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.