UK Infrastructure Bank Bill [HL]

Baroness Kramer Excerpts

Committee stage & Lords Hansard - Part 2
Tuesday 14th June 2022 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, this amendment goes to the core of what the UK Infrastructure Bank should be about, and I am in complete agreement with the noble Baroness, Lady Noakes, about the importance of the crowding out or crowding in of private finance, which was raised by many noble Lords at Second Reading.

I am stepping in to speak on this group because it impinges on the next, in which I have an amendment. The NIC says that the Bank should act as an “anchor investor” and should

“catalyse innovation, support due diligence functions and enable projects of public significance that may not otherwise take off”.

Most of us would agree that if the bank simply competes with or replaces available private finance, then it is a waste of time, damaging, distorts the markets and wastes taxpayers’ money. As the noble Baroness said, it must aim to solve market failures where otherwise good projects cannot be easily financed by the private sector. The Government obviously agree, but have not put this fundamental point anywhere in the Bill.

I support the principle behind the amendment proposed by the noble Baroness, Lady Noakes, but I am not sure that the wording fully captures the crowding-in concept. That may be because the framework document does not do it terribly well either. The amendment and the framework document refer to the bank undertaking its activities only where there is an undersupply of private sector financing. Crowding in happens where private financing is available but the private sector is reluctant to invest, perhaps because of a particular risk. In that situation, we would want the bank to be able to invest, precisely to facilitate the investment of the private sector—to remove the blockage preventing the private sector involvement.

As I said, in the next group, we will come to my Amendment 14, which tries to solve the same problem in a slightly different way by putting the operating principles, which expressly highlight the need for the bank to aim to crowd in private finance, on a statutory basis, but that may not be robust enough for some. The noble Lord, Lord Holmes of Richmond, has proposed Amendment 65, which is also aimed at the same problem, but with only a one-off report at the outset rather than an ongoing obligation, so I think that does not go far enough.

We have different ways to try to achieve the end of ensuring that the bank fulfils its primary purpose of crowding in private sector finance and does not fall into the trap of crowding it out. I am agnostic as to how we achieve it, as long as we get that requirement into the Bill—and that we measure it, which we will come to in a later group. Does the Minister agree that this is a fundamental element and, if so, why is it not in the Bill? If she does not like our wording, could she suggest a different way to achieve it? Would she be happy to meet us to talk it through and try to work out how best to get it in?

[Baroness Kramer (LD)]

My Lords, I want briefly to join this conversation because, like the noble Baroness, Lady Noakes, and the noble Lord, Lord Vaux, I believe strongly that the purpose of the bank is additionality. It is not to substitute for financing that is available out there, or even to provide it at a freckle below what might otherwise be the market price—although I note that the UK investment bank has to make a commercial return anyway. I think we can help towards that by strengthening the objectives that we discussed earlier, so that it is clear that they focus on those areas which we recognise today are crucial but which are finding it very difficult to access finance. That would be a step forward. I also very much agree with the noble Baroness and the noble Lord that additionality needs, in one way or another, to be in the Bill.

I have one minor caveat, which is that I think it is tricky to craft the language, but that does not mean it is impossible. The reason I say that is that I notice that in the noble Baroness’s amendment, she wants to ensure that the bank carries out its activities only if there is an undersupply. In one of the financings I was deeply involved with, which was one of the very early mobile phone financings in Eastern Europe, we tried to bring in private financing, but until we managed to lock in a commitment from the European Bank for Reconstruction and Development and some KfW money, the private sector was unwilling. Once that kitemark was there, that reassurance that entities which they felt had understanding of both the sector and the potential risk were engaged, private sector money came in. Some of it came in pari passu with the EBRD and KfW. If a person were to look backwards at that transaction, they might say, “Well, wait a minute, private finance was willing to take exactly the same risks that EBRD and KfW were, so, essentially, those two organisations were crowding out private finance”, but the reality was that without their presence, the private money would not come in. So we need to be a little careful about how we frame this, but the underlying principle is crucial.

[Lord Tunnicliffe (Lab)]

My Lords, I must admit that I do not have a view on this, because it seems to me that if this bank is to be used only when the risk is such that the private sector is not willing to take it, it suddenly involves a definition of the money that the bank will be using and the extent to which it is de facto underwritten by the state. We know that in the past, when Governments have sought to disguise money provided or underwritten by the state, most notably in Network Rail, when a body came along—I think it was Eurostat—and said, “No, I’m sorry, this is a public loan”, the whole basis of that business had to change. I await clarification and hope it meets the test of being capable of being understood by a bear of little brain.

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It is important to give UKIB the ability to set out its own ways of measuring additionality through its KPIs and its strategic plan. In this case, it is more appropriate to rely on a range of means to measure something that can be more imprecise, even though we absolutely agree on its importance. In the upcoming strategic plan, which we understand will come out ahead of Report, we will see more of the bank’s emphasis on additionality and the importance that it places on it, and its intention to draw on the best evidence and methods to test additionality.

[Baroness Kramer (LD)]

I have a quick question, the answer to which would be helpful. Unfortunately, we have not seen the strategic plan, which the Minister says will appear before Report. Is she suggesting that if we look at those definitions and they do not meet the standards of additionality that we think appropriate, we will be able to change them, or are we merely taking note?

[Baroness Penn (Con)]

I am not quite saying that. The Government think that, in this instance, the bank would be well placed to develop and set out its thinking on this, given that, while it is important, there is not necessarily a settled way to measure these things, although there are of course examples of best practice. I am happy to meet my noble friend Lady Noakes and all noble Lords who have an interest in this. I am not predicting that we will solve the problem, but I certainly have no objection to further, more detailed discussion about where we are on the issue. I hope that my noble friend can withdraw her amendment.

