UK Infrastructure Bank Bill [HL]

Baroness Penn Excerpts

2nd reading
Tuesday 24th May 2022 Lords Chamber

Moved by

[Baroness Penn]

That the Bill be now read a second time.

[Baroness Penn (Con)]

My Lords, it is a great pleasure to open this Second Reading. The UK Infrastructure Bank Bill is the final stage in establishing the UK Infrastructure Bank as an operationally independent and long-lasting institution.

Before I go into the provisions of the Bill, it may be helpful if I provide some context to the bank. In 2018, the National Infrastructure Commission produced the first national infrastructure assessment—NIA—which recommended that a new UK-wide infrastructure bank be established to manage the loss of funding from the European Investment Bank. In 2019, the Government undertook the infrastructure finance review—IFR—consultation, which found support for a new, enduring body to deliver infrastructure finance support tools in line with the NIC’s recommendation.

Responding to the national infrastructure assessment, the Government published the National Infrastructure Strategy in 2020, setting out their plans to bring forward a UK infrastructure bank. A policy design document was produced in spring 2021 and the bank was launched at pace in summer 2021. In the design and set-up of the bank, the Government have delivered three crucial requirements from the original National Infrastructure Commission recommendation.

The first recommendation from the NIC was that the bank should be operationally independent. This is something the Government take very seriously, and which is important to support the bank’s credibility in the market as a long-lasting institution. Respondents to the infrastructure finance review told the Treasury that independence increases efficiency and ensures commercial decision-making. However, the institution needs to operate in line with the Government’s overall infrastructure goals.

One of the reasons we have a Bill today is to protect that operational independence. Noble Lords will note that the bank is already operational but the Government cannot simply sell or dissolve the bank without further legislation. The Government are also unable to change the bank’s objectives without further primary legislation, or its activities or definition of infrastructure without further secondary legislation.

Finally, the Bill also gives the market a clear remit as to the extent of the Government’s powers over the bank. This builds on the bank’s existing operational independence, as set out in its framework document, which provides that the bank has authority to make its own investment decisions within its delegated limits without ministerial approval.

The second recommendation was that the bank should focus on addressing the market failure in economic infrastructure. An assessment from Vivid Economics for the National Infrastructure Commission showed that, in some cases, EIB activity crowded out private investment. Likewise, IFR respondents told us that the private sector would be able to fill some of the lending gap left by the EIB. Therefore, while the bank is designed to take on the role which the EIB previously filled in investing in new green technologies and development, it is not designed to replicate all the previous activities of the European Investment Bank. This is reflected in the two objectives the Government have set for the bank: to tackle climate change and support efforts to meet the net-zero target in 2050, and to support regional and local economic growth.

With regard to the climate change objective, significant public and private investment will be needed to achieve the UK’s infrastructure policy goals, and low-carbon investment will need to be significantly scaled up to deliver net zero. This is highlighted by the fact that the UK’s core infrastructure—power, heat and transport networks—accounts for over two-thirds of UK emissions. Without the bank, the private sector is likely to focus its investment on lower-risk technologies and sectors. The bank can play an important role by crowding in private finance to invest in higher-risk and nascent technologies, and in scaling subsidy-free business models —both of which will be key to transitioning to net zero. Linked to this, the bank’s focus on rapid progress on its net-zero goals overlaps with the Government’s renewed focus on energy security.

On the second objective, to support regional and local economic growth, disparity in infrastructure across the country has been identified as a key driver of economic inequalities. Central to the Government’s ambitions to level up is setting up new institutions boosting productivity, pay, jobs and living standards by growing the private sector and supporting it to deliver opportunities in parts of the country where they are lacking. Without intervention, the private sector is likely to continue to target geographic areas that have historically received higher levels of private capital. Respondents to the IFR highlighted that any government institution in replacement to the EIB should seek to consider regional balance. The bank aims to remedy geographic inequality and drive improvement in long-term productivity across the country by crowding in private capital to areas that have been left behind, strengthening regional and local economies.

Further, the bank responds to the need identified in the levelling up White Paper to boost local decision-making to allow communities to make the improvements that are most needed. An additional source of government-backed finance for local authorities will give local decision-makers increased power in deciding which investments in infrastructure will have the most impact on their local economy.

Finally, on the recommendation to set up the bank at pace, noble Lords will note that the bank was launched in summer last year, less than a year after the Government announced plans for the bank in the National Infrastructure Strategy. Since its launch, the bank has already completed six deals, including financing the UK’s largest operational solar farm in south Wales. The bank has also invested in Teesworks, a £107 million investment in Tees Valley Combined Authority’s project to transform the former Redcar steelworks site to service the offshore wind sector and support around 800 high-quality jobs. The bank will work towards achieving a double bottom line, whereby investments help to achieve its core policy objectives while generating a positive financial return to ensure the financial sustainability of the institution and reduce the burden on the taxpayer.

On the provisions in the Bill itself, we are legislating for the bank to complete its set-up as an operationally independent institution. The Bill is broadly split across three areas: enshrining the bank’s objectives and activities in legislation to provide clarity for the bank and the market as to the bank’s long-term purpose as an enduring institution; providing for financial assistance, including, crucially, giving the bank the power to lend directly to local authorities and the Northern Ireland Executive; and, finally, supporting the bank’s operational independence by setting out clear accountability for how it is to be run, including reporting and board requirements.

First, on the bank’s objectives and functions, Clause 2 sets out in statute the bank’s objectives of tackling climate change and regional and local economic growth, and in doing so provides clarity to the market as to the bank’s policy objectives. I have already set out the rationale for the bank’s two objectives, but it may be worth elaborating slightly when it comes to climate change. I know that questions have been asked as to whether the bank’s objectives allow for investment to improve the UK’s natural capital. The Government undertook a review of the bank’s environmental objectives, which concluded that there is significant scope for the bank to invest in nature-based solutions while achieving the bank’s existing objectives. This was further emphasised in the Treasury’s strategic steer to the bank, which I will come to shortly.

Clause 2 also sets out three activities that the bank can perform to deliver its two objectives. The bank’s activities are: providing a range of financing tools for private sector investment; financing local and mayoral authorities across the UK; and providing an expert advisory service to help local authorities. The bank’s activities also allow for it to invest in mixed-infrastructure projects, such as a transport hub that includes some housing.

Finally, Clause 2 also sets out the definition of “infrastructure” for the bank. The bank has been set up to invest in economic infrastructure, as per the recommendation of the National Infrastructure Commission, as this was where there was greatest need for government-backed lending. The definition of infrastructure has been adapted from that used in previous legislation, but with the social infrastructure aspects of previous definitions removed and the addition of climate change technologies and facilities. This ensures that the bank will be able to invest in a range of economic infrastructure sectors and in emerging new green infrastructure technologies to deliver on its objectives.

