which largely reflects the requirements of the corporate governance code, against which the bank, as I said before, will publicly report compliance each year. It covers most of these points adequately, particularly in paragraphs 5.5.2 and 5.9.5.
I have committed to write on a number of aspects and know that noble Lords have given notice that they may wish to return to this at Report. With that, I hope that the noble Baroness will be able to withdraw her amendment for now.
Baroness Kramer (LD)
I thank the Minister for her comments. I am slightly alarmed by two things, the first of which is that she sees no reason why the chair should have influence over the shape of the board, so that it should be the responsibility solely of the Treasury and the Government. That troubles me, particularly in the much wider context of operational independence and so many of the other issues we discussed earlier today.
I am very sympathetic to the issues raised by the noble Lord, Lord Vaux, and the noble and learned Lord, Lord Thomas. I think that the noble and learned Lord is exactly right: this is an issue of confidence. I am somewhat surprised that we do not have legislative consent yet, even though we are already in Committee. I wonder if the Minister expects that we will have legislative consent before we get to Report. I have not dealt with many Bills, but legislative consent has always come very early in the process and not at this point in time. I am slightly concerned about that.
Baroness Penn (Con)
Perhaps I can pick that up in the letter. As this is a Lords starter, I believe we might have more time to deliver on legislative consent than when we receive Bills from the Commons—that may be the timetable.
Baroness Kramer (LD)
The Minister makes a good point; I am used to thinking of legislation that starts in the Commons, and therefore legislative consent is in place by the time it gets to the Lords. I hope that this can be very quickly resolved.
Apparently, on the issue of non-executive directors, we have found another item within the framework that we want to consider putting in the Bill. It would be interesting to see that as we get to Report. For now, I am content to withdraw the amendment.
Baroness Noakes
Baroness Noakes (Con)
My Lords, we are in the final lap of Committee. I shall speak also to the three other amendments in this group in my name. Amendments 54 and 58 deal with who should carry out the periodic review of the UK Infrastructure Bank under Clause 9. Clause 9 says that the Treasury must carry out the review, and my two amendments change this to “a person or persons” who are independent of both the Treasury and the bank. At Second Reading, I spoke about how the Treasury was intertwined with the UK Infrastructure Bank and in effect calls all the shots. We have covered that ground again today and I will not repeat any of that now, but all that adds up to a fact of life: that the Treasury is very closely involved in the bank and is not and cannot be a dispassionate observer when it comes to appraising how well the bank has done. The Treasury should not, as I think the noble Lord, Lord Vaux, said earlier, be marking its own homework.
In my view, it is only right that an independent person should be appointed to appraise the effectiveness and impact of the bank. Indeed, it may well be that the effectiveness or impact of the bank has been helped or hindered by the Treasury, and we certainly want to know about that. That would not emerge if the review were carried out by the Treasury. The noble Lord, Lord Teverson, has a more elaborate version of independent review in his Amendment 63, and I look forward to hearing what he has to say on it, but I wonder whether an annual report on performance is getting a bit too much like micro-oversight of the UK Infrastructure Bank.
Turning to Amendments 59 and 62, which address the timing of the Clause 9 reviews, I am grateful for the support of the noble Lord, Lord Vaux of Harrowden, and the noble Baroness, Lady Kramer, respectively, in respect of these amendments. Under Clause 9, the Treasury has up to 10 years to produce its first report and then has to produce reports at not more than seven-year intervals after that. My amendment calls for a first report within four years and Amendment 62 calls for subsequent reports at least every three years. I chose four years as the first period, rather than the three years called for by Amendment 60 in the name of the noble Baroness, Lady Kramer, because I thought that a report after three years of operation would be sensible and would allow a bit of time beyond the three years to actually make the report. But there is no magic in either three or four years: the main point is that 10 years followed by seven years is far too long. I beg to move.
Lord Teverson (LD)
My Lords, when the Green Investment Bank was privatised and we dealt with legislation to do that, we in this House looked at ways in which we could be sure that, with that change of ownership, whatever it would be, it remained true to its constitution, its values and objectives in that private situation. It was subsequently bought by Macquarie, which still owns the Green Investment Bank, now called the Green Investment Group. The Government at the time—I remember going through this with the noble Baroness, Lady Neville-Rolfe—were enlightened enough to set up a green share held by a non-profit organisation called the Green Purposes Company, of which I am a trustee, and therefore I declare my interest in that.
