UK Infrastructure Bank Bill [HL]

Baroness Noakes Excerpts

2nd reading
Tuesday 24th May 2022 Lords Chamber

[Baroness Noakes (Con)]

My Lords, this Bill is about an organisation which has the Treasury’s fingerprints all over it. The Treasury will control almost every aspect of what the UK Infrastructure Bank will do. It may well have operational independence, whatever that means, but its whole existence is circumscribed by what the Treasury tells it to do. The Bill features a statement of strategic priorities under Clause 3, and directions issued by the Treasury under Clause 5. Outside the Bill, there are already many documents, including an extensive framework document and a strategic steer letter from the Chancellor. The Treasury will appoint most of the board and will have, as one of those non-executive directors, its own representative on the board, who is to be given significant rights beyond those of a normal non-executive director. We should be in no doubt that this body will be the plaything of the Treasury, and it is surprising that its new chairman, for whom I have very high regard, would agree to be its front man.

Noble Lords will know that I am not in favour of a big state. We should not create new public bodies unless there is a clear problem to which existing institutions, both public sector and private sector, could not provide solutions. I am not convinced that this test has been met. I acknowledge that the Treasury has consulted on the creation of the UK Infrastructure Bank but there are always lots of people who want access to money on soft terms, or to pursue their obsessions. They will be the same people telling the Government that £22 billion is not enough.

The green lobby can be relied on to say that the transition to net zero will cost a very large amount of money. Those who used to access the European Investment Bank want similar access to cheap long-term money and they will doubtless say that it is not enough to compensate for what they used to get from the EIB. The mere mention of levelling up is always accompanied by a begging bowl. We should be very wary of those who just want more access to taxpayers’ money. At the end of the day, it is just government expenditure in different clothes.

Noble Lords might have gathered that I do not like this Bill very much, but I am nothing if not a realist. To that end, I will focus on some specific concerns. First, the intention, as set out in the framework document but not in the Bill, is that this so-called bank should achieve additionality, which is expressed in the framework document as prioritising

“investments where there is an undersupply of private sector financing and, by reducing barriers to investment, crowd-in private capital”.

It will not be difficult to crowd in private capital. The UK Infrastructure Bank will sit there with a bit over 40% of its capital in equity form and it will also have access to National Loans Fund debt. That will give it a very low cost of capital compared with proper banks and it would be very surprising if it failed to attract private money to ride in on the back of that. The bigger issue, which has been mentioned by my noble friend Lord Holmes of Richmond, is whether private capital will be crowded out. This is not even mentioned in the various documents that I have seen.

The arbiter of whether there is an undersupply of private sector financing will be the company itself. If the UK Infrastructure Bank gets that judgment wrong, it will take risks and fund propositions which could as easily be delivered by wholly private sector investment. The Economic Affairs Committee, on which I sit with the noble Baroness, Lady Kramer, is conducting an inquiry into the investment required for the transition to net zero. We have had evidence that there is a lot of investment money out there and that the barriers are more about clarity on government policy and on market models. The danger of crowding out is a very real one.

What will the Government do to ensure that the company does not crowd out the private sector? There appears to be no mechanism whereby the private sector can raise issues if they feel that the financial muscle of the UK Infrastructure Bank has been used inappropriately. My noble friend will be aware that if private sector companies want to be crowded into attractive deals, they will be very cautious about complaining too loudly about being crowded out. How will the Government ensure that the private sector is not steamrollered by this new pseudo-bank?

My second concern is the periodic review set out in Clause 9—the noble Lord, Lord Teverson, has already referred to this. I support the need for a review, but the Treasury should not undertake it because, given its very close involvement with the UK Infrastructure Bank, it comes very close to marking its own homework. As the noble Lord suggested, 10 years is just far too long before the first review.

In addition, the review’s scope deals with effectiveness in delivering objectives, but additionality, which I referred to a few minutes ago, is described in the framework document only as an operating principle and not as an objective. That implies that crowding in or out of the private sector will not be covered in a review under Clause 9. We will need to look at Clause 9 in some detail in Committee.

I have two specific questions for my noble friend the Minister. The first concerns the role of the Comptroller and Auditor-General and the National Audit Office. As I understand it, the C&AG has been appointed as the company’s current auditor. The framework agreement is silent as to whether this will continue or, if a commercial audit firm is appointed as the company’s auditor, whether the NAO will continue to have access rights to the company. It is important that the needs of parliamentary scrutiny and accountability are properly set up for all public bodies when they are created, and we have to ensure that the C&AG can examine the economy, efficiency and effectiveness of the way the UK Infrastructure Bank operates at any time. I hope my noble friend will confirm that that is indeed the case for the UK Infrastructure Bank.

My second question is on the interaction between the UK Infrastructure Bank and financial regulators. The framework document refers to the possibility that the company’s activities will be within the scope of the PRA and the FCA. Can my noble friend explain what in practice this is likely to mean? What activities are likely to engage the financial regulators and what are the implications of that? For example, will the company be subject to the rulebooks of the PRA and the FCA?