Although the bank’s objectives will be able to be amended only through future changes to primary legislation, Clause 2(6) allows for the bank’s activities and definition of infrastructure to be amended via secondary legislation. The Government believe that this strikes the right balance between ensuring long-term clarity on the objectives of the bank while allowing for the possibility that a future Government may wish to change the emphasis of the bank’s activities for policy reasons and may desire to alter the definition of infrastructure to support this change. It also allows for the fact that the bank’s approach may need to evolve to reflect changes in the market for infrastructure. Both these powers are taken under the affirmative procedure, in line with the Delegated Powers and Regulatory Reform Committee’s guidelines, and to allow for parliamentary scrutiny.

Turning to the financial assistance provisions, Clause 5 allows the Treasury to put the bank into funds, including through the National Loans Fund. As I mentioned previously, the bank has been funded with £22 billion of capital initially, and the level of financing for the bank will be reviewed ahead of spring 2024 to ensure that it continues to meet its objectives in the most affordable way. Within the definition of the bank’s activities, the Bill will also, crucially, remove the existing legal barriers that currently prevent the bank lending directly to local authorities.

Finally, I turn to the governance measures in the Bill. Clauses 3 and 4 allow the Treasury to issue a strategic steer and a power of direction respectively. Given that the Government remain accountable to Parliament for the bank and for any element of risk that the activities take, it is right that the Government have some degree of influence over the bank. The Government recently issued their first strategic steer to the bank, in which they set out the expectation that the bank should develop strong relationships with the devolved Administrations and their institutions, for example the Scottish National Investment Bank.

A power of direction is not uncommon in arm’s-length bodies and is not designed to be used often. Where the power is used, statute will require that it follows consultation with the bank’s directors and is published to ensure ministerial accountability for the content of the direction. The legislation for the Bank of England, in the Bank of England Act 1946, and Her Majesty’s Revenue & Customs, in the Commissioners for Revenue and Customs Act 2005, both include a power of direction. This will not interfere with the bank’s day-to-day operations or investment decisions.

With a body in statute, it is important to set out how the governance of the bank will work in practice to ensure transparency and accountability to Parliament. As is usual practice, Clause 6 will ensure that the bank’s annual reports and accounts are published in Parliament. Clause 7 sets out the process for appointing directors and other practical aspects such as the size of the board, which is consistent with similar bodies such as the Bank of England. We also think that it is appropriate to have a statutory review after 10 years, and subsequently at least every seven years, to ensure that the bank is still meeting its objectives. This is set out in Clause 9.

I greatly look forward to the debate we shall now have on Second Reading and hearing the expertise of noble Lords in the Chamber. I beg to move.

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, I thank all noble Lords who have contributed to such an interesting and wide-ranging debate. It showed the breadth and depth of the knowledge of this House, but also showed me that I have no chance of addressing all the points raised. I will write a detailed letter to noble Lords who I do not manage to reach.

The only other thing I would say at the outset is that I think there was a broad welcome for the bank and the Bill in the debate, although of course the devil will be in the detail. I am pleased that we were able to have an initial engagement session with my honourable friend the Economic Secretary to the Treasury and the chief executive of the bank, John Flint, yesterday. It is in that spirit of engagement and listening that we want to continue the Bill’s progress through the House.

I turn directly to trying to address as many of the points raised by noble Lords in the debate as possible. I start with the size and remit of the bank. The noble Lords, Lord Teverson, Lord Tunnicliffe and Lord Sikka, the noble Baroness, Lady Kramer, and others noted that the bank is small compared with other institutions and cited the KfW development bank in Germany. This might be the case, but I do not think that UKIB and the KfW are quite the right comparison. The KfW is an institution that has existed since 1948. It might be more appropriate to compare UKIB to similar institutions in Canada and Australia: the Canada Infrastructure Bank, which had an initial capitalisation of around £20 billion, and the Australian CEFC, which was capitalised with 10 billion Australian dollars.

However, as I mentioned in opening, we will undertake a review of the initial capitalisation of the bank ahead of spring 2024, as set out in the policy design document last year. The Government took a conscious decision to have a narrower remit for the bank in line with recommendations from the NIC, to address the point raised by my noble friend Lady Noakes, to avoid the high risk of crowding out funding from the private sector that would otherwise be there. There is a higher risk of that with institutions such as the KfW. It is also unclear how successful those kinds of institutions are at co-investing with the private sector. This is a different beast and has been designed to be so.

Many noble Lords, including the noble Lords, Lord Teverson, Lord Tunnicliffe, Lord Vaux and Lord Davies of Brixton, and my noble friends Lord Holmes and Lady Noakes, expanded this into asking about the risk appetite for the bank, what the market failures are that it seeks to address, the role the bank will have in ensuring additionality and the risk of crowding out, as I have touched on. The noble Lord, Lord Vaux, probably put the role of an infrastructure bank better than I am about to, but the Government see their role as maximising the bank’s impact to focus on intervening where its additionality to the market is greatest, and will limit its exposure to investments that could already be fulfilled by the private sector. The bank will have a higher risk appetite than the market where it sees that policy outcomes that the private sector has not considered can be achieved. However, it will also have to bear in mind the usual value-for-money considerations in doing this.

To try to answer directly the question about market failure from the noble Lord, Lord Davies of Brixton, infrastructure investment is prone to market failure as it is often complex, large, novel and long term, with risks around construction and technological or government policy changes. Based on historical trends, the most significant market failure is that there is a financing gap around new technologies, where there are high levels of risk for the private sector and unproven financial cases. For example, an analysis by Vivid Economics suggested that early-stage support provided for offshore wind through the European Investment Bank and the Green Investment Bank helped to make the sector more attractive to investors and more viable at scale. Looking forward, the UK Infrastructure Bank has the potential to deliver these benefits to scale up other new technologies.

On additionality, based on figures for similar institutions we estimate that the bank will crowd in an additional £18 billion of private finance from £8 billion of UKIB lending. Based on our internal modelling and analysis of comparable institutions—the Green Investment Bank, the European Investment Bank, the Australian Clean Energy Finance Corporation and the Canada Infrastructure Bank—we think that between two and two and a half times is a reasonable estimate. We have not included any additionality for local authority lending and the guarantee function, although we think there is likely to be some. The risk of crowding out, which I have touched on already, will also be considered as part of the review of the bank’s progress and financial performance taking place in 2024.

Also on the bank’s remit, the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Kramer, noted their disappointment that housing is not included. Homes England is the first port of call for housing projects, and the bank will work closely with Homes England to ensure that projects can access the appropriate support, and with similar bodies in the devolved Administrations—for example, where there may be a mixed-infrastructure project that involves housing. The noble Baroness, Lady Kramer, also mentioned schools. I assure her that the Government are investing more than £19 billion in education up to 2024-25.

On the specific question from the noble Lord, Lord Tunnicliffe, on the community infrastructure levy, I can confirm that the bank is not a replacement for CIL, which continues to ensure that our communities are served with appropriate social and economic infrastructure through necessary developer contributions.