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[Baroness Kramer (LD)]

My Lords, in his Amendment 14 and the related amendments, which I was pleased to sign, the noble Lord, Lord Vaux, has put operating principles into the Bill, but not operating independence. I understand why, because operating independence is so fundamental to the bank and its integrity, character, nature and how it functions that it falls into a different category from other operating principles, which might change from time to time. If I were told that the operational independence of the bank was a moveable feast in the way that other principles might be, I would be fundamentally shocked. For me, it would undermine the existence and integrity of the bank. I support the amendment that the noble Lord, Lord Vaux, has put in this group because it gives more significance to the operating principles that matter, but I would like in a later group to deal separately with operating independence, which is far more fundamental.

I am not going to spend very long talking about this. Like others, I am persuaded that we need to take some major sections of the framework document and put them in the Bill. I agree with the noble Baroness, Lady Noakes. This is the kind of abuse that we have seen happening with statutory instruments, which used to be really narrow and dealt with regulation and have now begun to encroach widely on policy. In the same way, we have a framework document which ought to be a memorandum of understanding. It is almost a working day-to-day document that exists between two parties so that they do not constantly have to get on the phone to each other to work out what the next step is. However, core characteristics of the bank have been moved into that framework document. I am afraid that I am a cynic and I assume that this is in large part so that it can be changed at will. Nobody has read this out, so I shall so that it is in Hansard. This framework document

“shall be reviewed by the Shareholder and the Company at least every three years and reviewed within six months of the formation of a new government.”

So there is a presumption of change.

“No variation of this Document shall be effective unless it is in writing and agreed by the parties.”


There is no mention of Parliament at all. There is not even a scrutiny mechanism. The document does not even have to be published. We are in the most extraordinary situation of the governance document, which the Minister refers to again and again as the principle underpinning of the key elements of the UK Infrastructure Bank, essentially being outside the purview of Parliament and apparently deliberately so. This is a fundamental problem we have going to have to address.

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[Lord Tunnicliffe (Lab)]

I am sorry; I have tried to be consensual in my responses. My understanding from Her Majesty’s Government—though I am beginning to be somewhat doubtful of this—is that, post Brexit, we were going to do things better than Europe did. I have constantly referred to well-paid, important, skilled jobs, wherever possible in my various amendments.

[Baroness Kramer (LD)]

I will come very quickly to the rescue. Because we are so often together on finance Bills, I can absolutely assure the House that the noble Lord, Lord Tunnicliffe, uses the phrase “well-paid jobs”, as well as “good jobs” and “quality jobs”, very frequently, even if the short-hand today has been just “jobs”.

[Viscount Younger of Leckie (Con)]

My Lords, perhaps I may be allowed to intervene with a response. I thank all noble Lords who have contributed to this short debate. The baton has been passed to me temporarily.

The amendments in this group broadly focus on the operational aspects of the bank and so clearly my remarks will seek to address those. I start with Amendments 14 and 29 in the name of the noble Lord, Lord Vaux. The approach of the Bill has been to add in what we think is necessary. We do not believe that setting out the details of the operating principles for the bank, which are set out clearly in the framework document, is required in legislation. I am very aware that this takes us back to a key theme of some of the debates today. I was extremely grateful for the views of my noble friend Lady Noakes—if I heard her correctly—supporting the view that we do not want to get into too much detail in this respect, for a very good reason.

Amendment 32, spoken to by the noble Lord, Lord Tunnicliffe, would ensure that the strategic steer includes a reference to the creation of jobs. I am pleased to inform him that, in the strategic steer issued in March, there were two references to job creation. I of course build upon the comments made by my noble friend Lady Penn in an earlier debate, and indeed the noble Lord, Lord Tunnicliffe, has raised the matter just now. I add to what has been said already two examples I would like to give from the strategic steer in respect of job creation.

First, the bank’s framework document explained this objective as supporting growth

“through better connectedness, opportunities for new jobs, and high levels of productivity.”

Secondly, the bank’s existing objectives are to help tackle climate change, as we know, particularly meeting the Government’s net-zero emissions target by 2050, and to support regional and local economic growth through better connectedness, opportunities for new jobs and higher levels of productivity. I think that these comments play reasonably well in answering the questions raised in an earlier debate, particularly by the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Ravensdale, who is not in his place, and link with the levelling-up agenda. The noble Lord, Lord Teverson, and the noble Baroness, Lady Kramer, are absolutely right that our aspiration, and the necessity, is the creation of high-quality jobs. That is essential as part of our levelling-up agenda.

Amendment 39 in the name of the noble Lord, Lord Teverson, seeks to tie any direction given by the Treasury to the National Infrastructure Commission reports. He raised the relationship with the NIC at Second Reading and earlier today, so I hope that I can set that out and reassure him. The bank is intended to complement the work of the NIC. To that extent, there is a definite joining up, as was referred to by the noble Lord and the noble Baroness, Lady Kramer. It is a complementary rather than a duplicative process, and an assessment of the UK’s long-term economic infrastructure needs. Central government will then decide on any policy response to the NIC’s recommendations, and UKIB will consider the case for providing financing to support projects within the economic infrastructure sectors that are within the remit of both the NIC and the bank.

The NIC provides recommendations to the Government which the Government then act on. It would not be appropriate to remove that part of the process. Additionally, the Government do not have to implement the NIC’s recommendations or reports, so we believe that it is not appropriate to put this in legislation.