The Green Investment Bank lasted only a few years before it was sold off to Macquarie. That reflected a sound Conservative principle that the state should not do what the private sector can do equally well or better. In that light, I wish the UK Infrastructure Bank success so that a future Chancellor of the Exchequer can privatise it.

UK Infrastructure Bank Bill [HL]

Baroness Noakes Excerpts

Committee stage & Lords Hansard - Part 1
Tuesday 14th June 2022 Lords Chamber

Moved by

[Baroness Noakes]

1: After Clause 1, insert the following new Clause—
“Regulation(1) In section 22 of the Financial Services and Markets Act 2000 (regulated activities), after subsection (1B) insert—“(1C) An activity is a regulated activity for the purposes of this Act if it is an activity carried out by the UK Infrastructure Bank, a company registered in England and Wales with the company registration number 06816271.”(2) The Bank is to be treated as having been designated as a PRA-regulated activity under section 22A of the Financial Services and Markets Act 2000 (designation of activities requiring prudential regulation by PRA).”

[Baroness Noakes (Con)]

I am disappointed that so many noble Lords find the content of the UK Infrastructure Bank Bill of so little interest that they are departing this Committee.

The Committee stage of a Bill often starts with an amendment that engages the passions of your Lordships’ House and results in something close to a Second Reading debate. I am sorry to disappoint noble Lords with my rather technocratic Amendment 1, and I hope not to detain the Committee with it for too long.

The amendment seeks to bring the UK Infrastructure Bank within the regulatory ambit of both the Prudential Regulation Authority and the Financial Conduct Authority. When I raised the regulatory status of the bank at Second Reading, my noble friend the Minister told me that it would not carry out any activities that required it to be regulated by the PRA or the FCA; hence it would not be regulated by them. She also said that the Treasury would carry out the FCA’s functions in relation to the senior managers and certification regime instead. I did not find that answer very satisfactory, so I tabled Amendment 1 to probe this further.

I doubt that my amendment is technically correct, given the complex structure of FSMA, and I hope that my noble friend does not feel it necessary to spend a long time telling me about the amendment’s inadequacies: it is a probing amendment. I am keen to explore why the body dealt with in this Bill, which is called a bank and will carry out many activities that proper banks carry out, should be outside the reach of the financial regulators.

While specific activities drive whether an organisation is required to seek authorisation of the PRA or the FCA, once an organisation is within that regulatory scope, a number of broadly based obligations ensue. In particular, regulated firms have to comply with the PRA’s and the FCA’s handbooks, which contain extensive requirements aimed at a huge range of things. The SM&CR, which is dealt with in this group by Amendment 53 from the noble Lord, Lord Teverson, is just one aspect. Others include whistleblowing, risk management, outsourcing, financial crime, and systems and controls. I could go on, but my point is that a financial services body within the ambit of the FCA and the PRA is subject to extensive regulatory supervision, and this will not apply to the UK Infrastructure Bank.

The Minister said that the Treasury would be the regulators in loco for the purposes of the SM&CR, but she said nothing about the other aspects of supervision. For example, who will look at the effectiveness of the bank’s risk management systems or money laundering procedures, which might be particularly relevant given the aim to crowd in investment?

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[Lord Tunnicliffe (Lab)]

My Lords, I rise to speak to these amendments, but I will make a general point about my approach to today’s debate. I find myself agreeing with a very high proportion of the amendments. We obviously want to hear from the Minister the extent to which the Government agree with them, but it seems that the issues we will face on Report will be about which of these amendments need to go into the Bill, rather than whether they are intrinsically sensible, which I think most of them are. I even venture into uneasy territory in this group by finding myself almost agreeing with the noble Baroness, Lady Noakes, again. I put it in slightly guarded terms—

[Baroness Noakes (Con)]

I have no problem with that.

[Lord Tunnicliffe (Lab)]

The noble Baroness should be uncomfortable as well.

UKIB is not an ordinary bank, but strong arguments have been made for subjecting it to at least some of the regulatory measures under the Financial Services and Markets Act. Of course, we will shortly see a new version of that legislation and it is difficult to know exactly what it will look like. Nevertheless, there seems merit in the suggestion made by the noble Lord, Lord Teverson, that UKIB staff should be passed as fit and proper persons. It may be that the Minister is able to offer assurances that that will be the case. If so, perhaps she could write to us and outline the process in more detail.

The noble Lord, Lord Holmes, talked about the bank’s lending and borrowing powers. These are important questions at this early stage of the bank’s existence and, once again, I look forward to the Minister’s response.

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[Baroness Noakes (Con)]

My Lords, before I move on to what I will be doing with my amendment, could I ask one factual question? During my noble friend’s response, she said that the UK Infrastructure Bank had a borrowing limit of £7.5 billion. I understand that the source of that borrowing limit is this framework document. Could she confirm that? If that is the case, I think it is going to make the status of the framework document and its interaction with the statute a very important issue for the conduct of this Committee. The question posed to her by the noble Lord, Lord Vaux, becomes particularly important for us to have a proper understanding. Will she respond on that specific point?

