UK Infrastructure Bank Bill [HL]

Baroness Kramer Excerpts

Report stage
Monday 4th July 2022 Lords Chamber

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Lord, Lord Ravensdale. It was particularly useful that he spoke before me because I have taken some of the words that he and his supporters put down in their amendment but made an additional change, taking out the words “economic growth”. But I agree entirely with everything the noble Lord just said about the need to focus on reducing disparities and tackling economic and social disadvantages. As he said, that takes the wording from the Government’s own approach in another place and it would be very hard for the Government to argue against that.

I argued extensively in Committee about why economic growth as a target in its own right has failed and, indeed, is undeliverable, because you cannot have infinite growth on a finite planet. I will not go over those arguments again now, but I think it is very clear from the fact that we are back here again, after an extensive debate in Committee from all sides of your Lordships’ House, simply saying that the bank will work for regional and local growth. As was said in Committee, that could be regional and local growth in Chelsea and the wealthiest 10 wards in the whole country, which is surely not the purpose, and it therefore needs to be clarified in the Bill. As was said in our earlier debate when we were talking about the environment, we have seen acknowledgement of the need to change the Bill already. This is surely another crucial change.

I was pleased to attach my name to Amendment 12 in the name of the noble Lord, Lord Tunnicliffe, and backed by the noble Lord, Lord Ravensdale, and the noble Baroness, Lady Kramer. This is again putting levelling up in the Bill. It is what the Government say the Bill is for. Surely, it has to be specified in it.

[Baroness Kramer (LD)]

My Lords, I am going to be exceedingly brief because so much has been said which I support. I want to make a couple of comments on Amendment 12 in the name of the noble Lord, Lord Tunnicliffe, and others, that I have been pleased to sign. I want to make a point that I think has not been hit on. It is really important because it signals to those who put together projects and then turn to the investment bank and look for resources and funding that they are going to have to meet tests such as improving productivity and making sure that they are delivering well-paid jobs.

Putting that in the Bill would take it away from being a passive measure by which the bank looks at and decides whether to support projects and moves it into the active category. Those who are going out and investing will look closely at whether they are delivering against those various tests. There is so much that is good in the various amendments within this group—I very much support my colleague on Amendment 2—but I particularly wanted to underscore the message-signalling that is deeply inherent in Amendment 12.

[Lord Tunnicliffe (Lab)]

My Lords, I am grateful to all noble Lords who have spoken in this important debate. I am particularly grateful to the noble Baroness, Lady Bennett, the noble Lord, Lord Ravensdale, and the right reverend Prelate—who is not present—for their support in tabling Amendments 4 and 5. Those texts are similar in intent to my Amendment 12, and those colleagues made a powerful case for tightening up the bank’s second objective.

I thank the noble Baroness, Lady Kramer, who joined the noble Lord, Lord Ravensdale and the noble Baroness, Lady Bennett, in signing Amendment 12, which I shall turn to now. The Government say their absolute priority is to deliver their levelling-up agenda. Ministers say they will use every tool available to them to ensure left-behind communities can catch up economically, compared to London and the south-east. However, anybody reading the Bill would be hard-pressed to identify that intent. Yes, the bank should be operationally independent from government, but that does not mean it cannot support the levelling-up agenda in its day-to-day work.

Amendment 12 would, in essence, place the first mission from the Government’s recent Levelling Up White Paper in the Bill. The amendment would not prevent the bank from acting in a manner that deviates from that mission. It will be free to invest in climate-related schemes or projects in wealthier parts of the UK; that would remain the bank’s prerogative. However, the amendment would introduce a general requirement for the bank to have regard to the public interest in targeting funds in a manner that will improve productivity, jobs, pay and living standards.

The Government say they want to create good jobs, lift people’s pay and improve life chances. However, at the same time, Ministers are slashing the size of the Civil Service and washing their hands of responsibility for pay negotiations in sectors where the Government have a direct interest. We still await an employment Bill that has been promised for many years. That Bill was not deemed a big enough priority to be included in the Queen’s Speech, meaning many workers will lack important statutory rights.

The aforementioned White Paper mentions that by 2030, the Government want to see the gap between the best and worst performing regions of the UK narrowing. We want to see that gap close, too, but let us be realistic: it will require concerted action, not just warm words.