Perhaps the noble Lords, Lord Teverson and Lord Vaux, are concerned about the Government directing the bank in a way that is not in line with its objective. That rather paraphrases some of the mood of the debate. That is not possible with the drafting of the Bill at the moment. The bank must comply with its objectives and the Government cannot direct the bank to act in a manner that falls outside its statutory objectives.

The noble and learned Lord, Lord Thomas, tabled the characteristically thought-provoking Amendment 52. I hope I can convince him that the clause as drafted is sufficient. Much policy thought has gone into setting up the bank and detailing its objectives—which reflect government policy—and governance provisions, including provisions to allow the Treasury and Parliament to review its performance.

In the unlikely event that the bank breached its duties and agreement could not be reached via more usual engagement, the Treasury would clearly be motivated to use its powers, including under Clause 8, to enforce those duties. If a scenario occurred where the bank was in breach and the Treasury did not enforce for some reason, Questions could be asked in the House or a judicial review could be brought against the bank or the Treasury regarding use of its powers, and, if successful, give rise to mandatory or prohibitory orders.

Finally, to help the noble and learned Lord, I see no reason for Clause 8 ever to come into use. The framework document goes into some detail in Chapter 5 on the usual process for engagement between the bank and the Government, and any issues would be resolved much before the need to injunct the bank.

I turn to Amendment 68 in the name of the noble Baroness, Lady Bennett. She again raised the importance of independence but also focused on oversight. The amendment would allow other departments that she mentioned to have oversight of the bank. I assure her that the infrastructure strategy very much represents the view of the Government collectively, and should the Treasury need to exercise any of its functions, it would not do so in isolation or in silo, to use the language we might know better.

With those explanations, I hope that the noble Lord, Lord Vaux, will see fit to withdraw his amendment.

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[Lord Davies of Brixton (Lab)]

My Lords, I hope the Committee will bear with me; I have taken an interest in the Bill. My interest is narrow: what bearing the Bill has on pension funds. Members of the Committee may not be surprised.

I have raised the issue on a couple of occasions: at the useful meeting we had with the noble Lord the Minister and the noble Baroness, and at Second Reading. On neither occasion did I receive a reply. My question is: how does this organisation fit with the declared intention, expressed by the Prime Minister and the Chancellor of the Exchequer, to see pension funds investing more in infrastructure? Obviously, infrastructure is a good thing, and there is a tendency to feel that the Bill is about infrastructure so it must be a good thing—but in truth the Bill is an empty vessel. We do not know what is in it or where it is going. It is a structure whose purpose and objectives will be revealed in time.

How does this relate to pension funds and the Government’s apparent intention—we are still waiting for them to make clear what they are proposing—to coerce or cajole pension funds to invest in infrastructure? As I say, I raised this at the meeting with the Ministers and at Second Reading. On neither occasion was there any response from the Minister. It just so happens that the day after Second Reading, the chief executive officer of this bank stood up at a meeting of the Pensions and Lifetime Savings Association and expressed what an important initiative this was for pension funds. All I want is a straight answer: what plans do the Government have for the relationship between this bank and their objective to see pension funds investing more in infrastructure? Personally, I am not interested in taking investment advice from the Prime Minister or the Chancellor of the Exchequer, but I think we should be told.

[Baroness Kramer (LD)]

My Lords, at this stage—I know we are about to take a short break—I just want to summarise where we might be on these constitutional issues, now that this group of amendments has been debated. I think it will be relevant for the Minister to reply on that.

As we learn from this group of amendments, in the Bill the bank is given activities and objectives in primary legislation—but that primary legislation can be changed wholly by statutory instruments. That is the point of a Henry VIII power: primary legislation is overturned by secondary legislation. As my noble friend Lord Sharkey made clear, this can include issues as fundamental as the bank’s activities and even the meaning of infrastructure. It is hard to get more fundamental than that when you are talking about a UK Infrastructure Bank. That is the first point.

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Moved by

[Baroness Kramer]

30: Clause 2, page 2, line 11, at end insert—
“(8) The Treasury must lay before Parliament a copy of an undertaking (the “operational independence undertaking”) provided by the Treasury to the Bank for the purpose of facilitating the Bank’s ability to act as its directors consider appropriate in the light of the objects in its articles of association.”Member’s explanatory statement
This amendment would help secure the operational independence of the Bank.

[Baroness Kramer (LD)]

My Lords, just before we took a break, I tried to give a quick summary of where we were on the relationship between the shareholder—the Treasury and the Government—the UK Infrastructure Bank as a company and Parliament. I will not repeat that sequence, but I think Ministers will have picked up my concern that, at every level, there seems very little role, if any, for Parliament and very little accountability in any form.

For that reason, I drafted Amendment 30. It is not my language; it is language I took from the Green Investment Bank, so we know that it works in law and has a precedent. It might be helpful if I read it into Hansard:

“The Treasury must lay before Parliament a copy of an undertaking (the “operational independence undertaking”) provided by the Treasury to the Bank for the purpose of facilitating the Bank’s ability to act as its directors consider appropriate in the light of the objects in its articles of association.”


I did not include it in my amendment, which I slightly regret, but the relevant Act also says about the Green Investment Bank:

“An order under this section may not be amended or revoked.”


Operational independence is captured in a very emphatic and direct way in that Act. That led to my question, which the Minister will remember from an early meeting: why is operational independence not in the Bill? If I understood the reply—she can correct me if I am wrong —it is because the legal advice was that the other clauses in the Bill would not permit it to be validly included as they contradict it. That is the reading of the summary I gave before the break.