[Baroness Penn (Con)]

I think that the framework document sets out those limits and they are put in place, as it were, by the Treasury. That is my understanding of that interaction.

[Baroness Noakes (Con)]

I thank my noble friend for that, I think what we take from that is that the framework document needs to be well-understood in its scope and effect for many aspects of the debates in this Committee.

In relation to my own amendments, I thank all noble Lords who have taken part in this debate. It has raised some important issues, in particular those related to whistleblowing by the noble Baroness, Lady Kramer. I hope that she gets answers to the questions she has raised because they are important.

I had not appreciated that Parliament approved an exemption for the UK Infrastructure Bank last week. My noble friend did not tell me that at Second Reading, but these things pass one by when dealing with financial services regulation. We were asleep on the job when that came up, but now we have this Bill so we have the opportunity to revisit that question.

I say to my noble friend the Minister that I am not entirely convinced by the argument that, because there is no issue of protecting depositors, there is no systemic risk from the UK Infrastructure Bank, and it should therefore be exempt from the panoply of oversight and supervision banks are ordinarily subject to, whether or not they are small banks. We should not dismiss lightly the areas that have been raised: whistleblowing; the senior manager and certification regime; and financial crime. There are some very important issues which would get attention at the moment, if this were not a state-owned bank, from the FCA/PRA. Without that, nobody is looking at them. I do not think that is a very safe way to set up this bank. I hear what my noble friend says about reviewing it in 2024, but there is a question of whether it is sensible to run the risks until 2024. For today, I beg leave to withdraw my amendment.

Amendment 1 withdrawn.

UK Infrastructure Bank Bill [HL]

Baroness Noakes Excerpts

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

Moved by

[Baroness Noakes]

12: Clause 2, page 1, line 22, at end insert—
“(4A) In carrying out its activities under subsection (4), the Bank must ensure that its activities are undertaken only where there is an undersupply of private sector financing in respect of those activities.”

[Baroness Noakes (Con)]

My Lords, I rise to move Amendment 12 and hope we can pick up a little speed with it. At Second Reading, I raised the issue of the UK Infrastructure Bank’s activities having the effect of crowding out private sector investment. My view is that there can be a role for state-sponsored organisations such as the UK Infrastructure Bank only if there is a market failure which needs to be addressed. The Government appear to agree with this, as the framework document for the bank includes an operating principle that the Bank should

“prioritise investments where there is an undersupply of private sector financing”.

That is, however, only in the framework document; we are coming back to our theme in Committee of what should be in the framework document and what should be in the Bill. It is unsatisfactory for this issue not to be in the Bill. My Amendment 12 is modest, because it states merely that the activities of the bank as specified in Clause 2(4) must be carried out

“only where there is an undersupply of private sector financing”.

I go slightly further than the wording used in the framework document, which refers to prioritising where there is an undersupply of private sector financing, but I believe that the UK Infrastructure Bank should positively avoid those activities which are adequately supplied with private sector finance.

Amendment 14 in the next group, with which I suggested my Amendment 12 be grouped, sticks faithfully to the wording of the framework document and includes the other operating principles, to which we will come. If the Minister prefers the formulation in Amendment 14 when we get to the next group, I certainly would not object, because my priority is to have the issue of crowding out firmly in the Bill. I beg to move.

[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?

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[Baroness Penn (Con)]

I will very happily do so.

[Baroness Noakes (Con)]

My Lords, we have had a short but important debate on this principle. There is nothing fundamentally dividing us on the underlying principle; the issue is how we implement it. I continue to believe that we should search for wording that we can be comfortable with. I accept criticism of the current wording, which I lifted largely from the framework document, and I accept that it is difficult to encompass the shades that you will encounter in real transactions, which often have sequencing involved in them, in determining whether there is an adequate supply or provision of private sector finance.

I am uncomfortable about leaving this simply to the strategic plan, partly because there is no role for Parliament in it. There is a role for the Treasury in relation to conversations with the UK Infrastructure Bank, but not for Parliament. There is a need to understand how best to phrase the principles without getting into the detail—but I accept that the devil will be in the detail in this Bill.

I am very grateful for the offer from my noble friend the Minister of further discussions, which I—and, I suspect, other noble Lords—will be only too keen to take up between now and Report. On that basis, I beg leave to withdraw my amendment.

Amendment 12 withdrawn.

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[Baroness Bennett of Manor Castle]

I thank the noble Lord for his support for my somewhat unintended amendment.

We come back to: what is this bank for and what is the economy for? The bank is supposed to serve the people of this land. The departments that focus on the people and the climate emergency this bank is serving should surely have an explicit statutory role in oversight. I have not been in your Lordships’ House that long, and I cannot count the number of times I have seen a Minister stand at the Dispatch Box and say in response to a question, “Well, I’d love to do that, but the Treasury —” and roll their eyes. That is the way the country is being run, and it needs to change. This could be a small way to step in that direction.