I turn to a point where it is probably easier to mention the noble Lords who did not raise it than those who did, so I may not try to mention everyone by name: the question of a third objective and natural capital. I assure noble Lords that the Government absolutely agree with the Dasgupta review’s assessment that tackling climate change and nature loss are two sides of the same coin. As I said in my opening remarks, the Government conducted a review specifically to consider the potential of broadening the bank’s objectives to include other areas, such as improving the UK’s natural capital. The review recognised the significant potential for increased use of nature-based and hybrid infrastructure solutions, including for the water sector and greenhouse gas removals, and the opportunities for growth of the ecosystem services market. These opportunities will be important to meet our objective to leverage at least £500 million per annum in private finance for nature’s recovery by 2027 and more than £1 billion per annum by 2030.

Noble Lords will know that, aside from the bank itself, the Government are supporting the growth of these markets in a number of ways. This includes developing high integrity standards and frameworks for ecosystems services markets, allowing investors to participate with confidence; backing the maturation of the woodland carbon code and peatland code through the nature for climate fund and woodland carbon guarantee; designing our new environmental land management schemes for farmers and landowners to support the crowding in of private finance and ensure farmers are better off when they participate in private finance opportunities; and demand-side regulation to grow these markets—for example, mandating biodiversity net gain for development. The projects undertaken through UKIB financing will be subject to those net gain requirements. The nature recovery Green Paper sets out many of the Government’s specific plans in this area. All I can say to noble Lords at this stage is that the Government have considered this very carefully and concluded that the bank is able to invest in natural capital under its existing objectives. However, I am sure that I will hear much more from noble Lords in Committee on this subject.

The noble Lord, Lord Teverson, the noble Baroness, Lady Kramer, my noble friend Lord Bourne and others asked whether energy is excluded or included in the definition of infrastructure. Although the construction of new homes is generally out of scope, projects or technologies that support energy efficiency, including the retrofit of homes and buildings and the decarbonisation of heating in line with the Government’s heat and buildings strategy, are very much in scope. I hope that provides some reassurance.

A number of noble Lords asked about the “do no harm” requirement, which we have set out in the bank’s framework document. The Government are confident that this requirement will deliver the objectives that noble Lords have talked about in terms of having a clear policy not to invest in fossil fuel projects, as set out in the framework document, with some specific exceptions to the policy—for example, carbon capture usage and storage. Those “do no harm” objectives are set out in the framework document and strategic plans, which can be updated without the need for further primary legislation.

The noble and learned Lord, Lord Thomas, made a point about Clause 8 and the Environment Agency. The Treasury is clear that the purpose of the bank is to invest in a way that tackles climate change. That is set out in the Bill, the framework document and further in the strategic steer issued in March. If ever a scenario happened where the bank was carrying out activities not tackling climate change, the Treasury would use its Clause 8 powers or its powers as a shareholder. If the Treasury failed to do so, Parliament could make its voice heard and it would be subject to challenge in the courts, as the noble and learned Lord, Lord Thomas, recognised. I do not agree that the aims of this clause are only aspirational. The bank is also subject to judicial review on anything it does, including compliance with its climate obligations.

The noble Lord, Lord Tunnicliffe, asked about the expertise of external bodies such as the Climate Change Committee. The UK Infrastructure Bank has already worked with a wide range of stakeholders since its launch, including external bodies and market participants. It is keen to use expertise in its decision-making, including appointing its first lead climate adviser, Professor Andy Gouldson, an internationally recognised expert on place-based climate action, as part of its ongoing work to partner with regional and national experts to shape the work of the bank and ensure its long-lasting impact.

The noble Lord, Lord Teverson, asked about the relationship between UKIB and the NIC. The bank is intended to complement the work of the NIC. The NIC will continue to provide an expert assessment of infrastructure needs. Central government will identify the levers that they can use to meet the needs, and UKIB will provide financing to support projects that meet the needs set out by the NIC.

My noble friend Lady Noakes asked about the regulation of the bank. The bank is not regulated by the FCA or the PRA because it will not perform the functions of a bank ordinarily regulated by those institutions. It does not take deposits, it is only investing—for now—in capital provided by the Government, and it does not engage with retail customers. We are committed to reviewing this decision after three years, at which point we will decide whether the bank should seek authorisation or to continue to remain exempt. However, we have set out our expectation that the bank should abide by the highest standards of good practice, governance and conduct, even though it is not authorised under FSMA, and that it should comply with the spirit of the financial services and markets regulation. The bank has recruited with this obligation in mind. It will submit to the Treasury, for approval, how it has interpreted the principles of the senior managers and certification regime and relevant elements of the FCA principles for business.

[Lord Teverson (LD)]

Can the Minister clarify whether that means that the senior managers of the bank need not be approved in terms of financial regulation—the actual individuals, let alone the institution?

[Baroness Penn (Con)]

I believe that it means that the bank is not subject to any aspect of the Financial Services and Markets Act and the authorisation under that, but we expect the bank to operate in line with those obligations—for example, on senior management. The decision not to include it in FSMA regulation will be reviewed after a period of time to ensure that this is the right approach for the bank. I have more to say about whether it should have operated under FSMA regulation, and we can get into that in Committee if it is an area of concern.

My noble friend Lord Bourne, the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Vaux, asked about the circumstances in which the power of direction might be used. As I said, it is intended to be used very rarely and only in circumstances where the Government need to take urgent and necessary action—for example, in cases of national security or to help support a business or sector in direct response to an emergency, as the Government did to direct HMRC to establish the furlough scheme during Covid. It is not intended to be used often and is similar to the power the Government have over the Bank of England, which has never been used.

Many noble Lords, including my noble friend Lord Sarfraz, the noble Baronesses, Lady Young of Old Scone and Lady Kramer, and the noble Lords, Lord Teverson and Lord Tunnicliffe, spoke about the review of the bank, required in Clause 9, after 10 years initially and seven years subsequently. This is not the only review or assessment of the effectiveness of the bank to which it will be subject. As I mentioned, ahead of spring 2024, a review of the bank’s capitalisation and effectiveness will take place. We will also undertake a review of the bank as part of the Cabinet Office-led review of ALBs by 2024-25, and the National Audit Office is currently conducting a value-for-money study on the set-up of UKIB which we expect to be published in the coming months. My noble friend Lady Noakes asked about the ongoing role of the Comptroller and Auditor-General and the NAO, and I confirm to her that they will have an ongoing role in scrutinising the bank.

My noble friend Lord Bourne, the noble Lord, Lord Wigley, and others asked about the bank’s relationship with the devolved Administrations. I cannot answer all the points raised by the noble Lord, Lord Wigley, but I can say that we have notified the devolved Administrations of the Bill and have requested legislative consent Motions from the Welsh Parliament, the Scottish Parliament and the Northern Ireland Assembly. We have engaged with the devolved Administrations through the set-up phases of the bank. The bank is already operating across the whole UK and has done its first deal outside England—a digital infrastructure deal in Northern Ireland.

The noble Baronesses, Lady Young of Old Scone and Lady Kramer, and my noble friend Lord Sarfraz asked about the publication of the bank’s strategy. Either before Committee or before we conclude our consideration of the Bill at this end of the Corridor, I will take that question away and see what can be done. I understand that the strategy is due to be published in June; when in June will be quite an important question in terms of the timing.