Without operational independence, it will be very hard for the bank to thrive and to have credibility among private investors. I also consider it an underlying principle. As the Government so often make a declaratory statement about operational independence, I do not understand why that is not made much more substantive. Perhaps the Minister could explain why a mere declaration with nothing in place to support it is considered adequate.

At the beginning of Committee today, I also referred to the framework document. I think we have all accepted now that the framework document not only has no standing in law but can be changed at any point by the Government with nothing more than an agreement between the shareholder, in the form of the Treasury and the Government, and the company—that is, the bank. That has to be in writing and agreed between the parties, but there is not even a requirement to publish that change in the framework document.

I also referred to the resolution of disputes between the company and the shareholder. That brings me to the other amendments in my name in this group, which refer to Clause 4, “Directions”, and various consequences related to it. The clause states:

“The Treasury may give a specific or general direction to the Bank about how it is to deliver its objectives. The Bank must comply with a direction. The Treasury must—consult the Bank’s directors before giving a direction, and publish a direction.”


The framework document is quite helpful in taking us down to a more detailed level. When it does that, it talks about the capacity of the board, if it objects to the direction that it has been given, to send a reservation notice in response to instructions from the shareholder that would—and these are the circumstances in which a reservation notice could be given—

“infringe the requirements of propriety or regularity … not represent good value for money for the Exchequer as a whole … be of questionable feasibility or is unethical … be contrary to the Strategic Objectives … result in the directors of the Company being in breach of their legal duties; and/or … not be in the best interests of the Company for any other material and demonstrable reason.”

Some of these are quite eye-opening, such as

“the requirements of propriety or regularity”

and something being of “questionable feasibility or … unethical”, resulting in the directors being

“in breach of their legal duties”.

It also makes it very clear, however, that this could apply to an individual project that the bank sought to fund but on which the shareholder—the Treasury or the Government—decided no. Or it could be the opposite: the bank could decide that it should not fund a project, but the Treasury or the Government decide yes. It is very clear that it applies at that level.

It is hard for me to see how that leads to operational independence in any way, which is why Amendment 30 is crucial. I am not proud, and if there are other ways in which we can achieve it, I would be very happy—but at least it is language that has survived a previous legislative process and supported a bank that was in place for quite a number of years.

I told the Minister at the time that I would use this occasion to try to follow up what looks to me almost like a direction for concealment. As I said, if the bank receives an instruction, it can object with a reservation notice; the shareholder can then override that reservation notice and instruct the bank to go ahead, but it can

“inform the Board who shall undertake the Instructed Matter, without delay”

and

“if asked, explain the Shareholder’s course of action; and … arrange for the existence of the Written Direction or any Oral Direction confirmed in writing to be published (unless the Shareholder has directed in writing to the Company that the matter must be kept confidential).”

That is the clause that particularly troubles me; it is a gagging clause, if ever I saw one.

I also asked the Minister: which executives and non-execs, which members of the board, have signed or are expected to sign non-disclosure agreements—we always get trapped by the name “confidentiality agreements”—or any other kind of agreement that would mean they cannot then go to the media? We have already established that there is no regulator so, without one, if they have signed confidentiality agreements, they have no mechanism and no one to whom they can go to disclose. I am exceedingly troubled by the idea that we have a bank that may be asked to do something that its senior members view as unethical or without propriety—or in fact illegal—under the terms of their duties, but they cannot even speak about it, report it or act in any way. I hope we get some fairly full answers from the Minister on that question, but it is frankly extraordinary.

When you put this whole package together, I cannot see that the current legislation in any way provides for operational independence. It may use the phrase “operational independence”, but that is merely window dressing. I think I have pretty much covered the issues, but I hope other noble Lords will have comments to make in this area. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, we have had various discussions around operational independence so far, most of which, until now, have addressed the ability of the Treasury to change the mandate within which the bank operates. Clause 4 goes directly to the heart of the Treasury being able to directly meddle in the activities of the bank. It gives the Treasury the right to

“give a specific or general direction to the Bank”,

at any time, and which the board must follow, with the only safeguard being a requirement to discuss it with the board first. As we have heard, it can be pushed through, and any statements of reservation from the board can be hidden. On the face of it, it completely undermines the operational independence of the bank if the Treasury can actually tell it what to do.

The Minister has previously assured us that the Government would only use this ability to direct in rare circumstances, and she has said that there is a precedent for this type of direction clause. However, the Bill does not put any such restrictions on the use of direction—none at all—beyond the fact that it must be within the objectives of the bank. Therefore, those directions could be about whether or not to make a particular investment, or even the terms on which those investments could be made. It would allow the Treasury to insist on the bank financing vanity projects—I used the example of the bridge to Northern Ireland at Second Reading—or even to indulge in pork-barrel politics by directing investment into particular locations for reasons that may not be totally unpolitical.

The bank should not be put into those kinds of positions, and this Bill should not allow that to happen. Frankly, on the precedent argument, I always recoil when I hear, “We did it before”; those precedents were for different organisations and in different circumstances. It is not impossible that we might have actually got it wrong at the time. Just because we have done it before does not mean that we should do it again.

I have given notice of the intention to oppose Clause 4 standing part. I think that the clause is inappropriate, but I can concede that there might be occasions when it might be necessary for the Treasury to be able to direct the bank—I cannot actually think of any specific examples, but I can see that it could be possible. If the Minister can provide good reasons or examples for this right to direct being needed, then I could get comfortable with allowing direction in those clearly defined, limited and restricted circumstances. However, it cannot be right that direction can be given on the current unrestricted and unscrutinised basis. As I have said, that is not operational independence; it is hard to imagine how anything could be less operationally independent.