[Baroness Noakes (Con)]

My Lords, I, too, support a separate Department of Energy and Climate Change, but for a slightly different reason because I think we would then allow BEIS to focus on what it should be doing, which is supporting British industry, productivity and growth in the economy without being distracted by a lot of other stuff.

I want to pick up the point about the extent to which the framework document should be reflected in the Bill. It is quite normal for public sector bodies to have framework documents—they are often called a memorandum of understanding—by their side. That has not been invented just for this organisation. They usually contain a lot of really quite mundane stuff such as following the Green Book and Managing Public Money and a lot of detail about interactions between the sponsoring department and the body. This framework document in many ways goes beyond what you would normally expect to find in such a document, which is why I and others are querying where the balance should be, but I do not think we should look towards importing the whole of the framework document into the Bill or having some kind of approval process because much of it will deal with rather mundane, day-to-day stuff. The problem here is that this framework document has got rather grand and includes things that ought to be within Parliament’s purview. I am sure we will be taking this area forward, and I hope we will have a bit of balance and perspective about ensuring that we do not have statutory overreach.

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[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.

[Baroness Noakes (Con)]

My Lords, as noble Lords know, I criticised the concept of the UK Infrastructure Bank at Second Reading on the basis that it was the Treasury’s plaything and it had the Treasury’s fingerprints all over it. That was against the background of my not really liking public bodies being created to do things that I do not think there is any good reason for. I believe that once we have a public body set up—we accept that there is a reason to create a public body with access to privileged sources of financing—we have an obligation, as government, to put a proper control framework around it to ensure that public money is protected and that we have powers available to us to meet whatever circumstances might arise. So I part company with the two previous noble Lords who have spoken, because I think it is extremely important to have backdrop powers to be used when necessary.

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[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.

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Moved by

[Baroness Noakes]

42A: Clause 6, page 3, line 10, at end insert—
“(1A) The Bank's directors must ensure that the accounts and reports referred to in subsection (1) include a statement of the extent to which the Bank has achieved its objectives as set out in subsection (3) of section 2.”

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[Baroness Noakes (Con)]

My Lords, Amendment 42A amends Clause 6 of the Bill dealing with annual accounts and reports, which is one of my specialist topics. I also speak to Amendment 55 in this group, which is in my name.

Amendment 42A simply requires that the bank’s annual report contain a statement of the extent to which it has achieved its objectives under this Bill. My purpose in tabling this amendment is to ensure that there is an adequate, regular supply of basic information to support parliamentary accountability. The Treasury does not need to rely on formal publications by the bank, it has its own nominee on the board, and it has negotiated its own extensive access rights to information as part of the framework document.

The framework document acknowledges that the bank may give evidence at the Public Accounts Committee or the Treasury Select Committee in the other place and hence envisages the accountability of the bank to Parliament, which must be right. All that my amendment seeks to do is to ensure that there is at least some core, routine, regular information to support that accountability. In passing, I note that the framework document is silent on the role of Select Committees of your Lordships’ House. Can the Minister assure me that there will be no barriers to the bank appearing before one or more of them?

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[Baroness Penn (Con)]

My Lords, as we have heard, these amendments all relate to the reporting on the bank and the content of any statutory review of the bank. Amendment 42A, in the name of my noble friend Lady Noakes, seeks to ensure that the bank’s annual accounts and reports will contain a statement on the extent to which the bank has achieved its objectives. I hope I can provide some reassurance that UKIB already has obligations to publish in its strategic plan details of how its strategic objectives are being fulfilled, as well as how its activities meet its operating and investment principles.

There were also a number of amendments detailing what the statutory review of the bank should look into. Amendment 55, from my noble friend Lady Noakes, Amendment 56, from the noble Lord, Lord Vaux, and Amendment 65, from my noble friend Lord Holmes, all relate to the additionality of the bank and how it will work to crowd in private investment, not crowd it out. In response to my noble friend Lord Holmes, I am happy to restate that it is our expectation that the bank will crowd in £18 billion of finance from £8 billion. The evidence to date is that £300 million could have unlocked £500 million of private finance.

As I said previously, how effective the bank has been in meeting its objectives, including additionality, is a really important point and one I would expect the statutory review to look at. I also re-emphasise to noble Lords how seriously additionality is taken by the bank itself. As I mentioned, I would expect to see in the bank’s strategic plan, published later this month, a list of KPIs that it will use to measure its impact. One of those will be on the private finance it has brought in.

On Amendment 57, from the right reverend Prelate the Bishop of St Albans, the bank takes its obligations to providing regional and local economic growth across the UK, including to rural communities, very seriously. As I mentioned, the bank will have a number of KPIs to ensure that it is meeting its objectives and will detail these in its upcoming strategic plan. I appreciate that I have not seen the strategic plan either, but if the right reverend Prelate would like to discuss that further having seen it, I would be very happy to do so.