The noble Lord, Lord Vaux, asked about resources for the bank. UKIB is ensuring that it has the staff and resources to deliver on its objectives, and is recruiting rapidly. The bank will grow to having up to 300 staff.

The noble Lord, Lord Ravensdale, asked how the regional and local economic growth objectives would directly support levelling up. We have chosen not to further define the bank’s objective to support regional and local economic growth in the Bill, but we believe that the policy intent behind the objective is clear. This is given further clarity through the use of the strategic steer, narrowing down regional and local economic growth and encouraging the bank to focus its investments in line with the missions set out in the levelling-up White Paper.

The noble and learned Lord, Lord Thomas, the noble Baroness, Lady Young of Old Scone, and others talked about the need for a wide range of directors on the board, reflecting different skills and the interests of different nations and regions in the United Kingdom. Members of the UKIB board are still being recruited, based on the skills that they can bring to it and based on its mandate and objectives. The recruitment process is extremely thorough and will ensure that the right skills mix is in place for the board.

Before closing, I have a couple of points to make. It is the Government’s hope that this Bill will establish the bank in the market and ensure its longevity. We have already seen at first hand what the bank can do. Its private sector arm has committed to invest around £300 million, which could potentially unlock more than £500 million of private finance across the UK on a broad range of economic infrastructure, including the rollout of broadband to hard-to-reach areas and subsidy-free solar power. Meanwhile, its local authority arm has invested more than £100 million, supporting green bus routes and a green energy hub that will unlock thousands of jobs.

As I said at the outset, the debate we have had today shows the expertise on infrastructure that we have in this House. I look forward to a more forensic look at the Bill in Committee and on Report.

Bill read a second time and committed to a Committee of the Whole House.

UK Infrastructure Bank Bill [HL]

Baroness Penn Excerpts

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

[Baroness Penn (Con)]

My Lords, this first group of amendments all cover the financial aspects of the bank. Amendment 1 in the name of my noble friend Lady Noakes and Amendment 53 in the name of the noble Lord, Lord Teverson—I shall not quibble about the wording of the amendments; I understand their purpose —would subject the UK Infrastructure Bank to all financial services regulation and the senior managers and certification regime in turn. This goes against the exemption that Parliament approved for the bank last year.

The Government’s view is that adopting this position at this stage would create a disproportionate regulatory approach that would unnecessarily add to the cost, complexity and burden of a relatively small and new organisation. Financial services regulation was not intended for public sector institutions with a policy objective. UKIB does not require regulation in the same way as commercial banks. The practice of regulatory exemptions in this way follows precedent for similar institutions operating in the public sector—for example, the European Investment Bank.

It may be helpful to note that even though UKIB has a general exemption from financial services regulation, UKIB’s framework document is clear that, as far as reasonably practicable and as appropriate, UKIB will abide by the principles of the senior managers and certification regime and relevant elements of the FCA’s Principles for Businesses. As part of its compliance framework, UKIB will adopt and implement policies to safeguard itself against fraud, theft, corruption, bribery, insider dealing, market abuse and money laundering. It is therefore important to emphasise that the general FSMA exemption UKIB has been granted already does not mean that UKIB is absolved of all compliance obligations. Rather, the exemption means that UKIB has flexibility to adopt a bespoke approach to its governance that is proportionate to its activities.

Amendments 42 and 38 in the name of my noble friend Lord Holmes of Richmond would increase UKIB’s powers to borrow from international capital markets and give UKIB an unfettered ability to determine its own investment levels without Treasury authorisation respectively. With regards to Amendment 42, I assure my noble friend that UKIB already has these powers under company law.

Further, UKIB has a maximum financial capacity of £22 billion, including an overall borrowing limit of £7 billion. Within this limit, UKIB can borrow up to £1.5 billion a year from either the Debt Management Office or private markets, including international markets, depending on the best value for money and subject to standard approval processes.

Similarly, the spirit of Amendment 38 mirrors the Government’s ambition for the UK Infrastructure Bank: that it should have operational independence in its day-to-day operations and investment activities. The framework document outlines that UKIB has the freedom to set the pricing of its transactions. It is already using this power.

[Lord Vaux of Harrowden (CB)]

I am sorry to interrupt, and I thank the Minister for giving way. She has referred to the framework document a few times. Can she clarify exactly what its legal status is?

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[Baroness Penn (Con)]

For the sake of the rest of the Committee, it may be worth me answering the noble Lord’s question during a subsequent group. I could make a good attempt now, but I think we will have a lot of discussions about the status of the framework document in the coming hours, so I want to make sure that I give the Committee the absolutely accurate answer. I undertake to do that during this Committee session.

As I was saying, the framework document outlines that UKIB has the freedom to set the pricing of its transactions, and it is already using this power. This is alongside the freedom UKIB has to set the terms and structure of its interventions, subject to delegated authority limits in place to protect the taxpayer for very large investment sizes or novel, contentious or repercussive transaction structures. UKIB can already determine the level of its own investments in line with its capitalisation and annual limits, which are agreed in its framework document. UKIB also already has the power to set the level of its lending rates.

Going any further than the existing freedom UKIB has, as this amendment seeks to do, would not be compatible with its status as a public body and would take it outside the framework through which the Treasury assures Parliament about the appropriate use of public money. With £22 billion of capital, it is right that the Government exercise some spending control to ensure it continues to meet value for money.

I further reassure noble Lords that the Government will review UKIB’s progress and financial performance by spring 2024 to ensure that it has sufficient capital to deliver its ambitions. By that stage, the bank will have closed a broader range of investments and developed a strong pipeline of further projects. I can tell my noble friend and the noble Lord, Lord Teverson, that, as part of this review, the Government will also consider again the question of UKIB’s regulatory position to ensure that it continues to be appropriate.

To give a brief answer to the earlier question about the framework document, it is essentially a memorandum of understanding and does have legal effect in so far as the bank can be accountable to it. I will see whether I can expand on that during discussion of subsequent groups.

I turn to the points raised by the noble Baroness, Lady Kramer. As she suggested, I may come back to her on the specifics when we get to the group beginning with Amendment 30, but I will reassure her now on one point. The Treasury must publish any direction that it gives to the bank. In this regard, what is set out in law in this Bill is the relevant piece of information, versus the framework document. That goes to some level of the discussion we will have when we consider what is set out in the Bill—it is the overriding thing to look at when it comes to UKIB’s operation.

[Baroness Kramer (LD)]

Perhaps the Minister could clarify one thing for me. As I read the two documents put together, the instruction must be published but not the fact that the bank has looked at it and deemed it to be improper, infringing “propriety” or

“of questionable feasibility, or … unethical”.

In other words, that opinion of the bank can be completely suppressed, as I understand it, by the language of the Bill and of this document. If that is not correct, it would be most helpful if the Minister could tell me.