So please can the Minister explain, quite specifically, why the Government feel that they need this right to direct, and under what real and specific circumstances they can conceive of using it? If so, we can then work around this and try putting some restrictions and safeguards into the Bill to achieve that.

I have also added my name to the four amendments in the name of the noble Baroness, Lady Kramer, which attack the same problem from a different angle: to allow the Treasury to make recommendations to which the bank must have regard, rather than to comply with directions. I would prefer to remove all unnecessary meddling by the Treasury, as it were, but this might be a reasonable compromise. Similarly, the noble Baroness’s Amendment 30 is another important way of trying to get this operational independence well imbedded in the Bill.

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[Baroness Penn (Con)]

My Lords, as we have heard, these amendments are all connected to the operational independence of the bank or the influence of the Treasury over it. The purpose of Amendment 30 from the noble Baroness, Lady Kramer, as she said, is to protect the operational independence of the bank.

It may be useful for the Committee if I set out why we do not have a clause in the Bill setting out the operational independence of the bank. As a matter of company law, the bank is already operationally independent. It has been operating as such, with its directors having duties to the bank, during the first year of its existence and in making its first seven investments. The Bill sets out the limited circumstances in which the Treasury, as the sole shareholder of the bank, can exercise more direct control over it. One of the main reasons for the Bill, which enshrines the bank’s strategic objectives in statute, is to protect its independence. The Government are not able simply to change its objectives—

[Baroness Kramer (LD)]

The Minister just mentioned the “limited circumstances” in which the Treasury may give direction. Can she point to those for us? It would be extremely helpful.

[Baroness Penn (Con)]

I intend to come to some examples, as requested, when I move on to directions.

[Baroness Kramer (LD)]

To confirm, there is nothing in the Bill that provides a limit; it is just that we will have examples to illustrate a self-denying ordinance—is that correct?

[Baroness Penn (Con)]

I think the Bill sets out that the Treasury does have the power to issue direction, and it will be published if it is ever used. We have heard about the precedents. Although I know Members of the Committee have different views on the value of that, I thought my noble friend expressed that very well.

To return to the purpose of the Bill, the Government are not simply able to change the objectives or sell the institution without further legislation. The Bill also makes provision for transparency to Parliament and the public around any circumstances in which the Treasury issues directions or statements of strategic priorities to the bank.

Section 172 of the Companies Act also confirms the bank’s independence: it states that the duty of the directors of the bank is to act in the way that is

“most likely to promote the success of the company”

and it requires them to have regard to factors such as the desirability of maintaining a good reputation for the bank, the bank’s impact on the community, the environment, and the need to foster business relationships. A clause setting out that the bank is operationally independent would therefore be unnecessary as that is already the legal default position and has been reflected in the bank’s independence over the first year of its existence, and the process by which it has entered into its initial investments.

Amendment 30 would require the Government to give an operational independence undertaking for the bank. It is, as the noble Baroness noted, a copy of the provision in the Enterprise and Regulatory Reform Act 2013 for the Green Investment Bank. As I have noted, we do not think this is necessary since it is a matter of company law that the bank is already operationally independent, and the Government have been consistent in their statements on this matter.

To respond to the noble Baroness’s point, we believe that the bank’s operational independence is substantive, not a kind of declaratory position, however—

[Baroness Penn (Con)]

I think there are two elements to it: the bank is established under the Companies Act 2006, and as a matter of company law is operationally independent, and then, in terms of what this Bill does, the bank—

[Baroness Kramer (LD)]

I am really confused about why company law would provide operational independence. It would be really helpful if the Minister could address that. I think she just said that it had to behave with proper propriety or reference to its reputation, but that is nothing to do with operational independence.

[Baroness Noakes (Con)]

Perhaps I could help the noble Baroness: as a matter of company law, shareholders have relatively few powers in relation to how a company is operated on a day-to-day basis. Their powers derive from their ability to pass resolutions, either at annual general meetings or special meetings, but there are no powers within the articles of association, et cetera, for shareholders to intervene, except via the mechanisms of calling general meetings and passing resolutions. Almost by definition, they are not involved in operational matters. I think my noble friend made a fair statement that for a company operating under company law, it is already hard-wired into its structure that shareholders cannot intervene on a day-to-day basis, just because there is no mechanism for them to do so.

[Baroness Kramer (LD)]

I will just challenge that slightly, because this all goes hand in hand with the direction, which can be specific. We are talking not just about general direction but about specific direction. I am completely unclear that the shareholders of a company could instruct it, for example, to invest in a particular pharmaceutical process to serve a particular customer base. That is entirely within scope; it is equivalent to the language within the Bill.

[Baroness Penn (Con)]

We absolutely will come on to discuss the power of direction. The basis that we wanted to establish is that the Government have two powers in the Bill: the power of direction and the power to issue a strategic steer. However, setting those aside for one moment, day to day, the bank has its operational independence, and the basis of that is in its establishment as a company subject to company law.

We were debating Amendment 30, which seeks to establish that operational independence in the Bill. The Government believe that that is already provided for in the bank and so does not need to be set out separately in the Bill. However, the noble Baroness is absolutely correct that, if we were to set out in the Bill the operational independence clause that she has taken from previous precedent or somewhere else, we would still need to write into the Bill the two powers that we are going to talk about: the power of direction and the power to issue a strategic steer. Therefore, I absolutely accept that those two powers override in some ways, on those issues where they may be used, the operational independence of the bank.