The year 2030 is not very far away. Let us consider the current economic context: the economy is on the brink of recession and is forecast to flatline in 2023. The cost of living crisis is squeezing household incomes to an extent not seen for decades. There is not a huge amount of time to turn this picture around. If we are to do so, we need urgent action to create secure, well-paid jobs, and the bank can help only if it is explicitly encouraged to do so.

Amendments to the framework document or strategic steer are not enough to target the bank’s mind or provide comfort that the Treasury is sufficiently invested in following through with its stated ambitions. It is regrettable that the Government have not brought forward their own amendment at this stage in proceedings. We have pushed for this in meetings with the Minister but have not succeeded.

We will listen carefully to the Minister’s response today but feel that this is an important issue which deserves to be in the Bill. Unless the noble Baroness is able to commit to an amendment at Third Reading, I am minded to test the opinion of the House when Amendment 12 is called.

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[Baroness Bennett of Manor Castle (GP)]

My Lords, it was not my intention to speak on this group but, given that all the non-government speakers have been from the other side of the House, I felt I should offer an argument from this side of the House that is perhaps 180 degrees opposite to that presented by the noble Baroness, Lady Noakes, but, none the less, makes an argument for either Amendment 6 or Amendment 24.

The noble Baroness, Lady Noakes, suggested that she preferred private bankers to public bankers. Private bankers have been left to provide the direction for our economy and society over the past few decades and look where that has got us: we are having to talk from all sides of the House about the urgent need to level up and to tackle poverty, inequality, our climate emergency and the nature crisis. Therefore, we need to make sure that the bank is not crowding out private finance. If it is, it is spending money in the wrong places. It needs to be doing things that are innovative and different from what we have been doing up to now. That is why I encourage either the mover of Amendment 6 or those speaking to Amendment 24 to consider testing the opinion of House, and I offer them Green support.

[Baroness Kramer (LD)]

My Lords, my motivation here is somewhat different: I want to see the bank move along the risk spectrum. There is a temptation, due to the structure of the bank, for it to stay within the range of fairly safe investments. It has to produce a return and it has a very small risk capital base, but I would like it to maximise that to move along the risk spectrum. I see no other way to accelerate the innovative technologies that we need, or development in disadvantaged areas where people have typically turned their backs, unless the bank is willing to take on that much higher risk profile. The various additionality amendments seem to create that kind of pressure to move UKIB much further down the risk spectrum than it might otherwise feel comfortable in doing, meaning that it therefore does not maximise the opportunities in front of it.

[Baroness Penn (Con)]

My Lords, I join my noble friend Lady Noakes in applauding Amendment 6 in the name of my noble friend Lord Holmes as a gallant attempt at defining additionality, although I dare say another Peer might draft it differently.

I want to make a more general point about additionality before coming on to the specifics of each amendment in this group. Additionality is a key principle underpinning the bank, and it is something that the Government take very seriously. That is demonstrated by the fact that additionality is one of the bank’s core investment principles, as set out in its framework document and strategic plan. However, following legal advice, the principle is not included in the Bill as there is no single agreed definition of additionality in a financial context that we could appropriately include in the Bill. Approaches to assessing additionality are developing over time and we would not want to stymie that development by creating a statutory definition of additionality at this stage.

While the term “additionality” has been included in previous legislation—for example, the Dormant Assets Act 2022 and the National Lottery Act 2006—additionality in those contexts had a different meaning: of funding projects or activities that the Government would not have otherwise funded. Assessing private sector additionality is more complex because it involves more actors and varied forms of financing. Each deal will have a particular set of circumstances that will indicate the amount of additionality that the bank is bringing. For the bank, as part of that, additionality means ensuring that it both crowds in private finance through its investments and avoids crowding out the market by providing finance that could have come from the private sector.

The bank has set out its approach to assessing and measuring these concepts of additionality in its strategic plan, which was published at the end of June. Currently the bank will assess additionality on a case-by-case basis, assessing the evidence as part of due diligence and monitoring that through a key performance indicator on the levels of private sector finance that it has crowded in. This is a measure commonly used by other organisations such as the OECD.

Crowding out is best assessed through evaluations and medium-term assessments of whether the portfolio of investments has led to crowding out in a particular sector. The bank is developing its thinking on how it will monitor and evaluate its work at both deal and portfolio level, including setting up an independent evaluation.

Further to this, additionality is implicitly covered in the Subsidy Control Act 2022, which of course applies to any subsidies the bank gives. Schedule 1D states:

“Subsidies should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy.”