[Baroness Penn (Con)]

I will definitely pick up on that further point of detail, which relates closely to the noble Baroness’s question about non-disclosure agreements, to which I will seek to get an answer as we undertake consideration in Committee.

I hope that I have set out why the Government have at this stage taken the approach to the regulation of the bank that they have, but, as I say, it will be kept under review, specifically by 2024. I therefore hope that my noble friend will withdraw her amendment.

[Lord Teverson (LD)]

I am sorry—perhaps I could intervene very briefly. I find it an interesting explanation from the Minister that they are not going to apply regulation because it is a smaller and younger bank. I suspect that would not apply to any other bank that was founded in the private sector. As the Minister said, the framework document goes through the senior managers and certification regime. But it says, regarding “governance and conduct”:

“This would include, as far as is reasonably practicable and appropriate for the Company, abiding by the principles of the Senior Managers and Certification Regime”.


I understand that, but either you apply it or you do not. You cannot sort of half-think about it. It is one of those things like “You’re either pregnant or you’re not”, or whatever—sorry, that is probably an inappropriate way to put it—so I do not understand how the framework document approaches this. Maybe I have it wrong; as I said, I am used to the old approved persons regime and not up to date on this, but I do not understand it.

[Baroness Penn (Con)]

I am not sure that I or the noble Lord would actually use the analogy that he did, but I undertake to write to him to clarify that point on the senior managers regime. Coming back to the point about it being a relatively small and young institution, I absolutely take the point that he made about commercial banks being in that position. It is not that element of UKIB alone which has influenced the decision; there are quite a few elements of the nature of UKIB. As the noble Lord, Lord Tunnicliffe, said, it is not a commercial bank in many senses.

Banks and other financial services institutions are typically regulated to ensure two objectives, including that depositors and other investors are properly protected —in particular, retail depositors and investors, which UKIB will not have—and that any systemic risks to the wider financial sector do not materialise. It is the Government’s assessment that these considerations of the FiSMA regulation are not currently a concern for UKIB’s specific context. Beyond it being relatively new and small, it does not take deposits or other investments; it is also guaranteed by the Treasury as its sole shareholder, so it does not present a wider systemic risk.

To confirm the understanding of the noble Baroness, Lady Kramer, although the Treasury is obliged to publish the direction that it issues, the bank is not obliged to say publicly what is in its response to any Clause 4 direction. I will still come back to her on the question of non-disclosure agreements.

[Lord Sharkey (LD)]

Perhaps I could ask again about which

“certain aspects of the Company’s activities may be subject to”

the FCA and PRA rules, as set out in the framework.

[Baroness Penn (Con)]

I will endeavour to also get back to the noble Lord during this Committee—but, if I do not, I will include my answer in my letter on his noble friend Lord Teverson’s question about what aspects of the senior managers regime we plan to apply to the bank.

[Baroness Kramer (LD)]

I am sorry to remain persistent on this, but the Minister just said that the bank is not required to publish its letter of reservations. Is it not correct to say that what the document says is that the shareholder may effectively prohibit the bank from publishing its letter of reservations—so it is a gagging clause? That is what it says in the framework.

[Baroness Penn (Con)]

In picking up the noble Baroness’s other point, I shall ensure that my response covers that specific point.

[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.

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[Lord Teverson (LD)]

My Lords, I omitted to declare my interests as chair of the Cornwall and Isles of Scilly Local Nature Partnership and as a director of Aldustria Ltd, which is into battery storage.

[Baroness Penn (Con)]

My Lords, the Committee’s debate on this group has helped to ensure that we have properly considered the purpose of the bank, particularly around its levelling-up and climate change objectives. I will first address Amendments 3, 4, 5, 15 and 20, which seek, in various forms, to provide additional scope for the bank to pursue natural capital improvement, biodiversity or to deliver environmental improvement plans, by either splitting the climate change objective or adding a third environmental objective.

The bank has a broad mandate, which includes the flexibility to support a wide range of projects to help tackle climate change and support regional and local economic growth—two of the defining missions of this Government. As noble Lords will know, the Government conducted a review, which reported in March following wide engagement with environmental stakeholders and market participants, to consider a potential broadening of the bank’s objectives to include other areas such as improving the UK’s natural capital. Most stakeholders observed that there is already significant scope for intervention in nature-based solutions within UKIB’s existing mandate, particularly through its climate mitigation and adaptation objective, and scope to invest in flood defences, water and wastewater infrastructure.

Therefore, following this review, the Chancellor confirmed in his first non-statutory strategic steer to the bank that natural capital opportunities are in scope of its existing remit and that it should explore early opportunities to support the development of markets for ecosystem services and nature-based solutions within its existing climate and levelling-up objectives. The bank will reflect the contents of this strategic steer in its first strategic plan, which will be published later this month.

Adding a third objective for the bank could dilute its focus. Although projects to deliver nature-based solutions and enhance the UK’s natural capital are within scope for the bank, these projects must link back to its core purpose, which is to deliver economic infrastructure projects. It is an infrastructure bank, and that is why the environmental review landed sensibly on nature-based solutions as a means of delivering the ends of economic infrastructure through natural technology.

The review recognised the significant potential for increased use of nature-based and hybrid infrastructure solutions, including for the water sector and greenhouse gas removals. These opportunities will be important to meet our objective to leverage at least £500 million per annum in private finance for nature’s recovery by 2027 and more than £1 billion per annum by 2030.

However, other steps must be taken to ensure that a successful market is created to finance nature. The review found that the market for nature-based solutions is constrained by multiple barriers, including insufficient scale of projects, lack of proven revenue streams and a lack of data. The bank can help to overcome some of these barriers, but work is also under way by Defra to improve standards and accreditation and to improve early grant funding through the £10 million natural environment investment readiness fund launched in February 2021 and the big nature impact fund, a blended finance vehicle that will help to create a commercial portfolio of projects.

I turn now to the bank’s “do no significant harm” commitment. Amendment 2 from the noble Lord, Lord Tunnicliffe, seeks to raise and firm up the environmental floor for UKIB projects, and Amendment 16 from the noble Baroness, Lady Bennett, seeks to remove fossil fuels from the scope of the bank, as she explained.

With respect to Amendment 2, while there is naturally some risk of the bank’s growth objective coming into conflict with its climate change objective, we believe that this has already been robustly and appropriately covered in the bank’s framework document, which states:

“Where an investment is primarily to support economic growth, the Company will ensure that it does not do significant harm against its climate objective.”


It will be for the bank to decide exactly how to administer this “do no significant harm” clause and how to interpret it when considering individual transactions, and it is already doing this.

On Amendment 16, I say that the “do no significant harm” clause is accompanied by a sensible exclusions list, prohibiting the bank from entering into fossil fuel investments, with a small number of exemptions—for example, for carbon capture, usage and storage, which will significantly reduce emissions over its lifetime. I hope the noble Baroness, Lady Bennett, can see why we need these exemptions and why it would not be appropriate to exclude fossil fuels entirely from the bank’s scope. As a package, it is sensible to keep all these conditions together in the framework document so that they may be kept under review and ensure that the environmental baseline for the organisation is sufficiently high.