I take the noble Baroness’s point that my amendment is slightly more complicated and maybe slightly more micro, but it is there for a different reason. That company was set up in a similar way to the way described in this amendment, and what we do in the Green Purposes Company is certainly not to act in any way prior to investment—we are not part of any investment committee; we do not get involved in that. What we do, at the end of a year, is to assess whether those investments that have been made by what is now the Green Investment Group comply with its green objectives and the mission of the bank.
With the co-operation of Macquarie, that process has worked very well. As I said, we assess performance against the bank’s objectives and have four meetings a year with senior management—they are optional; we just decided to do that operationally—and then publish a letter in the annual report of the bank, making that assessment of the investment in general. It is a fairly short letter, but it provides total transparency and a completely independent view of whether the bank has met those objectives through its investments during the year.
Having agreed to and implemented this model, we have talked to Treasury officials about it in the past—it has been considered and, I think, welcomed by the Environmental Audit Committee at the other end—and to the Finance Minister John Glen. It is a successful assessment method; it is transparent, tried and tested and is a model laid down by the Government themselves. This is a really good way forward and I would very much like the Minister to consider it as a way that we can make sure there is independent, regular assessment, post investment, of how the bank is performing without getting into too much of the micro area in the report. I agree that, if that was too much part of the reporting structure, it could be onerous and reduce transparency.
Lord Vaux of Harrowden (CB)
My Lords, like I think almost every noble Lord who spoke at Second Reading, I agree that the reporting schedule set out in the Bill is completely unacceptable. In fact, I think it was possibly the only point in the entire Bill on which there was absolute unanimity. Ten years before the first report and then only every seven years thereafter is just too long. I wonder if even the Minister was surprised at the times when she saw the Bill.
I have added my name to Amendment 59, in the name of the noble Baroness, Lady Noakes, which suggests four years before the first report. I understand her point about having three years plus time to get that first report out, and it therefore makes sense that the first one has a bit longer. Others have suggested three years. I cannot too excited about it, to be honest. Ten years and seven years are too long. We need to bring that down.
As I and the noble Baroness mentioned earlier, it is quite inappropriate that the Treasury should be marking its own homework in this respect, so I support her amendments ensuring that the effectiveness reporting is independent.
Baroness Kramer (LD)
My Lords, I will speak very briefly. A couple of the amendments are in my name and I have signed others. I absolutely join the noble Baroness, Lady Noakes, and the noble Lord, Lord Vaux, on whether it is three years or four years. It seems to me that the proposal of the noble Baroness is rather sensible, as three years will have gone by, as she pointed out, before the first report. What are completely unacceptable are the 10-year and seven-year benchmarks. The Minister has heard the arguments over and over. I know she will say that there are many other ways in which we will know what is going on. We will partially, but not in a coherent or holistic way. That is why it is so important that these kinds of holistic reviews should be done properly, appropriately and in a timely fashion.
I stress my support for the points made by the noble Baroness, Lady Noakes, and my noble friend Lord Teverson on their somewhat different proposals for an independent reviewer. Otherwise, the Treasury will be marking its own homework. We have established throughout every part of today’s debate that it can change the objectives through secondary legislation and it sets the strategic priorities. It can provide detailed direction and appoints every member of the board. It is very hard to see any way in which the Treasury’s hand will not have imprinted every aspect of what this bank does.
Lord Tunnicliffe (Lab)
My Lords, yet again, I have to concede that I agree with the noble Baroness, Lady Noakes, on Amendments 54 and 58. I will not labour that further.
The bank could, in time, play a significant role in our fight against climate change, and we very much hope that it will. Given the urgency of the green transition and the Government’s stated commitment to levelling up, carrying out the first review of the bank after 10 years makes no sense. I was pleased to sign Amendment 60, which would bring this forward to three years. However, let me be clear that, like a number of other noble Lords, I am not wedded to any particular number. The noble Baroness, Lady Noakes, may win the day with four years, or we may settle for something else entirely. What has been clear from this short debate is that the current decade is simply not acceptable. There are also some differences of opinion on frequency. Once again, I do not think it matters exactly where it ends up, if, in the end, the result is that we see these documents more frequently than currently envisaged.