Given the protections of the Subsidy Control Act 2022 and the regulatory regime, the difficulty in accurately defining additionality in the Bill, the work the bank is already doing on additionality and, finally, our amendment to the review, I hope my noble friend Lord Holmes will feel able to withdraw his amendment. I must say to my noble friend that the Government do not intend to bring forward any amendments at Third Reading, so I must disappoint him on that front. I should also say that to the noble Lord, Lord Tunnicliffe, in relation to the previous group, if I was not clear on that front.

The amendment in my name to Clause 9, on the statutory review, will ensure that the review of the bank will measure its success in encouraging additional investment. The drafting of the amendment is based on the reference to additionality in the framework document. I should like to provide reassurance that, given that the review will cover crowding in, it necessarily includes the question of whether crowding in did not happen, with the attendant risk of crowding out. This is because additionality is designed to measure genuine additional private finance—in other words, investment that would not have happened otherwise. I would fully expect the independent review to address the question of crowding out under the terms of this drafting.

The bank could act as the sole financer of a private project if it meets the bank’s investment principles and objectives, but it is highly unlikely that the bank, as the sole financer of a private project, would crowd out private investment, as the bank would be the sole investor in very immature or nascent financial markets for a technology only if no other investors were willing to support the project.

The bank’s initial assessment of the technologies, sectors and markets it plans to engage in, as published in its strategic plan, will allow it to focus its investment in areas with a limited risk of crowding out. This will continue to be developed and reviewed. In cases where the bank would act as the sole financer of a private project, it would expect to have a transformational impact on the market and for the market to be able to attract private capital over the medium to long term. This in part speaks to the concern of the noble Baroness, Lady Kramer, about the bank being able to operate along the risk spectrum, as it were, rather than seeking to invest solely in perhaps lower-risk or less innovative projects, given the other demands that it has: making a return on its investments and becoming self-funding.

Given this, I am grateful to my noble friend for her commitment not to move her amendment when it is reached. I hope that, in future, my best efforts produce more than a quarter of a loaf.

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[Lord Vaux of Harrowden (CB)]

My Lords, I have added my name to all the amendments in this group, which cover four separate topics, and I will touch on each of them briefly. First, Amendment 13, which the noble Lord, Lord Sharkey, eloquently explained, aims to introduce a greater level of scrutiny to the use of the Henry VIII power that is included in the Bill. The activities and, in particular, the definition of infrastructure are fundamental to what the bank can do and how it will be measured. It must be right that changes to this are subject to a meaningful level of parliamentary scrutiny and, as the noble Lord clearly explained, the affirmative procedure has sadly become a bit of a sham. Amendment 13 seeks to find an interesting balance between the rubber-stamping of a statutory instrument and full use of primary legislation. I urge the Government to support this, and I would be quite supportive generally of seeing more of this process in Bills more often: we have seen far too many of these Henry VIII clauses, as we have just heard.

Amendments 14, 15, 16 and 17 in the name of the noble and learned Lord, Lord Thomas of Cwmgiedd, to which I have also added my name, are aimed at trying to resolve issues around the framework document that we discussed at length in Committee. As we heard, the framework document is a slightly peculiar animal: it seems to have no real legal status, but it is an important document in how the bank will behave. The consensus around the Chamber in Committee was, I think, that the balance within that is too far towards including elements of principle rather than the day-to-day running of the bank. These amendments do not really address that. All they ask is for the framework document to be updated, and that it should be consistent with the statement of strategic priorities. That seems pretty straightforward and simple.

There are a number of areas where the more recent statement of strategic priorities is inconsistent with the framework document. One example—it is relevant to the discussion we had on the previous group about additionality—is that the strategic priorities expressly do not require local authority investments to achieve additionality, but the framework document does. Perhaps the Minister could explain why. I doubt that she will accept the amendments, but could she at least confirm that the framework document will be updated and that it will be brought into line with the statement of strategic priorities?

Amendment 18 in the name of the noble Lord, Lord Sharkey, addresses the extremely important point raised in Committee, I think by the noble Baroness, Lady Kramer, that as drafted the Bill—in conjunction with all these other governing documents, including the framework document—would require directions given by the Treasury to be published, but would not require situations where the board disagrees with that direction to be published or explained. Indeed, it effectively applies a gagging order, and that cannot be right. This important amendment brings in some essential transparency to that and I wholeheartedly support it.