Amendment 64 is on the review of inclusive infrastructure. The bank carefully considers the impact of its decisions on those sharing protected characteristics, in line with its legal obligations and its strong commitment to promoting fairness. It has a rigorous process in place to ensure that it complies with its legal requirements under the public sector equality duty in the Equality Act 2010. Impacts on protected characteristics are appropriately flagged and assessed before the granting of loans.

Amendment 66 is on reporting of the bank’s lending. The bank can already determine the level of its own investments in line with its capitalisation and annual limits that are agreed in its framework document. The bank will report on its lending in its annual report and accounts, which will be published and laid before Parliament.

Amendment 67, from the noble Baroness, Lady Kramer, suggests that we conduct a review of the bank to ensure it continues to meet the aims of the national infrastructure strategy. I can provide the noble Baroness with some assurance that this is precisely what the Government will do when they review the bank as part of the arm’s-length body review in 2024-25. Further to this, the National Infrastructure Commission will publish its second national infrastructure assessment next year, and the Government will consider future updates to the national infrastructure strategy in view of this assessment. We will continue to ensure that the bank is made aware of how its work can complement the Government’s long-term infrastructure strategy, including through the statutory strategic steers, powers for which are contained in the Bill.

I therefore hope that, at this stage, my noble friend Lady Noakes can withdraw her amendment and that other noble Lords will not move theirs.

[Baroness Noakes (Con)]

My Lords, I thank my noble friend the Minister for that response. We have had an interesting, short debate. This is rather a varied group of amendments. There is only one link between them, in that they are all about reporting. Apart from that, a lot of different issues are raised—not all of which I will comment on, because they were not covered in my own amendments.

I will deal with the issue of crowding out or crowding in. The noble Lord, Lord Vaux, and my noble friend Lord Holmes of Richmond have a concern around this. My noble friend said that the report under Clause 9 would cover this, but the report under Clause 9 is about how well it has achieved its objectives. The objectives are very clear in Clause 2: to help tackle climate change et cetera, and to support regional and local economic growth. It is not an objective to achieve a crowding in or avoid crowding out. That has been the heart of one of the problems. I hope that when we have our further discussions on crowding in and crowding out, which we have already established that we will have before Report, we can cover this aspect. This is part of the whole problem of how to express the additionality requirement and then how to measure it and report on it. It is part of the same theme, so I will not labour it further now.

My Amendment 42A was about having something in the annual report and accounts on how well the bank is achieving its objectives. I am not at all clear that this is met by what my noble friend said, which was something to do with the strategic plan and the KPIs. Tomorrow I will read carefully in Hansard what she said, because I probably did not concentrate quite as hard as I should have. I do not think she answered the question, and I may well want to return to it either on Report or with her before Report. On that basis, I beg leave to withdraw.

Amendment 42A withdrawn.

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[Lord Thomas of Cwmgiedd (CB)]

My Lords, there are obviously different ways of trying to ensure two things. On one, expertise, my long experience of bankers has persuaded me that they are not the right people to be exclusively on this board. One needs someone with the expertise of addressing the objectives of the bank. That is critical. The second is to keep the union together and it is no use saying—I hope that we will not get this from the Minister, who has been so receptive to many points—“Don’t worry, we’ll all do the right thing”. I come from a school where if you all agree on what the right thing is, why do you not write it down?

That is really what I am saying: let us write down that you should have experts in the various areas central to the bank’s objective and make provision for those who live in the devolved nations to feel that the bank is acting in their interests. Here, the question of perception is critical. The idea that the Treasury carries on as before is, to my mind, not apposite in the current time. I would hope that the way in which I have phrased my amendment might be slightly more acceptable to the Treasury in that it would leave it with the decision while giving it objective standards. One can but hope.

[Baroness Noakes (Con)]

My Lords, I shall make just a couple of comments. I support the noble Baroness, Lady Kramer, on her Amendment 45, which requires there to be a majority of non-executives on the board. My noble friend the Minister will doubtless say that the UK Infrastructure Bank will have to comply with the UK governance code, and therefore it has to have a majority of non-executive directors. But any public body that is set up always has the provision that there is at least a majority of non-executive directors on the board. It would be good practice to replicate that for the appointments here, given that we are dealing with those appointments in statute anyway.

I am not attracted by having odd numbers on the board. If there had been a problem, it would have surfaced in the UK Corporate Governance Code before now. The plain fact is that if there ever is a situation where a board is split, no chairman will use a casting vote to push something through. Boards simply cannot operate on that sort of basis. Normally something is withdrawn, people regroup and compromise is reached. It is just not a problem in practice, so we do not need to reflect it in the Bill.

One thing I really want to do, I am afraid, is to disagree with the noble Lord, Lord Vaux of Harrowden, on giving appointment rights to First Ministers in the devolved Administrations. I completely accept that the devolved Administrations will want to feel involved but I prefer the formulation in the amendment of the noble and learned Lord, Lord Thomas of Cwmgiedd, which is about recognising that a knowledge base is important to have on the board. Another and more normal way of doing it is to have a consultation option available to take the views of the devolved Administrations.

