Enterprise and Regulatory Reform Bill

Debate between Baroness Ford and Lord Teverson

Monday 3rd December 2012 Grand Committee

[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.

[Lord Teverson]

I thank the noble Baroness very much for that contribution. I should point out that the borrowings of KfW, which is owned by the German länder and the federal Government, are guaranteed by that Government and still manage to escape public sector classification. I thank the noble Baroness very much for bringing up that point, which I forgot to mention.

[Baroness Ford]

KfW is covered by the covered bond regime, which we do not have in the United Kingdom.

--- Later in debate ---

[Lord Teverson]

Perhaps I may ask the noble Baroness about one matter. One of the things that I understand investment banks often do is raise bonds against projects. It is not a question of the recourse of liabilities to them; they raise bonds on the asset value of the project. There are ways of doing it in that way.

[Baroness Ford]

There are ways of doing it. I do not wish to detain the Committee and perhaps I should have a cup of coffee with the noble Lord to explain; I mean that in a helpful way. Bonds are raised against the cash flows from projects. They are raised against an infrastructure project only if the Government underpin it—hence, PFI.