Lord Teverson (LD)
Could I just ask the Minister one thing before she replies? Ten years is just ridiculous, so is this the one thing where the Government will say, “Right, we’ve listened to the House and we’ll make it three years. Look, guys, we’ve done the deal”, and then the Bill goes down to the other end? Is that the plot?
Lord Tunnicliffe (Lab)
That is what my original notes envisaged, but I simply could not believe that they are that clever.
Baroness Penn (Con)
My Lords, I hope noble Lords will forgive me if I do not give the game away too far ahead of Report in terms of our approach to listening to all the points raised in Committee.
As we have heard, these amendments all relate to the review clause in the Bill. I understand entirely the aim behind the amendments of ensuring that the bank is appropriately scrutinised and in a timely way, but I can hope valiantly that I can reassure noble Lords both that there will not be a 10-year period before the bank is given scrutiny and by perhaps explaining to them why the 10-year period was selected.
As I have mentioned previously, we have committed in the bank’s policy design document to review the bank’s progress and financial performance by spring 2024 to ensure that it has sufficient capital to deliver its ambitions and, as we noted earlier, also on our regulatory approach to the bank. On top of this, we have a Cabinet Office-led review in 2024-25 on the effectiveness of arm’s-length bodies generally, and as part of this process we will conduct a review of the bank, which will be repeated in 2027-28 and 2030-31.
Baroness Kramer (LD)
Just for clarification, will the Treasury review the bank in that 2024 piece of work? Will it be reviewing itself?
Baroness Penn (Con)
My notes say that it will be a Cabinet Office-led review, but as part of that process we—which I would take to mean the Treasury—will conduct the review. If that is incorrect, I will clarify that.
Taken together, this means that the bank will have been subject to four reviews by the time of our first statutory review. The review in statute is designed to encompass all the elements of the previous reviews and has been chosen to be 10 years after Royal Assent because it allows for a fuller analysis—
Baroness Penn (Con)
I will be happy to go away and check on that point. I think that the intention is that they would be, but I will double-check.
The period of 10 years has been chosen to allow for a fuller analysis of the infrastructure funding that the bank has undertaken and to see the real impact of its investment in the context of delivering against the missions set out in the levelling-up White Paper and the progress towards the Government’s net-zero target.
I will note one further point. As I confirmed at Second Reading to my noble friend Lady Noakes, UKIB will be subject to external audit by the National Audit Office, including on an annual basis as part of the statutory powers of the Comptroller and Auditor-General.
Amendment 63, in the name of the noble Lord, Lord Teverson, seeks to mirror the arrangements of the Green Investment Bank by having a company shadow the bank to ensure that it is meeting its objectives. He is clearly knowledgeable on this subject as he sits on the board of the Green Purposes Company. However, he will note that the Green Investment Bank did not need this function when it was part of government because there were already other routes of accountability, including directly to Parliament in relation to the bank’s use of public money.
This legislation sets out quite clearly the objectives of the bank so, if there is any deviation from that, the Government can compel it to change its course or there will be a challenge in the courts. Further to this, Ministers are accountable to Parliament on the performance of the bank, so I dare say the noble Lord would provide adequate challenge should he think that the bank was not performing against its objectives.
To tidy things up, my noble friend Lady Noakes asked a question on the bank appearing before Lords committees. There is no barrier to that. Indeed, the CEO and the chair of the bank were before the Economic Affairs Committee on 17 May as part of an energy supply session.
I hope that, in laying out those reasonings from the Government at this stage, my noble friend will feel able to withdraw her amendment and that other noble Lords will not move theirs when they are reached.
Baroness Noakes (Con)
My Lords, I expect that my noble friend the Minister knows that she is batting on a rather sticky wicket. While she has valiantly sought to explain her reasonings, I think I can probably speak for the rest of the Committee when I say that we are not wholly convinced by them. I can see no particular point in detaining noble Lords in this Committee much longer other than to say that we have to record that clearly both the independence and the time period of the review are areas that we will need to return to on Report if we do not satisfactorily deal with them before we get to that stage. With that, I beg leave to withdraw the amendment.