I was trying to make another point on what this law is doing to strengthen the independence of the bank. As we know, the bank is already up and running. As the noble Baroness quoted from its operational framework, the Government and the Treasury already have the ability to issue it with a strategic steer and with powers of direction. The Bill puts those powers in statute but gives transparency requirements around them. In the establishment of the bank by statute, it is not for the Government to be free to then sell the bank or change it without returning to Parliament. UKIB is a separate legal personality in law, which is what I was trying to establish.

It may be worth moving on to the power of direction. As I said, it is a matter of company law that the bank is already operationally independent, and the Government have been consistent in their statements on this matter. The limited exceptions to this, as set out in the Bill, preserve the Government’s proportionate shareholder rights, which is appropriate for an institution which is in receipt of public funds. As I said to the noble Baroness, I accept that if we were to have such a clause in the Bill, any operational independence undertaken would still need to include the exemptions for the strategic steer and the power of direction.

On Amendments 35, 36, 37, 40 and 41, and the clause stand part objection in the names of the noble Baroness, Lady Kramer, and the noble Lords, Lord Tunnicliffe and Lord Vaux, these would seek to soften or remove the Government’s powers of direction over the bank so that their directions would no longer be binding. I understand that the aim of these amendments is to protect even further the bank’s operational independence. However, it might be helpful if I quickly set out why we have this in the legislation.

The power of direction is one of a small number of exceptions to the bank’s operational independence. It is right that, as a sole shareholder and as the department that must explain the bank’s activities and spend to Parliament, the Treasury exercises limited amounts of control on the bank. Although the Government expect to use this power infrequently, constrained powers of direction are a relatively common feature of similar institutions such as the British Business Bank, HMRC and the Bank of England.

I hope noble Lords will appreciate that the examples are illustrative and intended to set out the circumstances that could potentially justify the use of such a direction in future. There may be aspects of national security where we may need to intervene on specific investments. We may need to direct the bank to invest in a technology that has the potential, if developed, to be particularly beneficial to the environment but may not meet its return on equity targets. That speaks a small amount to a debate we had earlier about the need to meet the double bottom line versus potential further public policy good from taking greater risk than would otherwise be the case. There may be some other emergency scenario where the bank is an appropriate institution to act. It is worth noting that the Department for Business, Energy and Industrial Strategy used a similar power to direct the British Business Bank to organise the Government’s Bounce Back Loan Scheme. Although those are illustrative examples, that final one might demonstrate that it is hard to anticipate all the circumstances in which we may want to use this power. Therefore, setting out greater circumscription of the use of the power is difficult in those circumstances where it is hard to anticipate the unknown of the future.

Should we remove the clause, the Government could still rely on our ability to issue directions as a shareholder and as set out in the framework document. However, crucially, there may be situations where the board could refuse a direction if not in statute, given its obligations under the Companies Act. This would likely lead to unnecessary tensions between the Treasury and the bank, which are best addressed in the way that the Bill provides, by introducing transparency to Parliament and the public over the use of the power of direction.

I committed to coming back to the noble Baroness, Lady Kramer, on issues she raised earlier in Committee. On the use of the power of direction, the Bill sets out clearly the Government’s ability to issue a written direction and the requirement for it to be published. The framework document provides a process that can precede the issuing of a written direction, with a written direction being the final step in a disagreement. As the noble and learned Lord, Lord Thomas, noted, the powers of the Bill to issue a direction take precedence over the framework document with regard to written directions, but I note the noble Baroness’s point about reservation notices. The Government are committed to giving the bank’s board freedom to operate the company in seeking to achieve its strategic objectives. It is not the intention of the Government nor the drafting of the framework document to gag the bank, and I should be happy to discuss the matter further with the noble Baroness ahead of Report.

To pick up the noble Baroness’s point about whistleblowers, UKIB must adhere to the expectations of the corporate governance code, as well as, more broadly, public sector accountability obligations for the conduct and corporate policies that it has as an organisation. This includes having in place a whistleblowing policy. On non-disclosure agreements, or any name they may go by, UKIB is operationally independent but we understand that it has no NDAs in place.

I hope that has answered the noble Baroness’s earlier questions and some of the further questions about operational independence and the Government’s ability to issue a direction to the bank. I therefore hope that she will withdraw Amendment 30.

[Baroness Kramer (LD)]

I will obviously withdraw in Committee, but I cannot see the harm, only the benefit, of putting operational independence in the Bill, particularly using language that has been well established in a previous Bill. The Minister refers often to precedent. Here is a precedent that I think is quite attractive, and we know that it has been very successful. I see no reason not to make that happen, so that we have not just declarative statements or rely on a very narrow piece of company law. That will be something that we will want to explore.

Moving to the issue of directions, there is some useful language which we might take from the framework document. I see no reason why we should not prohibit disclosures that infringe on the requirements of propriety or regularity, those which are of questionable feasibility or unethical, or that result in the directors of the company being in breach of their legal duties. We could certainly put some constraints on those powers. I was astonished to read in the framework document that it contemplated that directions would indeed fall into all those categories and therefore provide for them. That will be quite interesting. I will be very glad to discuss the issue of gagging orders of various kinds.

Some fruitful ideas that we will want to explore further have come out of this discussion. We always have to take this and all the other constraints that we have discussed in earlier phases of this legislation in context, but I beg leave to withdraw my amendment.

Amendment 30 withdrawn.