Amendments 6, 8 and 9 all seek in some way to add more specificity to the existing objectives. For reasons that I will set out, the Government believe that the current drafting of the Bill is a more appropriate way to deliver against these, although they recognise the policy aims that the amendments seek to deliver. At statutory level, the correct approach is to set out the overarching policy goal and, in this context, phrasing the bank’s objective as one of supporting regional and local growth provides a clear direction for the bank without being overly prescriptive.

We would not want to use language or terms in statute that could result in unintended consequences. For instance, if we adopted the drafting of the noble Lord, Lord Ravensdale, in Amendment 6, terms such as “geographical inequality” and “areas of economic disadvantage” would require detailed and complicated definitions that could change over time or be context dependent. We would not necessarily want to preclude the bank from providing funding in disadvantaged areas of the south-east but, if we adopted the proposed amendment, the bank might be put in difficulty as the south-east as a whole might not qualify as an area of economic disadvantage.

However, all three amendments are addressed in the Chancellor’s first strategic steer to the bank, which states:

“Addressing the deep spatial disparities across and within UK regions is a central ambition of this government. Economic infrastructure connects people, both physically and digitally, to opportunities and the Bank has a key role to play in providing infrastructure finance across the UK and targeting investment to support faster growth in regions with lower levels of productivity … The government’s recently published Levelling Up White Paper (LUWP) outlines the need to end the geographical inequality which is such a striking feature of the UK”,


as noble Lords have noted,

“and it is important that UKIB supports this ambition. Therefore, I would encourage the Bank to target its portfolio of investments towards projects across the UK that deliver against the missions set out in the LUWP”.

Further, the steer is also clear that the economic growth objective should provide “opportunities for new jobs”. I will happily confirm to the noble Lord, Lord Tunnicliffe, that it is the Government’s ambition across the economy to have more high-skilled, better paid and securer jobs. The bank’s investments to date, consistent with its strategic steer, already meet the aims of these amendments. Investments in the Midlands, Northern Ireland and Wales are already helping to boost productivity across the UK and support the creation of good new jobs.

Finally, I turn to Amendments 7 and 10, in the name of the noble Baroness, Lady Bennett, which focus on improving the life outcomes of people in disadvantaged areas, reducing the use of natural resources and emissions and securing the interests of future generations. I would argue that these are consistent with the existing objectives for the bank. In the long run, productivity gains and economic growth are the fundamental source of improvements in prosperity. Productivity is closely linked to incomes and living standards and supports employment. Improvements in productivity also free up money to invest in jobs and support the Government’s ability to spend on public services. The climate change objective will help to secure the interests of future generations by reducing emissions and, as discussed, investing in nature-based solutions.

The Government recognise that protecting and enhancing the natural environment and the biodiversity that underpins it is crucial to supporting sustainable, resilient economies, livelihoods and well-being. We are therefore determined to support the development of private markets that drive investment in projects that restore or enhance our natural environment.

I thought it might be worth touching again on the question from the noble Lord, Lord Vaux, about the framework document, in order to aid our discussion. The framework document is a non-legally binding agreement between the Treasury and UKIB that sets out details of how the bank works that it would not be appropriate to have in statute. Notwithstanding that, it does create some legal force, as UKIB is expected to abide by it and can be judged against it in normal public law ways. It is a public document and there are reputational reasons for UKIB to follow it, and the Treasury can enforce it both as a shareholder in the bank and through the issuing of a direction. Of course, there will be parliamentary scrutiny, given that it is a published document. It can be changed and updated by agreement of both parties, the Treasury and the bank. UKIB’s articles of association are binding in company law and have been filed with Companies House.

[Lord Vaux of Harrowden (CB)]

The Minister mentioned that it will be subject to parliamentary scrutiny. What will be the mechanism for that?

[Baroness Penn (Con)]

There are many mechanisms of parliamentary scrutiny that we are subject to every day. There are committee hearings, Questions in the House and many other different routes of parliamentary scrutiny.

To pick up on one final question, from my noble friend Lord Holmes of Richmond, about the bank’s ability to invest in overseas territories, the intention is for UKIB to invest in UK projects; it is not expected that it would invest in UK overseas territories.

I therefore hope, given those explanations, that the noble Lord, Lord Tunnicliffe, will withdraw his amendment and that other noble Lords will not move theirs when they are reached.

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[Lord Tunnicliffe (Lab)]

My Lords, there is very little in this group that I can object to in principle. We debated the definition of infrastructure at Second Reading, with concerns expressed on all sides that items such as buildings or energy efficiency are not in the Bill. As we are doing this, I took to my own conscience and realised that we have not done the loft—the problem is all the stuff in it. Anyway, by subcontracting that a bit, we got it out.

The noble Baroness, Lady Bennett, raises an interesting point about mass transport in her Amendment 18, while the noble Lord, Lord Holmes, raised a variety of issues including air quality, social infrastructure, data and skills training. I said at Second Reading that it is vital we get the bank’s objectives and definitions of infrastructure correct from the start. That remains my view. The bank will not be effective if its mission statement is ambiguous. However, for that very reason, it is also important that the Bill does not simply become a long shopping list.

I hope the Minister can confirm that the current definitions include—even if not explicitly—many of the initiatives raised by noble Lords. It is inevitable that there will be a composite amendment on Report which once again seeks to embrace many of the important ideas we have discussed in this group. I also hope she will take a number of these suggestions away. It may be suitable for the Government to amend the Bill, but there may be other ways forward.

[Baroness Penn (Con)]

My Lords, as discussed, the amendments in this group seek to clarify or extend the scope of the bank and are focused predominantly on the Bill’s definition of infrastructure. I apologise to the Committee and the noble Baroness, Lady Bennett, that I did indeed get ahead of myself on the previous group.

First, I will address Amendments 10, 11, 17, 19 and 21, which seek to make explicit reference to technologies and facilities relating to energy efficiency, energy security and clean air. I reassure noble Lords that these technologies are already in scope of the definition of infrastructure in Clause 2. The definition captures all energy efficiency measures, including those related to buildings and homes, and energy security measures that fall in scope of “electricity” and the “provision of heat”. We expect clean air to be captured under “climate change”. The definition, which is non-exhaustive by design to give the bank an appropriate degree of flexibility over the subsectors in which it can invest, would be too long and specific if we were to list every subsection.

It may be helpful to give a little more detail on the genesis of the definition; it is based on a definition used in the UKIM Act 2020 but changed in a couple of ways. It is wider in that it relates to the technologies and facilities connected to infrastructure, giving the bank the flexibility to provide support to assets, networks or new technology. It does not seek to include social infrastructure, which I will come to, which is not the focus of the institution. It clarifies that climate change technologies, such as nature-based solutions, are in scope. That is what we have aimed to do in writing the definition. The noble Baroness, Lady Hayman, said that the implication is that what has been listed are priorities; we have sought to provide clarity where it is needed, not necessarily to assign priority.

