Enterprise and Regulatory Reform Bill

Debate between Baroness Ford and Lord Skidelsky

Monday 3rd December 2012 Grand Committee

[Lord Skidelsky]

I support the amendment proposed by the noble Lord, Lord Teverson. I would have put my name down on it if I had had the upfront certainty that I would be able to be here. The noble Lord has hit the nail on the head; the bank will not be allowed to borrow until the national debt is a declining proportion of national income. The Government’s debt reduction target is already three years off, so on current plans the earliest date at which the bank would be allowed to borrow would be not 2015 but 2018—and it may not be 2018 either. We are faced with the prospect of a bank that will not be allowed to borrow in any foreseeable future, and that borrowing restriction will undermine the bank’s ability to support the targets for reducing greenhouse emissions as stated in the Climate Change Act 2008.

We are setting up a public bank uniquely without the ability to borrow, and the noble Lord, Lord Teverson, is right in saying that that is not the model for KfW. According to the Deputy Prime Minister, it should be able to attract about £15 billion of co-investment. In other words, the bank would pay 20% of a project and the co-investors stake the remainder without the bank itself having to borrow. That would be a way round the borrowing restriction.

If the Green Investment Bank were allowed to borrow now at a conservative leverage, it would be able to leverage its £3 billion up to £18 billion. If the Deputy Prime Minister is right, that £18 billion would in turn be able to attract up to £90 billion in private sector co-investment, so these are the possibilities that would be opened up by easing that borrowing requirement. There is a huge difference between an investment of £18 billion over five years and an investment of £90 billion.

The problem this amendment is designed to address is that the debt may not fall for a long time, so the Green Investment Bank may not be allowed to borrow. It is not just a question of the problems of start-up, to which the noble Lord, Lord Teverson, rightly alluded; the problem is that the Government’s policy is not well designed to reduce the national debt. I have argued this point for a number of years because a policy of deficit reduction is not the same as a policy of debt reduction.

To conclude, the amendment would enable the Green Investment Bank to borrow by 2015, irrespective of what is happening to the national debt, and potentially earlier if there were a need to boost growth. This means starting the EU state approval process as soon as possible. For that reason I give my enthusiastic support to the approach of the noble Lord, Lord Teverson.

[Baroness Ford]

This is a really interesting amendment, which also touches on the previous amendment. I am not sure that I support the amendment of the noble Lord, Lord Teverson, but not because I do not support its intent. I think it is hugely important that the Green Investment Bank, if it is to have any attraction, is better capitalised than the Government are proposing. However, allowing the bank to borrow is one thing, but you have to ask, who would lend to it?

Before I came into your Lordships’ House, I spent many years in the capital markets. The capital markets will not lend to this bank unless one of two things happens: either it is guaranteed by government—plainly, that is behind the Government saying that they have to wait for a certain period—or it has a strong balance sheet of its own. No one will lend to it just on the basis of thinking that it is a great idea in the same way that no one will buy a bond unless it is backed by a cash flow. That is what the bond market buys; it buys cash flows. It does not invest in speculative infrastructure, however worthy. Therefore, it is really important that we do not get carried away by just wishing that things were different, and that we push the Government to come forward with practical propositions about increasing the funding available to this bank. Until there is a track record there and until there are infrastructure projects that are capable of securing a rating from the rating agencies, there will be no bond issuance, and until it has a very strong balance sheet or the Government give a guarantee to underpin that balance sheet, there will be no lending from the capital markets either. I hate to pour cold water on this but we have to connect with reality here.