Enterprise Bill [HL]

Lord Barker of Battle Excerpts

Monday 30th November 2015 Lords Chamber

[Lord Smith of Kelvin (CB)]

My Lords, before I make my remarks, I must declare a pecuniary interest in the Green Investment Bank, as set out in the register of interests. I am its chair, appointed by the then Business Secretary on its creation in 2012, and subsequently reappointed earlier this year by the current Business Secretary. Despite that interest, I hope that my position both as chair and as a Cross-Bencher without party affiliation will offer the House an opportunity to hear directly about the bank’s current position and its future ambitions.

I have spoken to many noble Lords across the House over the past few weeks and have been very grateful for the time that they have given me. I think we can all agree that the Government’s amendments before us today are unfortunate but they are none the less necessary. In my discussions with noble Lords, I have been struck by the consensus that exists across the Chamber. I have been heartened by the support for the GIB’s mission and our progress over the past three years. I have also been pleased to see broad support for the idea of introducing private capital to the GIB. This consensus is important to us and we do not take it for granted.

Noble Lords have rightly sought assurances that the GIB’s special green mission and values will be protected under new ownership. I share those concerns, as does every member of the board of the bank, and as I believe the Government do. As the Minister explained, the Government are restricted in what they can do to offer cast-iron guarantees because of the guidance from the ONS regarding the classification of the GIB. I think we all share a frustration with this advice.

While the Government are in a difficult position, I am heartened by the constructive approach that they are taking. It is right that we should seek the fullest measures available to secure the GIB’s green approach and I believe that is what the Government have done and will continue to do. It is important that these discussions continue and that the Government take this opportunity to secure all measures to protect the GIB’s green mission. However, that has to happen within the parameters of declassifying the GIB.

I am confident about securing the GIB’s green mission. Let me set out to your Lordships the basis of that confidence. It is based on the logic that investors will be buying into the GIB precisely because they want it to be green, not in spite of it being green. The GIB is a global leader in green investment; investors will be buying, and most likely paying a premium, for that expertise. However, noble Lords and others have made the point that commercial logic is not in itself enough and I believe it is right that we do not rely on that logic alone. We must seek assurances and specific measures to protect the GIB’s green approach. I am confident that the measures which the Government have set out, and others that they continue to consider, will deliver the maximum possible protections.

I conclude, though, with a word of caution over unintended consequences. The biggest risk to the GIB’s green mission would be a failure to secure the capital that it needs to continue investing and growing. I have been told that the GIB has secured additional funding from the Government, as we have just heard, through the recent spending review. That commitment, however, is premised on a part sale of the GIB so it is vital that we are able to start raising capital from new investors. To do that, the Government must be able to proceed with the legislation which they believe will achieve their aim of declassifying the GIB. If we cannot move forward with certainty without delay, I fear that the tremendous success achieved by the GIB so far will be placed under threat. I thank the Minister for taking my intervention.

[Lord Barker of Battle (Con)]

My Lords, I support this amendment but I do so reluctantly and having thought about it a great deal. Before I go any further, I should draw the attention of the House to my declaration in the register of interests regarding private equity and clean energy, but that is not the reason I wished to speak.

I particularly wanted to speak because as a Minister at the Department of Energy and Climate Change, and more importantly perhaps as a shadow Minister for climate change in 2009, I was intimately involved in the creation of the policy that led to the creation of the Green Investment Bank itself and setting up, in opposition, the Green Investment Bank commission, which did an excellent job. I am delighted and privileged to follow the noble Lord, Lord Smith, who has been an outstanding chair of that institution, created in the previous Government as a result of that policy. I think that the Minister said that the Green Investment Bank was one of the key successes of the term of the coalition Government. I absolutely agree. Perhaps I am slightly partial but I think it will be one of the important, enduring legacies of that term of government.