I turn to Amendments 18 and 25 in the name of the noble Baroness, Lady Bennett. Amendment 18 seeks to exclude infrastructure investment in private cars. I ask her to wait until the strategic plan is published later this month for further information on the bank’s focus in this regard. I have been assured that noble Lords will see the strategic plan ahead of Report, which is a useful development. As I have said, the definition of infrastructure is based on the precedent of the United Kingdom Internal Market Act 2020 and the Infrastructure (Financial Assistance) Act 2012, and does not have a specific list of exclusions in it. Amendment 25 would include reduction in demand in relation to economic infrastructure in the definition of infrastructure. The bank will invest in clean infrastructure which will, if successful, move demand away from more harmful infrastructure, thereby helping to deliver on the bank’s climate change objective.

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[Lord Deben (Con)]

Could my noble friend assure the Committee that she will look again at the inclusion of the diminishing of demand and energy efficiency, which the Climate Change Committee and others have specifically asked for? I think we in this Committee feel universally that that inclusion is necessary. I am sure there is a way of getting to it; I think we need this in the Bill.

[Baroness Penn (Con)]

My Lords, I commit to the Committee that I and the Government will listen very carefully to our proceedings today and, of course, to the advice from the noble Lord’s committee and other expert advisers to the Government. On the particular discussion we are having on a number of aspects of this Bill, I think we agree on the aims that we want to achieve. We may disagree on the mechanism of it, but that does not mean that the contributions of this Committee will not be taken into account before we get to Report.

I hope that, with all that in mind, the noble Lord, Lord Teverson—oh, I have skipped ahead. I hope that the noble Baroness, Lady Bennett, will withdraw her amendment and that other noble Lords will not move theirs when they are reached.

[Baroness Bennett of Manor Castle (GP)]

I thank the Minister for her encouraging, in some respects, response to this rich debate on this important group. I am sure that noble Lords who have flooded into the Chamber for another purpose will be pleased to know that I will not run through all 14 amendments in the group individually.

In welcoming what the Minister said, the Government say that they regard energy conservation and demand reduction as an important part of the bank’s remit. We all find that encouraging, but I am sensing that the broad mood of the Committee, right around these Benches, is that there is still a very strong desire to see that in the Bill.

I also pick up on the point which I guess the Minister made in reference to my amendment on roads. The Minister said—I think I am quoting directly—that “clean air is covered under climate change”. I direct the Minister to the point I made: about half of the particulate matter pollution from vehicles comes from tyres and brakes. That is not a climate change issue but it is very much an air pollution issue, and it needs to be considered.

I have no doubt that we will keep coming back to Amendment 17 on energy efficiency. The noble Baroness, Lady Young of Old Scone, made the important point that this is not just an environmental issue; it is also a poverty reduction issue, and there is a dual benefit from that.

I want to pick up one issue that I think the Minister did not cover, on the points I made about resource use, pollution and novel chemicals. I understand that, as a Treasury Minister, she may not encounter novel chemicals, phosphates and nitrogen cycles on a daily basis. However, I ask her to go and talk to Defra about those issues.

I will return to the whole issue of planetary limits on Report. With expressions of interest around the Committee, I think I will definitely return to the issue of roads on Report. In the meantime, I beg leave to withdraw my amendment.

UK Infrastructure Bank Bill [HL]

Baroness Penn Excerpts

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

[Lord Tunnicliffe (Lab)]

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

[Baroness Penn (Con)]

My Lords, I thank my noble friend for her amendment. As she said, it addresses a very important part of the bank’s purpose for being. The Government agree with her intention: the bank has been set up specifically with the purpose of investing where there is an undersupply of private sector finance, and that is why its framework document sets out an investment principle to crowd in significant private capital and an operating principle of additionality. Based on similar institutions both in the UK and internationally, we expect the bank to crowd in £18 billion of private investment, meaning it is expected to support a total of £40 billion of investment in tech infrastructure projects across the UK.

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[Baroness Kramer (LD)]

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

[Baroness Penn (Con)]

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

[Lord Tunnicliffe (Lab)]

Perhaps I am confused, but it seems that the bank can produce a soft and appropriate definition, yet in the final analysis that will be examined by the ONS, which will not be soft about it. The ONS will say that this is essentially either a public sector loan or a private sector loan. There will be no greyness there; it will say that A or B is true.

[Baroness Penn (Con)]

When it comes to the loans from the bank for the accounting purposes and for what is counted as public and private sector, when we discussed it previously, we said that we would expect all financing from loans from UKIB to count as public sector loans and be accounted for on the Government’s balance sheet. I am not seeking to change that position in this discussion. We also had a wider conversation about depending on the nature of that investment. It could draw the whole investment on to the Government’s balance sheet. If I have any of that wrong, I will write to correct it, but I think I am stating our position.

[Lord Tunnicliffe (Lab)]

My Lords, I would not mind if the Minister wrote again and repeated herself. I might then claw towards understanding.

[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.

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[Baroness Penn (Con)]

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

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

[Baroness Kramer (LD)]

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

[Baroness Penn (Con)]

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

[Baroness Kramer (LD)]

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

[Baroness Penn (Con)]

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

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

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

“most likely to promote the success of the company”

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

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

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

[Lord Vaux of Harrowden (CB)]

I am just trying to understand more about why the statutory basis of the bank gives it this level of operational independence. I do not think there is anything in the articles which provides that, so where does this come from—I think these were the words the Minister used—as a matter of law?

[Baroness Penn (Con)]

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

[Baroness Kramer (LD)]

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

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[Baroness Penn (Con)]

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

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

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

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

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

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

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

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

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

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

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

[Baroness Kramer (LD)]

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

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

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

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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.

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[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.

[Baroness Penn (Con)]

My Lords, before turning to the detail of the amendments, I will give a short update on the bank’s recent appointments, as it has recently appointed its first non-executive directors, who all have extensive expertise in the bank’s areas of interest.

These include Bridget Rosewell CBE, who brings experience as a director, policymaker and economist, with roles in the M6toll company, Northumbrian Water Group and Network Rail, among others. Also appointed is Nigel Topping, who will bring a unique mix of experience across manufacturing businesses in the UK regions and industrial transformation to the zero-carbon economy. He was most recently appointed by the Prime Minister as the high-level climate action champion for COP 26, where he launched the Race to Zero and the 2030 climate breakthroughs.

The bank is also ensuring that it recruits the necessary technical expertise, including welcoming its first lead climate advisor, Professor Andy Gouldson, an internationally recognised expert on place-based climate action, who will work with the bank to shape its impact. Noble Lords may also be interested to know that the bank’s chief risk officer, Peter Knott, is a non-executive director at the Scottish National Investment Bank. I have no doubt that the board will be able to act in the interests of the whole United Kingdom when carrying out its duty.

