Great British Energy Bill

Debate between Lord Cameron of Dillington and Baroness Noakes

Committee stage
Tuesday 3rd December 2024 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I support what both my noble friend Lord Offord of Garvel and the noble Lord, Lord Vaux, have said about the confusing overlap between what is now the National Fund Wealth and Great British Energy. I am one of those sad people who look at annual reports and accounts, and I was anxiously waiting for the UK Infrastructure Bank’s reports and accounts, which finally dropped last Monday. Through that, I discovered that it had legally changed its name to the National Wealth Fund two or three weeks ago, although no announcement seems to have been made about that at the time.

I agree that Amendment 1 is a very neat way of tucking Great British Energy into a more satisfactory set of governance and oversight arrangements, which we wrestled with when the UK Infrastructure Bank was set up. But my main reason for speaking today is in connection with Amendment 3 in the name of my noble friend Lord Offord of Garvel and Amendments 4, 6 and 7 in the name of the noble Lord, Lord Vaux.

I do not support these amendments, because I think the concept of minority stakes in government-controlled companies is a complete nonsense. Over the whole history of nationalised industries and publicly owned corporations and companies, there are relatively few examples of entities in which minorities held equity stakes. The exceptions are normally accidents of history—such as in the case of RBS/NatWest—rather than acts of conscious design.

I cannot think of a single good reason to encourage the Government to seek private capital in Great British Energy, as opposed to seeking to leverage private capital alongside public investment in projects that need public involvement to help to de-risk them. Equity is always more expensive than debt, and minority holdings in illiquid shares are even more expensive. The Government do not need to pay that premium. They can borrow money, to the extent that GBE needs it, by issuing government debt. That will be much cheaper than raising equity for GBE, even after the post-Budget bond yield increases.

Equity costs more to raise than debt because it carries more risk than debt. It is the first bit of the capital stack to be wiped out in liquidation—at least, that is what happens in the private sector. But does anybody believe that minority holders would be wiped out if the state decided to liquidate an insolvent Great British Energy? The Secretary of State has so many powers over Great British Energy that in practical terms the Government will find it very difficult, if not impossible, to escape underwriting all the liabilities of Great British Energy, and that includes its minority holdings. If the Government did try to wipe out the minority holdings in a liquidation, I predict a decade or more of shareholder litigation.

Having minority holdings can also engage a lot of unnecessary legal problems around protections for minorities that are built into our company law to prevent minorities being treated unfairly. It can raise issues about dividends, which are not normally part of the regime for state-owned enterprises since retained earnings, if there are any—and history tells us that there are not usually any—are generally kept within the public corporation. I am not a fan of state-owned activity, but we should accept it for what it is, which is taxpayer or debt-funded activity, and not try to mimic the real world where equity investors genuinely do take on risk.

[Lord Cameron of Dillington (CB)]

My Lords, I added my name to my noble friend Lord Vaux’s Amendments 4, 6 and 7. This was largely because when the Bill went through its stages in the other place, the Government made frequent references to the fact that an essential quality of Great British Energy was that it would be flexible, vibrant, resilient and fleet of foot. These are all good qualities to allow this new company to take advantage of opportunities in the marketplace, maybe even sudden ones when, say, an international investor is looking to throw its weight behind a tidal initiative or a new hydrogen production plant but is looking for a commitment from the UK Government in the form of some investment from GBE.

What happens in these circumstances if the Treasury reduces its annual funding for GBE in future or if GBE’s annual budget has already been spent and there is a danger of this vital project going overseas unless GBE invests? Will the opportunity just get missed or, as my thinking goes, should GBE be truly flexible, vibrant, resilient and fleet of foot and be able to go out into the financial marketplace and draw in sufficient funds to promote and thus enable this one-off opportunity?

I recognise that, to be effective, GBE must be part of government and yet not part of government. That is why the figure of 75% government ownership is crucial; 24% of outside investment would not prevent the Government remaining in total control and, more importantly, being seen to be in total control, but it could also mean that the private sector could help contribute to the success of GBE.

Your Lordships may ask why the private sector cannot just invest in the proposed investment itself. The answer is that by investing in the parent company, GBE, the private sector would be hedging its bets by spreading its risk across the renewable sector generally rather than just putting its money into, say, a hydrogen project or whatever. Furthermore, allowing GBE to attract some outside investment would be a good way of taking some of the risk away from the Treasury.

There may of course be other ways of doing this, such as issuing class A shares with a different standing from ordinary shares, but I do not believe they would ever be as attractive as the solution in our Amendments 4, 6 and 7.

The noble Lord, Lord Vaux, and I are keen to see GBE succeed, but we think it needs the greater flexibility of being able to attract some investment from outside government.