However, it is really important to avoid having representatives on boards. It will destroy the collective nature of the board if you have people parachuted in from outside with their only virtue being that they were a political appointment. It is really important to preserve the nature of the board as being an area—picking up what is in these other amendments—to bring together the skills and experience necessary to have the right decision-making processes.

[Lord Tunnicliffe (Lab)]

My Lords, I have two interests in this group, having tabled Amendments 48 and 51, but I shall take them out of order as one is general and the other more specific. Amendment 51 is linked to the one tabled by the noble Baroness, Lady Kramer. It seeks to ensure that the bank’s board comprises individuals with knowledge and experience relevant to its objectives.

The second strand of the amendment is arguably more important as it suggests that the board should have knowledge and experience of the nations and regions of the United Kingdom. This is a slightly different proposition from those of the noble Lord, Lord Vaux, and the noble and learned Lord, Lord Thomas. It is vital that the nations of the United Kingdom are properly involved in this process. However, it is equally important that the bank appreciates the very different needs of England’s regions. The Bill sets the objective of achieving regional growth, yet there is no mechanism within it to ensure either a fair split of investment activity across the nations and regions or to address entrenched regional imbalances. Appointing the right board members may not directly address those concerns, but it would at least move things in the right direction.

Returning to the theme of jobs, my Amendment 48 proposes that at least one member of the bank’s board should be a workers’ representative. From previous debates, we know that the Government’s ambition is for jobs created through UKIB funding to be well-paid, secure, and so on. Surely the most effective way of ensuring that the bank supports the right forms of employment is for its board to have somebody with a track record of representing working people.

The Minister will resist the amendment, but in doing so, can she tell me precisely what alternative mechanisms are in place to ensure a voice for workers? I suspect there is none, once again calling into question the Government’s commitment to improving employment practices and rights. Labour wants the bank to be a force for good in all nations and regions of the United Kingdom, creating the highly skilled, secure jobs of the future. The Chancellor talks a good game, but he is falling back on his rhetoric in the Bill. I hope the Minister will reconsider.

--- Later in debate ---

Moved by

[Baroness Noakes]

54: Clause 9, page 4, line 2, after “must” insert “appoint a person or persons to”

[Baroness Noakes (Con)]

My Lords, we are in the final lap of Committee. I shall speak also to the three other amendments in this group in my name. Amendments 54 and 58 deal with who should carry out the periodic review of the UK Infrastructure Bank under Clause 9. Clause 9 says that the Treasury must carry out the review, and my two amendments change this to “a person or persons” who are independent of both the Treasury and the bank. At Second Reading, I spoke about how the Treasury was intertwined with the UK Infrastructure Bank and in effect calls all the shots. We have covered that ground again today and I will not repeat any of that now, but all that adds up to a fact of life: that the Treasury is very closely involved in the bank and is not and cannot be a dispassionate observer when it comes to appraising how well the bank has done. The Treasury should not, as I think the noble Lord, Lord Vaux, said earlier, be marking its own homework.

In my view, it is only right that an independent person should be appointed to appraise the effectiveness and impact of the bank. Indeed, it may well be that the effectiveness or impact of the bank has been helped or hindered by the Treasury, and we certainly want to know about that. That would not emerge if the review were carried out by the Treasury. The noble Lord, Lord Teverson, has a more elaborate version of independent review in his Amendment 63, and I look forward to hearing what he has to say on it, but I wonder whether an annual report on performance is getting a bit too much like micro-oversight of the UK Infrastructure Bank.

Turning to Amendments 59 and 62, which address the timing of the Clause 9 reviews, I am grateful for the support of the noble Lord, Lord Vaux of Harrowden, and the noble Baroness, Lady Kramer, respectively, in respect of these amendments. Under Clause 9, the Treasury has up to 10 years to produce its first report and then has to produce reports at not more than seven-year intervals after that. My amendment calls for a first report within four years and Amendment 62 calls for subsequent reports at least every three years. I chose four years as the first period, rather than the three years called for by Amendment 60 in the name of the noble Baroness, Lady Kramer, because I thought that a report after three years of operation would be sensible and would allow a bit of time beyond the three years to actually make the report. But there is no magic in either three or four years: the main point is that 10 years followed by seven years is far too long. I beg to move.

[Lord Teverson (LD)]

My Lords, when the Green Investment Bank was privatised and we dealt with legislation to do that, we in this House looked at ways in which we could be sure that, with that change of ownership, whatever it would be, it remained true to its constitution, its values and objectives in that private situation. It was subsequently bought by Macquarie, which still owns the Green Investment Bank, now called the Green Investment Group. The Government at the time—I remember going through this with the noble Baroness, Lady Neville-Rolfe—were enlightened enough to set up a green share held by a non-profit organisation called the Green Purposes Company, of which I am a trustee, and therefore I declare my interest in that.