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[Baroness Kramer (LD)]

My Lords, I will speak first to the generality and then to my amendment in this group. As to the generality, all the proposed changes or enhancements to Clause 9—reviews of the banks, effectiveness and impact—seem significant and important; it is a clause that we definitely need to improve. The two areas that reviews currently have to cover, namely

“the effectiveness of the Bank in delivering its objectives, and … its impact in relation to climate change and regional and local economic growth”,

are interesting, but they have not covered even a small portion of the questions raised on the floor just today. A much more comprehensive review strikes me as exceedingly worth while and something one would anticipate the bank to be eager to deliver.

My Amendment 67 deals with the UK Infrastructure Bank. I admit that it arises from a frustration that the national infrastructure strategy is not on a statutory basis. Our cycling and walking strategy is on a statutory basis but not, apparently, our national infrastructure strategy. It seems important that, if any respect is to be given to that strategy, it should be linked in some way to the work of the UK Infrastructure Bank. Where there are differences, we should at least be aware of them, and that could lead either to the strategy being amended or indeed to a rethink of some of the objectives of the bank.

I am trying to take some steps on what others have described earlier in various ways—to pull together things that seem to cover the same territory, rather than constantly having fragmented reports going in one direction, funding in another and decision-making in another. It seems that the review mechanism may be the lightest-touch way to pull together these various strands and give us a sense of coherence about what is happening with the development of infrastructure in this country.

[Lord Tunnicliffe (Lab)]

My Lords, we can know whether the bank is meeting its objectives and strategic priorities only if the periodic reviews of its work cover the right areas. We will turn to the timing of the reviews shortly, but the number and range of amendments in this group suggest a scepticism around the current provisions. As I said during an earlier debate, we have no desire for parts of the Bill to resemble a shopping list. However, Clause 9 is currently incredibly high level, to the point where it provides virtually no steer whatever.

At a minimum, I urge the Minister to seriously consider Amendment 56 in the name of the noble Lord, Lord Vaux, and Amendment 67 from the noble Baroness, Lady Kramer. These requirements would add value. I imagine that some of the other amendments in this group, although tabled with the best of intentions, will be covered by other mechanisms, including the bank’s own annual reports. I hope the Minister can clarify that.

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Moved by

[Baroness Kramer]

43: Clause 7, page 3, line 14, leave out “fourteen” and insert “thirteen”
Member’s explanatory statement
This amendment would change the maximum number of board members from fourteen to thirteen.

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[Baroness Kramer (LD)]

My Lords, I recognise that the Clock is moving rapidly, so I will be quite speedy. These amendments are reasonably self-evident. With the amendments that stand in my name here, I have tried to set what seem obvious principles for the way in which a board of directors is set up. That is, as covered by Amendments 43 and 44, to make sure that the total number of board members is an odd number, not an even number. With a board of directors, it is surely appropriate to be as certain as possible that the chair’s casting vote will be used as rarely as possible. Hopefully, decisions will not be so contentious that the board is completely split, but where that happens it is far healthier to have a resolution provided by an odd number of members than to have to look again and again to the chair’s casting vote. It is quite curious that 14 is the proposed number of directors. Now and again, we would find ourselves looking to the chair, and I think that would be genuinely unfortunate. It is not the most important issue in the world, but it seems to me that some decent housekeeping would not hurt here.

I also want to be sure, in Amendment 45, that the majority of board members must be non-executive directors. It does not speak to that in any way and, given that the board can be as small as five, you could easily see a situation in which three of the members were executives and only two were non-execs. It seems a simple principle.

Probably my most significant amendment in this group, on an issue that has been addressed by others, is Amendment 49. We have talked before about the importance of having the right range of skills on the board—people of independence, and people with expertise and knowledge. Amendment 49 simply asks the bank’s chair to keep under review such characteristics and, if he feels that there are gaps, to take steps to address or mitigate those shortcomings.

It is important to put that responsibility on the chair and not just to say, “Well, Treasury will take care of that. The Chancellor of the Exchequer appoints everybody and therefore he will decide what kind of skills are necessary”. We have talked about the operational independence of the bank. Frankly, if the chair cannot even guide what kind of skills he needs to be on his board, we are once again underscoring that there is no operational independence. It seems to me a standard and normal responsibility for a chair, and I simply ask that there be an opportunity for that to happen here.

[Lord Vaux of Harrowden (CB)]

My Lords, I will be very brief in speaking to my Amendment 46, but first, let me say that I support the amendments in the name of the noble Baroness, Lady Kramer. Frankly, they seem like normal, good practice and it is almost surprising that they are not already in the Bill.

Amendment 46 is very simple. The bank’s activities will cover the whole of the UK, including the devolved nations. I welcome that—it is a really good thing—but while allowing the bank to operate in the devolved nations, the Bill gives absolutely no right at all to the devolved Governments to have any say in how it operates. I would be completely opposed to giving veto rights or anything of that nature, but I do think it would be appropriate to allow them at least some input into the bank’s direction. As someone who lives in Scotland, I am not the world’s greatest fan of the Scottish Government, but devolution is a fact and we have to live with it and work with it. The devolved Governments have perfectly reasonable interests in how investment is directed in their countries.

It seems to me that the easiest way to achieve this is just to allow the devolved Governments to be represented on the board of the bank. Amendment 46 would simply allow the devolved Governments each to appoint a director to the board. That way, they would have the ability to represent their legitimate interests without introducing any veto rights or anything of that nature, which, obviously, we should avoid.

If we want to keep this union together, we need to recognise that the devolved Governments have legitimate interests, and we need to try to work together.

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[Baroness Penn (Con)]

My understanding is that it has been very constructive, but perhaps I can write to noble Lords setting out further detail on that.