I therefore looked at this amendment very carefully and was rather puzzled why, having made such a success of this institution, there should be what seems like indecent haste in trying to take it off the public books. But the more I looked into it the more persuaded I was that it was unfortunate but necessary, in the phrase that the noble Lord, Lord Smith, used. In so doing, however, and particularly as we are debating this on the first day of the climate change conference in Paris, COP 21, it is very important that a clear message be sent out: this is not a retreat from the green agenda or a lowering of ambition here in the UK on our commitment to meeting our stringent and ambitious carbon reduction targets, which are implicit and explicit in the Climate Change Act. Far from it—what we are actually doing is recognising that, perhaps unfortunately due to these complex accounting rules, we are being pragmatic and sensible and following a route that will allow this fast-growing institution to continue on its mission to mobilise capital and set it to work in the UK low-carbon sector.

By doing that, we are allowing the GIB not only to raise new equity from new investors—up to £2 billion in the first instance, I believe—but to have access to far greater borrowing. This was a key demand of other political parties and the major green NGOs at the time that the GIB was created, and indeed in the run-up to the general election. A constant refrain from those that had a particular interest and concern with mobilising capital into the green economy has been that the GIB should be given powers to borrow. This legislation will, at last, allow the GIB to spread its wings even further.

Other benefits of the legislation will be to remove state aid constraints, to speed up the GIB’s ability to make quick and prompt investment decisions and to allow it to invest in new sectors. One of the complaints I heard about the GIB was that it was not able to invest in things like low-carbon transport or storage, the latter of which is particularly important now. This will help widen the GIB’s remit. There is protection in the fact that the Government will retain a minority, but nevertheless important, stake. I would be very concerned if there was a proposal to sell that stake completely. That minority share may not enable the Government to dictate the articles of association or to prevent the bank changing its remit, but it sends a very important signal, particularly to foreign investors, that Her Majesty’s Government have skin in the game in the UK’s low-carbon economy.

The most important element of the whole mission of the GIB when we were considering its creation was to demonstrate, at a time when we faced the prospect of almost unprecedented investment in these novel low-carbon technologies, such as offshore wind, energy from waste and other key elements of a successful low-carbon economy, that we would not leave it to the market alone but would harness the power, ingenuity and capital reserves of the market, with government nevertheless as a partner. I would certainly be very concerned if there were to be a complete selling down to 0% of the government stake. However, that is not what this legislation proposes, nor is it what the Minister has proposed from the Dispatch Box. I take a great deal of comfort from the thoughtful way in which the Minister has explained government strategy here. On balance, having come to these amendments rather sceptical about their intention but having looked carefully at them, I am very pleased to be able to support my noble friend.

[Lord Teverson (LD)]

My Lords, I will speak to Amendment 70ZA, which is in my name and in this group. Following consideration in Grand Committee, I thank the Minister for all the co-operation that she has given us—as, I am sure, will other Members around the House—and for presenting a number of amendments on reporting, which we welcome completely. However, most of all, although this has been a mixed experience, I thank her for putting me in touch with the Treasury and the Office for National Statistics. I can now start to understand some of the Minister’s frustrations in trying to resolve some of the issues. I say all of that most genuinely.

But I also say that we have good news—or, as it is the first day of advent, perhaps I should say “glad tidings”—for the Minister, for the noble Lord, Lord Smith of Kelvin, and, I think, for the noble Lord, Lord Barker, whom I very much welcome to the House. In the Grand Committee debate on 4 November, as she has today, the Minister rightly threw a challenge back at us. She said that the heart of the problem was that, if we could keep the legislation on the objectives of the bank without prejudicing the bank’s status, we would do so. She rightly threw back a challenge to us to find a way to move forward.

--- Later in debate ---

[Lord Mendelsohn]

My Lords, I thank the Minister for coming forward with these amendments. I was very grateful that she withdrew the very brief initial amendment in Grand Committee after a very useful debate and has come back with a much more considered position. We support the amendments that she has proposed. However, we on this side have added our name to the amendment from the noble Lord, Lord Teverson, which carries on some of the discussions that we have had ever since this issue was mooted about the right way forward. We had a very useful and wide-ranging debate in Committee on issues relating to the conduct of the sale, along with other matters.

