Enterprise and Regulatory Reform Bill

Lord Skidelsky Excerpts

Monday 3rd December 2012 Grand Committee

The fundamental part of this amendment asks how we can increase this bank’s investment ability for it to be successful and get the sort of growth that the CBI says is available through the green sector. A key way in which to do that is by borrowing on markets. We cannot wait beyond 2015 to do that. Unless we have an immovable public expenditure constraint—although I would argue that there might be another way of balancing that in other areas, and we have talked about some alternatives—surely we can find a way to get this bank correctly off the balance sheet as our European competitors are doing. I beg to move.

[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.

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[Lord Oxburgh]

My Lords, I, too, support the amendment. I shall not detain the Committee by repeating the points that have been excellently made by previous speakers. It is simply worth pointing out that, because we are signatories to a variety of European constraints on emissions reduction and because we have our own Climate Change Act, inevitably there has to be massive investment in green infrastructure in this country over the coming decade. We managed to lose out almost completely, if you like, in the previous phase, when we saw significant investment in, for example, onshore wind in this country, where virtually all the high-end technology came from abroad. We really have to be ready to cope with this requirement for capital internally and in time.

I am sure that by the Minister’s bed he has a copy of the current, recently introduced Chinese five-year plan, in which he will remember that no less than a third of the objectives relate to energy management, energy efficiency, investment in renewables and low emissions technology. There will be a massive world market here, and we can drag our feet again or we can participate in it. I see this amendment, taking on board entirely the point made by the noble Baroness, Lady Ford, as simply facilitating and making sure that we are there in time. Brussels has many virtues, but speedy reaction is not one of them. Getting on with this now will not only begin to manage that problem but will indicate again to the capital markets that the Government are serious.

[Lord Skidelsky]

Perhaps I could reply to the noble Baroness, Lady Ford. Her point is absolutely right, but it is irrelevant. The purpose of the amendment is to allow the bank to borrow; it does not guarantee that the bank will be able to raise the money.

[Lord Bates]

Can I dissent from the amendment? I think that it goes against the whole point of the legislation. Indeed, it goes against the whole point of the Green Investment Bank, which is to stand in the gap of market failure within the capital markets in order to get projects up and running and off the ground. Where that is not possible, it provides a bridge or an intervention, but only so that private sector capital can come in. As an example of that, I mentioned earlier the first investment that had come in to Earthly Energy, the anaerobic digestion plant in Teesside. As I recall, the Green Investment Bank invested £8 million there. Immediately that attracted matched private sector investment of £8 million. The total value of the project is £100 million. That seems to be a classic example. To go from zero to £100 million, clearly they would not have been able to get the project off the ground, but that measured intervention of £8 million unlocked a project worth £100 million, which is exactly what the amendment proposed by the noble Lord, Lord Teverson, is trying to achieve. I am simply saying that it is already happening under the present regime.

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[Lord Marland]

I do not think that it is a question of being supine. This is a government decision that has been made by the coalition of which the noble Lord is a member. There are many things that people do not understand. The noble Lord, Lord Skidelsky, does not understand or agree with some of the policies of this Government, but that is government policy.

[Lord Skidelsky]

I understand it but do not agree with it.

[Lord Marland]

I apologise. It is good that my noble friend understands it, because then he will not disagree with it. That is the way that the Government have set out their stall. We have inherited a very substantial national debt, but not in the same way in which the Germans have inherited the same problems. We have inherited a grave financial situation and, quite rightly, the Treasury decided that it will not enhance that by further borrowing against our balance sheet. The evidence produced by the noble Lord, Lord Smith of Kelvin, would suggest that he does not feel under any pressure in terms of funds at this point. Of course, we must set out our stall, as I have said. We intend to seek European Commission approval for borrowing and we intend to follow that process as soon as possible. I think that is a very good sign and I am delighted that there is some agreement in the room that we are doing that. I invite the noble Lord to withdraw his amendment.