UK Infrastructure Bank Bill [HL]

Baroness Kramer Excerpts

2nd reading
Tuesday 24th May 2022 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I was not involved with the creation of the Green Investment Bank, but I did have to sit around a table in 2015 to be lectured by Sajid Javid on why the creation of such a bank was, in the view of the Conservatives, a classic Liberal Democrat mistake. Not only did he sell off the Green Investment Bank but he was very clear that he also intended to sell off the British Business Bank and close down the industrial catalysts. It is interesting to see a Conservative Government today taking credit for a vision for which they had only withering comments not so long ago.

I recognise that the noble Baroness, Lady Noakes, has always been consistent. She did not approve of creating the Green Investment Bank or of a public bank as a mechanism for dealing with market failure. She may be a little disturbed to be joined by the noble Lord, Lord Davies of Brixton, and potentially by the noble Baroness, Lady Bennett of Manor Castle; I suspect a quick stiff drink may be necessary to cope with that new knowledge. However, we are where we are. My party will do everything that it can to make the UK Infrastructure Bank as effective as possible. I agree with the noble Lord, Lord Vaux, that there genuinely is market failure here, and that there is a role to play.

There are a number of areas which I want to explore. The first is not within the legislation but speaks to the issue of how effective this bank can be. It is very small compared with the challenges that we face in climate change and levelling up. In many ways, this replaces not only the Green Investment Bank but the European Investment Bank, and along with the British Business Bank it also has to replace the European Investment Fund. The EIB typically provided more than £5 billion per year of financing for infrastructure in the UK. I am grateful to the noble Lord, Lord Wigley, for testifying that it was effective at delivering infrastructure projects in Wales. The noble Lord, Lord Vaux, referred to its role in offshore wind. I saw quite a number of projects in which investors would co-invest with the EIB. It gave them confidence to go to much longer terms and to do much more subordinated lending, risks that they would not have taken without the engagement of the EIB. The EIF was also putting some half a billion pounds per year into UK equity and VC funds. This new bank has only £22 billion of financial capacity over the next five years, of which £10 billion is guarantees—a far less flexible and useful instrument.

The Government will say that the EIB had a much wider remit than the new bank, but let me say that the need for financing infrastructure development to tackle climate change and levelling up has soared in the time since we left the EU. The markets have failed to deliver on floating offshore wind, EV charging infrastructure, battery storage technology, marine and tidal energy, broadband rollout, carbon storage and capture, insulation —the list goes on. By the Government’s own figures, the OBR has said that we need something in the region of £1.4 trillion of investment by 2050 to deliver the climate change objective, and there is general consensus in the Government that we need something like £50 billion a year in additional private financing investment to achieve just the 2030 target for climate change.

We do not have the figures that we need on the huge additional demands of levelling up, especially for transport improvements across the regions. I thank the noble Lord, Lord Ravensdale, for making the point that we must emphasise the regions as we deal with this Bill. Major transport projects have recently been cancelled, including, ironically, the Leeds leg of HS2. That is now gone, for lack of financing. We have seen many rail electrification schemes cancelled. The noble Lord, Lord Wigley, will be very aware that electrification between Cardiff and Swansea was cancelled, again for reasons of finance.

Let us also talk about the remit. Housing, schools and hospitals are deliberately out of scope, according to the Explanatory Notes. Perhaps the Minister will tell me how the Government intend to achieve regional growth without major financing for housing, schools and hospitals. As so many people have said today, there is no mention of investment in nature, despite the high benefits of investment in agricultural improvement, woodlands and peatlands. We heard a series of helpful speeches on that. My noble friend Lord Teverson talked about the importance of biodiversity being given equal priority to climate change, the two interlinked, strengthened by comments from the noble Lords, Lord Macdonald, Lord Ravensdale and Lord Bourne, who referenced the Dasgupta report, and the noble Baronesses, Lady Young, Lady Hayman and Lady Boycott. I probably have not named everyone in that list.

There is also no mention in the Bill of energy efficiency. I thank the Government for the opportunity yesterday to ask questions of the new bank’s CEO, John Flint. He took the view that the retrofit of buildings, including home insulation, to meet climate change objectives could be included in the bank’s remit, provided the right investment vehicles could be found. I was rather dismayed that he did not seem to have much idea of what on earth those vehicles could be. We must have clarity on that issue and an emphasis on its importance. I hope that the Government will confirm that approach and inject some urgency into the new bank’s activity in this area. We know that to achieve net zero, we must deal with the demand side, including home insulation. This is even more vital given the soaring costs of energy and the cost-of-living crisis. I note that the European Investment Bank has identified energy efficiency as a sector that finds private finance particularly hard to access and is targeting support on the sector.

Of course, resources mean far more than money. We have a dire shortage of skilled workforce in the construction industry and in many aspects of relevant engineering. More than half the medium and small-sized companies in building report that they are struggling to find workers. Construction output has been declining as a consequence. Even R&D in this area is starved.

We no longer have a meaningful industrial strategy. The national infrastructure plan is not statutory and is frequently ignored by the Treasury. Even the Cycling and Walking Investment Strategy is statutory. It is unacceptable that the overall national infrastructure plan is not, particularly in the context of its need to work with the bank. The National Infrastructure Commission and the Construction Leadership Council are both pretty toothless. That must be dealt with. None is referenced in the Bill, although they would seem highly relevant. In other words, we have neither a functional strategy nor a credible delivery mechanism.

It is quite instructive to compare the legislation that created the Green Investment Bank with this legislation to create the infrastructure bank. We have moved from legislation that protected its purpose through use of primary legislation to a Bill riddled with Henry VIII clauses. There was even a clause in the GIB legislation to ensure its operational independence—it was in the Bill. The noble Baroness, Lady Noakes, cut to the chase when she said that this bank is, essentially, the plaything of the Treasury. The Government can by SI change the bank’s activities or the meaning of “infrastructure”—that is extraordinary. The Treasury, not Parliament, sets its priorities. Many noble Lords, including my noble friend Lord Teverson, the noble Lords, Lord Bourne and Lord Vaux, and the noble and learned Lord, Lord Thomas, focused on the Treasury’s ability to provide specific or general directions to the bank on how it is to deliver its objectives and then enforce them by injunction.

If the directors are not Treasury placemen before they are appointed, they become so by law as soon as they are appointed. Claims that this bank has operational independence seem completely inconsistent with the powers that the Treasury is given in the Bill.

Let me close with this. As so many here today have said, the infrastructure bank must be successful in crowding in private financing—and doing it by taking risk that the private sector finds unacceptable, so that it sits beneath that private sector financing. It hopes to mobilise something like £18 billion of private money in its first five years. I have already talked about that being inadequate but my question is: can it really take risks when it has only £4.5 billion in capital and a requirement to generate a commercial rate of return? Certainly in the short term—the first five years—it seems that those two parameters will make it very difficult for it to do something innovative that makes a significant difference.

However, Parliament and the public should be able to assess and react to that progress, or the lack of it. The idea that we will not even see the bank’s strategy until late June, after Committee stage, strikes me as very frustrating. We do not know what criteria it will use, how it will ensure additionality or how it will remedy market failure. It is, as so many have said today, including the noble Lords, Lord Sarfraz and Lord Vaux —speaker after speaker—completely unacceptable that the Treasury need not report to Parliament on the effectiveness or impact of the Bank for 10 years, and after that only every seven years. Frankly, that is disrespectful to Parliament.

We need a significant UK Infrastructure Bank but this Bill will need a great deal of amendment. As I listen to the House today, I suspect it will receive a great deal of amendment.