Amendment 49 in the name of the noble Baroness, Lady Kramer, would ensure that the bank’s chair must keep the board under review to ensure that it continues to perform adequately. I think it goes without saying that I agree with the policy of this, but again believe that it is set out sufficiently within the framework document which largely reflects the requirements of the corporate governance code, against which the bank, as I said before, will publicly report compliance each year. It covers most of these points adequately, particularly in paragraphs 5.5.2 and 5.9.5.

I have committed to write on a number of aspects and know that noble Lords have given notice that they may wish to return to this at Report. With that, I hope that the noble Baroness will be able to withdraw her amendment for now.

[Baroness Kramer (LD)]

I thank the Minister for her comments. I am slightly alarmed by two things, the first of which is that she sees no reason why the chair should have influence over the shape of the board, so that it should be the responsibility solely of the Treasury and the Government. That troubles me, particularly in the much wider context of operational independence and so many of the other issues we discussed earlier today.

I am very sympathetic to the issues raised by the noble Lord, Lord Vaux, and the noble and learned Lord, Lord Thomas. I think that the noble and learned Lord is exactly right: this is an issue of confidence. I am somewhat surprised that we do not have legislative consent yet, even though we are already in Committee. I wonder if the Minister expects that we will have legislative consent before we get to Report. I have not dealt with many Bills, but legislative consent has always come very early in the process and not at this point in time. I am slightly concerned about that.

[Baroness Penn (Con)]

Perhaps I can pick that up in the letter. As this is a Lords starter, I believe we might have more time to deliver on legislative consent than when we receive Bills from the Commons—that may be the timetable.

[Baroness Kramer (LD)]

The Minister makes a good point; I am used to thinking of legislation that starts in the Commons, and therefore legislative consent is in place by the time it gets to the Lords. I hope that this can be very quickly resolved.

Apparently, on the issue of non-executive directors, we have found another item within the framework that we want to consider putting in the Bill. It would be interesting to see that as we get to Report. For now, I am content to withdraw the amendment.

Amendment 43 withdrawn.

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[Lord Vaux of Harrowden (CB)]

My Lords, like I think almost every noble Lord who spoke at Second Reading, I agree that the reporting schedule set out in the Bill is completely unacceptable. In fact, I think it was possibly the only point in the entire Bill on which there was absolute unanimity. Ten years before the first report and then only every seven years thereafter is just too long. I wonder if even the Minister was surprised at the times when she saw the Bill.

I have added my name to Amendment 59, in the name of the noble Baroness, Lady Noakes, which suggests four years before the first report. I understand her point about having three years plus time to get that first report out, and it therefore makes sense that the first one has a bit longer. Others have suggested three years. I cannot too excited about it, to be honest. Ten years and seven years are too long. We need to bring that down.

As I and the noble Baroness mentioned earlier, it is quite inappropriate that the Treasury should be marking its own homework in this respect, so I support her amendments ensuring that the effectiveness reporting is independent.

[Baroness Kramer (LD)]

My Lords, I will speak very briefly. A couple of the amendments are in my name and I have signed others. I absolutely join the noble Baroness, Lady Noakes, and the noble Lord, Lord Vaux, on whether it is three years or four years. It seems to me that the proposal of the noble Baroness is rather sensible, as three years will have gone by, as she pointed out, before the first report. What are completely unacceptable are the 10-year and seven-year benchmarks. The Minister has heard the arguments over and over. I know she will say that there are many other ways in which we will know what is going on. We will partially, but not in a coherent or holistic way. That is why it is so important that these kinds of holistic reviews should be done properly, appropriately and in a timely fashion.

I stress my support for the points made by the noble Baroness, Lady Noakes, and my noble friend Lord Teverson on their somewhat different proposals for an independent reviewer. Otherwise, the Treasury will be marking its own homework. We have established throughout every part of today’s debate that it can change the objectives through secondary legislation and it sets the strategic priorities. It can provide detailed direction and appoints every member of the board. It is very hard to see any way in which the Treasury’s hand will not have imprinted every aspect of what this bank does.

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[Baroness Penn (Con)]

My Lords, I hope noble Lords will forgive me if I do not give the game away too far ahead of Report in terms of our approach to listening to all the points raised in Committee.

As we have heard, these amendments all relate to the review clause in the Bill. I understand entirely the aim behind the amendments of ensuring that the bank is appropriately scrutinised and in a timely way, but I can hope valiantly that I can reassure noble Lords both that there will not be a 10-year period before the bank is given scrutiny and by perhaps explaining to them why the 10-year period was selected.

As I have mentioned previously, we have committed in the bank’s policy design document to review the bank’s progress and financial performance by spring 2024 to ensure that it has sufficient capital to deliver its ambitions and, as we noted earlier, also on our regulatory approach to the bank. On top of this, we have a Cabinet Office-led review in 2024-25 on the effectiveness of arm’s-length bodies generally, and as part of this process we will conduct a review of the bank, which will be repeated in 2027-28 and 2030-31.

[Baroness Kramer (LD)]

Just for clarification, will the Treasury review the bank in that 2024 piece of work? Will it be reviewing itself?

[Baroness Penn (Con)]

My notes say that it will be a Cabinet Office-led review, but as part of that process we—which I would take to mean the Treasury—will conduct the review. If that is incorrect, I will clarify that.

Taken together, this means that the bank will have been subject to four reviews by the time of our first statutory review. The review in statute is designed to encompass all the elements of the previous reviews and has been chosen to be 10 years after Royal Assent because it allows for a fuller analysis—