I take the noble Baroness’s point that my amendment is slightly more complicated and maybe slightly more micro, but it is there for a different reason. That company was set up in a similar way to the way described in this amendment, and what we do in the Green Purposes Company is certainly not to act in any way prior to investment—we are not part of any investment committee; we do not get involved in that. What we do, at the end of a year, is to assess whether those investments that have been made by what is now the Green Investment Group comply with its green objectives and the mission of the bank.

With the co-operation of Macquarie, that process has worked very well. As I said, we assess performance against the bank’s objectives and have four meetings a year with senior management—they are optional; we just decided to do that operationally—and then publish a letter in the annual report of the bank, making that assessment of the investment in general. It is a fairly short letter, but it provides total transparency and a completely independent view of whether the bank has met those objectives through its investments during the year.

Having agreed to and implemented this model, we have talked to Treasury officials about it in the past—it has been considered and, I think, welcomed by the Environmental Audit Committee at the other end—and to the Finance Minister John Glen. It is a successful assessment method; it is transparent, tried and tested and is a model laid down by the Government themselves. This is a really good way forward and I would very much like the Minister to consider it as a way that we can make sure there is independent, regular assessment, post investment, of how the bank is performing without getting into too much of the micro area in the report. I agree that, if that was too much part of the reporting structure, it could be onerous and reduce transparency.

--- Later in debate ---

[Baroness Penn (Con)]

I will be happy to go away and check on that point. I think that the intention is that they would be, but I will double-check.

The period of 10 years has been chosen to allow for a fuller analysis of the infrastructure funding that the bank has undertaken and to see the real impact of its investment in the context of delivering against the missions set out in the levelling-up White Paper and the progress towards the Government’s net-zero target.

I will note one further point. As I confirmed at Second Reading to my noble friend Lady Noakes, UKIB will be subject to external audit by the National Audit Office, including on an annual basis as part of the statutory powers of the Comptroller and Auditor-General.

Amendment 63, in the name of the noble Lord, Lord Teverson, seeks to mirror the arrangements of the Green Investment Bank by having a company shadow the bank to ensure that it is meeting its objectives. He is clearly knowledgeable on this subject as he sits on the board of the Green Purposes Company. However, he will note that the Green Investment Bank did not need this function when it was part of government because there were already other routes of accountability, including directly to Parliament in relation to the bank’s use of public money.

This legislation sets out quite clearly the objectives of the bank so, if there is any deviation from that, the Government can compel it to change its course or there will be a challenge in the courts. Further to this, Ministers are accountable to Parliament on the performance of the bank, so I dare say the noble Lord would provide adequate challenge should he think that the bank was not performing against its objectives.

To tidy things up, my noble friend Lady Noakes asked a question on the bank appearing before Lords committees. There is no barrier to that. Indeed, the CEO and the chair of the bank were before the Economic Affairs Committee on 17 May as part of an energy supply session.

I hope that, in laying out those reasonings from the Government at this stage, my noble friend will feel able to withdraw her amendment and that other noble Lords will not move theirs when they are reached.

[Baroness Noakes (Con)]

My Lords, I expect that my noble friend the Minister knows that she is batting on a rather sticky wicket. While she has valiantly sought to explain her reasonings, I think I can probably speak for the rest of the Committee when I say that we are not wholly convinced by them. I can see no particular point in detaining noble Lords in this Committee much longer other than to say that we have to record that clearly both the independence and the time period of the review are areas that we will need to return to on Report if we do not satisfactorily deal with them before we get to that stage. With that, I beg leave to withdraw the amendment.

Amendment 54 withdrawn.

UK Infrastructure Bank Bill [HL]

Baroness Noakes Excerpts

Report stage
Monday 4th July 2022 Lords Chamber

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to open this group of amendments and to move my Amendment 6. This amendment boils down to just one word, which predates the investment principles of the bank, the objectives of the bank, the strategy of the bank, the framework document of the bank and everything else associated with the bank: additionality. That is the bank’s raison d'être—no additionality, no bank.

As mentioned in the first group of amendments, we have “roads” in the Bill but nothing about additionality. My Amendment 6 would seek to set out exactly what additionality means, how it covers crowding out as well as crowding in, and what multiple Treasury should set on that crowding in.

Government Amendment 23 is purely an amendment to review what the bank has done on crowding in after seven years. It says nothing on crowding out, hence why I support Amendment 24 in the name of my noble friend Lady Noakes, which I will say no more about.

My Amendment 6 covers both the end-point—the review—and the beginning, the mission the bank needs to be on. It is all well and good to have a review at the end of 10 years, or now seven, but without Amendment 6 the review is just the spectre of an individual walking backwards into the future, wringing hands about what the bank has done, either positively in achieving additionality or negatively. Although a review is significant and important, it always arrives a little too late to influence what has just happened.

It is critical that additionality is in the Bill for the benefit of the bank and for the private sector, which would have the confidence to know that the bank would operate to the threshold of additionality, which would have to be achieved or that specific investment would not be entered into. If the Minister cannot accept my amendment, would she commit to meeting with me between Report and Third Reading to look at what we can do to get additionality in the Bill to strengthen the position of the bank, to make projects far more likely to crowd in and not crowd out funding and, ultimately, to benefit everything we are trying to do in this infrastructure space? I beg to move.