It is very important to note that we are where we are. There is no additional money coming in from the Government with the sort of force needed to keep this moving. The decision has been made to privatise the bank, so the question is what the best way is in which we can go forward with all the Government’s issues regarding value for money and other sorts of things while, crucially, keeping to the mission that we had. It was that desire to ensure that we had something that kept the mission going and allowed for the greatest flexibility that was the progenitor of this amendment from the noble Lord, Lord Teverson, with which we strongly agree.

One has to be realistic about the Green Investment Bank. It is indeed an outstanding success and is ably chaired by the noble Lord, Lord Smith of Kelvin, but it is an unusual asset to sell. The noble Lord, Lord Leigh, is one of London’s great corporate financiers; I declare an interest as a relative twig compared to the tree that is the noble Lord. This is not a business that makes money. It made £100,000 last time and has a run rate of about £30 million, which is paid for by the department. Now that it has a fund, its run rate is probably about £20 million. It is a portfolio sale so one has to be realistic about what assets are being sold and who the likely purchaser is, as opposed to just investors investing in the funds.

We have to ensure a smooth transition to the private sector, which will allow the Green Investment Bank to continue its task. In this, the most crucial element is how we maintain its mission and free it into the private sector, released from some of the state aid constraints and the ONS restrictions. Those two things should not get confused. They are entirely separate; you can lose one and keep the other, and vice versa. The structure that the noble Lord, Lord Teverson, has come up with is outstanding and he has put a lot of work into it. My team thinks that it is immaculate, and those people they have spoken to who have done jobs like this in a private sector context think that it works immaculately, so it has our absolute support.

In this instance, the Government can achieve the Green Investment Bank’s original policy objectives without having to put any further money into it, although it was welcome to hear that the Government will put in some additional money on the basis that it will be privatised. It is also true that the Government have not yet decided what level of shareholding they want or how long they want to hold it. They have sent bankers into the market to see what potential purchasers and acquirers want and will design the transaction structure accordingly. This is what the Government mean when they say that they cannot prejudice the bank’s status and why they cannot establish any meaningful commitments or undertakings. In our view and in most people’s view, whether the Government keep a minority stake is irrelevant as regards whether they have any powers. Minority stakes have very little powers; indeed, the stake the Government will hold is no more than the protections that the UK in general affords, which I happen to think are the best minority protections in the world. But it has no special duties.

[Lord Barker of Battle]

On that point of whether the Government should retain a stake, it is important, for example, in management buyouts, where the management may only have a small stake but nevertheless is shown to have a financial interest in the ongoing success of the institution. A lot of people—particularly foreign investors coming into the UK—would see that point; a small, although not controlling, stake in the GIB going forward would be a clear signal that the financial interests of the Government were aligned with those of other investors.

[Lord Mendelsohn]

I thank the noble Lord for that unusual intervention. He is absolutely right—it is important that management is retained and incentivised, and that will happen. The bank may or may not make an appeal for anyone to come in as an investor, and as the bank goes forward it will be fairly irrelevant. There will have to be some provision as to how you will acquire the full amount and what price you pay for it. Given that it is a portfolio, it has to be established how much the Government want back from the money they have supplied, and that will be calculated. The merits of whether you have such a stake seem fairly minimal, if not irrelevant.

Apart from all that, I feel strongly, in keeping with the interventions we have had, that we should try to cherish this fantastic instrument we have created and find a way to maintain its mission. The noble Lord, Lord Teverson, has done that and has the support of a number of people who have examined his amendment in detail, and here we have a win-win. It gives greenness a degree of certainty; it does not affect the sale or the price; there is no risk that the bank will fall on the Government’s balance sheet; and the Government have complete flexibility as to what they sell, be it 51%, 76% or even 100%—they can cash in on the rest if they so choose at another time, or can do other things.

The mission is worth protecting and the organisation is worth backing. In this amendment, both have been achieved. It broadens the mission of the Green Investment Bank to areas currently excluded by state aid rules and avoids some of the problems of trying to be, in a sense, half pregnant. Therefore, rather than a recipe for conflict, controversy and confrontation, it provides clarity and greater flexibility to deliver a sale. The amendment is a perfect example of something which achieves all the objectives everyone is looking for, and we strongly support it.