I agree with the noble and learned Lord, Lord Thomas of Cwmgiedd, that the final amendment in the group is the most important. It introduces a simple requirement to consult the devolved Governments in various situations, and in preparing or changing the statement of strategic priorities. The bank’s activities will cover the whole UK, which I think is a good thing. The Minister has indicated, as does the statement of strategic priorities, that the bank is establishing a good relationship with the devolved Governments, and with the bank’s counterparts in the devolved nations. However, the Bill does not mention this. As someone who lives in Scotland and is a passionate unionist, I am consistently surprised by the fact that legislation that covers the whole UK rarely includes proper consultation requirements. That seems really counterproductive—even dangerous—as not taking proper account of the reasonable views and concerns of the devolved nations further undermines the strength of our union.

It gives ammunition to the nationalists that the Government do not take the devolved Governments seriously. We are heading rapidly towards a break-up of the union if we behave like this. This amendment does not create any veto powers or anything of that nature, which I would strongly disagree with that as you cannot work something if one party has a veto. It just requires consultation and that the reasonable views of the devolved nations be taken into account when setting the strategy or appointing directors.

I urge the Government to accept this. More widely, I urge them to start to be more consultative and include clauses of this nature more generally in Bills that cover the whole of the UK. That will strengthen, not weaken, the union and will ensure that the bank takes actions genuinely in the interests of all parts of the UK. If the noble and learned Lord decides to divide the House on this matter, I certainly will support him.

[Baroness Kramer (LD)]

My Lords, I have added my name to all the amendments in this group but I will try to be brief. I want to pick up on the point just made by the noble Lord, Lord Vaux. Amendment 21 in the name of the noble and learned Lord, Lord Thomas, deals with consulting devolved Administrations. It ought to be a matter of course that in every Bill where consultation is important, it is in the Bill. It then underscores the constitutional relationship between central government and the devolved Governments. The expectation that it is to be dealt with either in other documents or just off the cuff is, I suspect, one of the reasons we see so much stress and pressure on the union today. It embodies a lack of respect, to be quite frank, and it ought to be a matter of course that we see these arrangements in a Bill.

I will look at the other amendments tabled and so well drafted by the noble and learned Lord, Lord Thomas. On updating the framework document, we have heard of nothing but the importance of that document. On almost every issue we raise, we are told that it does not need to be in the Bill because it is in this absolutely critical document—the framework document—which is actually a document agreed between the Treasury and the bank; it is not even necessarily in the public arena. Yet we can see that it is inconsistent with the Bill as it stands, never mind with the issues that have surfaced in the course of this very complex debate. It is a document that desperately needs to be updated. I know there is a plan to update it by the end of this year but that is completely out of touch with making sure that we have proper, consistent and meaningful arrangements in place for a bank that is already functioning as we stand here today. I very much support those amendments.

I now look at the two amendments from the noble Lord, Lord Sharkey. Amendment 13, so eloquently supported by the noble and right reverend Lord, Lord Sentamu, addresses another fundamental problem that we see in one piece of legislation after another: the wide use of Henry VIII powers to allow secondary legislation—which cannot be amended and, in effect, cannot be rejected—to change primary legislation fundamentally. It almost makes a joke of primary legislation. I know the Government would say that they would not exercise the power widely and it is just a marginal change here or there, but the Bill is already written to allow for marginal changes. The only time when that clause would be relevant would be if fundamental changes were to be made. I would argue that those should come back to Parliament, at least for the level of engagement of a super-affirmative.

I want to speak most to Amendment 18 because I am truly exercised on the issue of transparency. As others have said, the Bill requires the publication of a direction when the Treasury basically decides it is going to tell the bank what it can do. It can give it instructions that are either general or specific. It could say, “Make this loan and do it this way.” That is entirely allowed and there has to be a publication. But what is not that established is that when the bank says no and then is overridden, that information comes into the public arena. When it says no, it says so in a letter of reservation and the kind of issues it can raise are fundamental, such as issues of propriety, issues of ethical behaviour and issues of departing from the fundamental purpose of the bank.