[Baroness Noakes (Con)]

My Lords, I have Amendment 24 in this group, which is an amendment to the Minister’s Amendment 23. It is always rather strange speaking to an amendment to an amendment when the amendment itself has not been spoken to—but I will do my best.

First, I congratulate my noble friend Lord Holmes of Richmond on his Amendment 6. It is well drafted and encompasses what we understand by additionality in the context of the operations of the UKIB. In Committee, it was widely agreed that additionality was so important that it should be in the Bill. I think it was also agreed that the boundary between what is in this Bill and is in other documents outside the Bill, including the framework document which is not even referred to in the Bill, has been set in the wrong place. When I say that the Committee agreed these things, I do not suggest that the Government agreed, but the vast majority of the Committee was aligned on these matters.

The Minister has been generous with her time with noble Lords, and I thank her for the meetings she arranged and for her letter of last week. She gets a gold star for effort, but I am afraid that that is not matched for content. On additionality, my noble friend claimed that the absence of an agreed definition in the Bill could stop it developing over time. That is nonsense. Additionality, as a basic concept, has barely shifted in the many years that I have been involved in public sector matters. The essence of it is about, and always has been about, something that should occur that would not otherwise have occurred but for the particular intervention or action. It is a universal principle that can be adapted to a number of circumstances.

I then suggested to my noble friend the Minister that, rather than try to produce a specific definition, she could put a high-level definition in the Bill and take a Treasury power to issue guidance to UKIB. That too was brushed aside. The Treasury likes to keep stuff in documents, such as the framework document, which it alone controls. I remind noble Lords that, as my noble friend the Minister informed us in Committee, the framework document is not even legally binding.

Nevertheless, I recognised that the Treasury is something of an immovable object on this issue, so I decided that it would be better to pursue the Minister’s offer of a way forward and include additionality issues in the periodic reports which are required by Clause 9. I thought that half a loaf would be better than no loaf, but I have to say that Amendment 23, which my noble friend has tabled, is a serious disappointment. It represents no more than a quarter of a loaf.

Amendment 23 adds an additional reporting requirement to Clause 9 but it is a lop-sided approach to additionality. Its focus is on the extent to which UKIB’s investments in projects have encouraged additional investments in those projects. It therefore will cover the extent to which projects have enabled crowding in, but it does not explicitly cover crowding out, which has always been my biggest concern, because a bank with a high capital ratio and a low cost of capital can easily outcompete private sector financing. I do not believe that if UKIB were to finance the whole of a transaction to the complete exclusion of the private sector in circumstances where 100% private finance could have been obtained, it would be captured by my noble friend’s amendment—it would not come close to being captured by my noble friend’s amendment. Such a transaction would not have encouraged or discouraged private sector finance; it would have bypassed it completely. That is why my Amendment 24 refers to investments having been made by UKIB

“despite an adequate supply of private sector financing”.

My noble friend the Minister will doubtless say that it is not in UKIB’s strategic plan to do transactions without private sector financing. It was never in the strategic plans of the European Investment Bank to crowd out private sector financing, but it did it anyway, in collusion with private sector borrowers, who were quite happy to take soft loans from public sector lenders who were much easier to deal with than hard-nosed real bankers in real banks.

My noble friend the Minister has also referred in correspondence to the impact of the Subsidy Control Act, which became law earlier this year. I have to say that the Act, which refers to subsidy decisions, sits rather uneasily with the practice of doing investment deals in the context of a bank. I accept that at a high level it would apply to UKIB. I just think that the language is very difficult to interpret in the context of what UKIB would do. My main concern is that there would never be an enforcement action against UKIB because the crowded-out private sector financiers are exactly the same people who want to be invited to any crowding-in party. It simply will not be in their interest to try to get the Act enforced against UKIB.

For all these reasons, I am very disappointed that this Bill, which I have never regarded as a shining example of Conservative economic values in any event, is going to ignore the concept of crowding out, which ought to be something dear to any Conservative Government’s heart. I shall not move my amendment when we reach it in the Marshalled List, but I live in hope that there are still some Conservatives in the Treasury who might have a change of heart before this Bill reaches the other place.

[Lord Vaux of Harrowden (CB)]

My Lords, I rise to speak to Amendment 24 in the name of the noble Baroness, Lady Noakes, to which I have added my name. The noble Baroness has already eloquently explained the rationale for this amendment, so I will try to keep my speech reasonably short.

Like the noble Baroness, I was strongly drawn to Amendment 6 in the name of the noble Lord, Lord Holmes, which would insert the critical additionality principle into the principles of the Bill. That would be the preferable approach, but, like the noble Baroness, Lady Noakes, I have been persuaded, reluctantly, to go along with the Government’s approach of making this something the bank reports on.

That leads me to amendments in the final group about the timing of those reports, which are, at the moment, seven years apart. If this is to be the way we deal with additionality, the report timings need to be shorter.