I think we must have an absolute assurance that those will be published so that they are in the public arena. Let me give an example. The Minister has often drawn parallels between this bank and the British Business Bank, which allows me to draw a parallel with the British Business Bank’s decision to accredit Greensill to provide a Covid-related loan. We know, because it is now in the public arena, that when Greensill applied to the British Business Bank for accreditation, various parts of the Government fairly bombarded the British Business Bank with emails. They did not say “accredit it” but kept saying how important it was that they knew the result, asking whether it was done yet and saying that this would be fundamental to the future of steel in the UK and so on. Anyway, as we all know, the British Business Bank did accredit Greensill and, I suspect, regrets the very moment that it did so.

If a direction from the Treasury had been published on that issue, I am sure it would have said: “This direction is intended to make sure that our very important steel industry survives. It is to support jobs. It is to support communities related to the steel industry.” The reservation would have said something very different. I suspect it would have said: “We do not believe that the entity, Greensill, meets our ethical standards. We believe that it is basically an organisation that has got itself into some very unfortunate and potentially unethical arrangements and is on the verge of bankruptcy.” That is why it is important that the reservation notice is published and the conversation does not exist only in the context of the direction. That is why I say to the Minister that we cannot have an arrangement where the bank could, if it wished, publish its reservation notice; it is crucial that it publishes its reservation notice. I argue that on the grounds of the propriety that should surely lie at the heart of all the legislation that we provide in this House.

[Lord Morgan (Lab)]

My Lords, I rise very briefly to say why—my Whip may not be too happy to hear this—I wish to vote for the amendment from the noble and learned Lord, Lord Thomas of Cwmgiedd, which I know is not the view of my party at present.

I think the distance between central institutions in London, such as the Bank of England, is far too great. We have not really taken account of the mechanics of devolution in our constitutional and legal arrangements. This was shown—very dangerously so—in the Brexit negotiations, when important features of the Welsh economy, notably in agriculture, were not attended to by the Westminster Government. Wales and, I suppose, Scotland were treated in a somewhat colonial fashion and the consequence was that a great deal of ill will was needlessly caused. The noble Lord across the House mentioned difficulties that have arisen in the case of Scotland.

I hope we would accept an amendment that thinks in terms of harmonising the economic strategies in London and the devolved authorities. I speak as one who believes strongly in the union but also in devolution for Wales. I hope very much that the amendment from the noble and learned Lord, Lord Thomas, who is deeply learned in these matters, will be accepted.

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Seven years is also substantially longer than the parliamentary cycle, and it does seem appropriate that the review period should be brought closer to that cycle. I have proposed a compromise of a five-year cycle, which is a balance between being too much of a burden on the bank and an appropriate level of scrutiny and transparency. I do not expect the Minister to accept this, and I am not going to push it to a Division, but she has mentioned in the past that the bank will be subject to all sorts of different reports, scrutiny, and so on. I ask her to at least confirm that the annual report and accounts will contain information on the progress of the bank, in terms of the sort of investments it is making and, in particular, that that will touch on the additionality question, even if it falls short of a formal review.

[Baroness Kramer (LD)]

My Lords, I will be very brief. I thank the Minister, particularly, for establishing that the review will be carried out by an independent body. That is absolutely crucial; we really could not have had the Treasury marking its own homework. That is now going to be established on the face of the Bill.

In terms of the review period, I am totally with the noble Lord, Lord Vaux, on this one. I add one reason to the many powerful arguments that he made. The two issues that this bank is set to address, climate change and levelling up, have a great deal of urgency behind them. Therefore, the decisions that the bank makes in its early days, even if they have a long tail to them, will be crucial. If that direction needs to be changed, the bank needs to know that that is Parliament’s view before we get to seven years out, at which point, particularly around climate change, it will be far too late to change a direction that is not meeting the needs of our climate change agenda. So, particularly for this bank, because it is tied to very specific objectives, a much earlier review phase is crucial.

I join the noble Lord, Lord Vaux, in being interested in how the Minister will lay out these other reviews that are meant to fill that gap. Why should we be having partial reviews that partially fill parts of the gap, rather than the comprehensive reviews on impact that could be managed under various amendments before the House today?

[Lord Tunnicliffe (Lab)]

My Lords, although I see an attraction in a higher frequency than the Government are proposing, equally, I think that, in many ways, even five years is too long. I take comfort in what I hope to hear from the Minister: that we will have much of the information we need to come to a judgment about the success, and effectiveness—crowding in and all those issues—annually in the report. Her assurance on that matter is crucial, but I have confidence that she will be able to give it.