I turn to the detail of Amendments 43, 44 and 45 in the name of the noble Baroness, Lady Kramer. As she said, Amendment 43 would change the maximum number of directors on the bank’s board from 14 to 13. I can see the logic for doing so, to prevent a tie in a board meeting vote. However, as set out in the articles of association and in line with market practice, quorum for board meetings is lower than the total number of directors and, in a scenario where there is a tie, it is the chair of the meeting who takes the deciding vote—again, as is standard market practice. This is set out in paragraph 92 of the bank’s articles of association. Furthermore, reducing the maximum board size to 13 limits the bank’s flexibility to have committees with separate membership. Amendment 44 would require the number of directors to be an odd number—again, with a similar intention to that of Amendment 43. On both these points, as my noble friend Lady Noakes said, there is nothing in the corporate governance code about these matters. The same arguments apply to what would happen in a tie for Amendment 44 as for Amendment 43, with the chair having the ability to cast the deciding vote.

Amendment 45 would require NEDs to hold a majority on the board. This is very sensible, and is in the framework document and the corporate governance code. When drafting this legislation, as we have discussed, we have sought to strike a balance between what is sufficient to be in the framework document and articles of association, and what needs to be in the Bill. The bank will report on compliance with the corporate governance code annually through its report and accounts, which are published in Parliament.

Amendments 46, 47, 48, 50 and 51 are all related to the experience of the board. Amendment 51, in the name of the noble Lord, Lord Tunnicliffe, and Amendment 50, in the name of the noble and learned Lord, Lord Thomas, would ensure that the bank has the right expertise to fulfil its objectives, and has appropriate regional experience. Amendment 46 from the noble Lord, Lord Vaux, is similar, although it allows the devolved Administrations to recommend their own nominee for the board. Amendment 47 from the noble Baroness, Lady Bennett, is a combination of the two, with recommendations on directors coming from the Climate Change Committee, the devolved Administrations, Natural England and relevant devolved bodies.

I understand that these amendments all seek to ensure that the board has adequate representation to meet its objectives. I reassure the Committee that non-executive directors are recruited in line with the guidelines set out by the Office of the Commissioner for Public Appointments and were selected based on the skills that they could bring to the board around UKIB’s mandate and objectives. I understand why the noble Lord, Lord Tunnicliffe, is minded to have a non-executive representative of workers, as set out in Amendment 48, but I hope that he will see with the appointments to date and the process that appointments must go through that this is not necessary.

The Government are committed to ensuring that the bank delivers for all four nations, and the Treasury has engaged with the devolved Administrations throughout the set-up of the bank, and will continue to do so to ensure that the bank delivers for all nations of the UK.

[Lord Thomas of Cwmgiedd (CB)]

I think that the Minister mentioned the appointment of someone with knowledge of Scotland, but what about Wales and Northern Ireland? Is the Treasury taking active steps to do something about representation on the board from someone with detailed knowledge of Northern Ireland and Wales?

[Baroness Penn (Con)]

My Lords, I believe that there are a number of different routes by which the bank can ensure that it works closely with the devolved Administrations.

[Lord Thomas of Cwmgiedd (CB)]

The reason why I asked the question was to do with public confidence from Northern Ireland, Wales and Scotland. That is critical at this stage of keeping the union together. I know that the Minister, who is very helpful on this Bill, may not be able to answer that tonight, but I shall return to this issue with detailed questions on Report, or press an amendment.

[Baroness Penn (Con)]

I understand the noble and learned Lord’s point, and recognise that I have been given notice that he will return to it at Report. All I was simply going to say was that I understand the point about confidence, which can be achieved in a number of different ways. His amendments suggest one of those, and I was seeking to describe some of the other ways in which UKIB has approached this in collaboration with the devolved Administrations and will continue to do so. I just note that we are seeking legislative consent for relevant aspects of this Bill.

[Lord Vaux of Harrowden (CB)]

Given that this consultation has been happening with the devolved nations, can the Minister give us some flavour of how that has gone and what the reaction from the devolved nations has been?

[Baroness Penn (Con)]

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

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

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

[Baroness Kramer (LD)]

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

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

[Baroness Penn (Con)]

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

[Baroness Kramer (LD)]

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

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

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[Lord Tunnicliffe (Lab)]

That is what my original notes envisaged, but I simply could not believe that they are that clever.

[Baroness Penn (Con)]

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

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

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

[Baroness Kramer (LD)]

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

[Baroness Penn (Con)]

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

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

[Lord Vaux of Harrowden (CB)]

Will these Treasury reviews be published?

[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.

UK Infrastructure Bank Bill [HL]

Baroness Penn Excerpts

Report stage
Monday 4th July 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, we start Report with a topic that has already been central to our discussion of the UK Infrastructure Bank: its role in investing in nature and the environment. I thank the noble Baroness, Lady Hayman, and all noble Lords who have engaged with the Government on this important topic.

I turn first to Amendments 1 and 3, in the names of the noble Baroness, Lady Hayman, and the noble Lord, Lord Teverson, which seek to add natural capital, biodiversity, wider environmental targets and climate adaptation to the bank’s climate change objective. As we discussed in Committee, nature-based solutions and projects to support climate adaptation are already within scope for the bank. Those who attended the briefing with the bank’s chief executive and chair last Tuesday will have heard that the bank is keen to explore this area. We have given thorough consideration to the question of adding to the bank’s objectives through our environmental review on whether nature-based solutions should be in the objectives. We engaged with a wide range of stakeholders during this review, from think tanks to investors, and we heard from a majority of them that they felt that there was already significant scope for intervention in nature-based solutions within the bank’s existing mandate without adding a third objective.

In considering this question it is important to acknowledge that the bank already has two stretching and broad objectives that are the outcome of significant work, starting from the recommendations of the National Infrastructure Commission and the national infrastructure strategy. Ultimately, the bank is an infrastructure bank, so it should invest in nature as a means of achieving its objectives and to enhance the UK’s infrastructure. The Chancellor made this clear to the bank when he sent it a strategic steer in March this year. The bank’s strategic plan sets out that it will explore opportunities to invest in nature and highlights opportunities to invest in water-related projects, as the noble Baroness, Lady Hayman, mentioned.

While the bank’s scope to invest in nature is already significant, it is important to note that this is not the only, or indeed primary, government intervention to support the market for natural capital projects. I will mention just a few areas. To provide an accredited route for income for nature projects, the Government are backing the maturation of the woodland carbon code and peatland code through the nature for climate fund and woodland carbon guarantee. To create demand for nature projects, we are implementing regulation to grow the market—for example, through mandating biodiversity net gain for development. The nature recovery Green Paper also sets out plans in this area, specifically on ensuring that environmental regulation and regulators, including Natural England, the Environment Agency and Ofwat, are equipped to support the uptake of nature-based solutions and more strategic, landscape-scale approaches to environmental protection and enhancement by industry. To help the market mature from grant support to a more commercial basis, Defra has established the natural environment investment readiness fund of up to £10 million, which will provide grants of up to £100,000 to environmental groups, local authorities, businesses and other organisations to help them to develop nature projects in England to a point where they can attract private investment. Defra is also initiating the big nature impact fund, a blended finance vehicle designed to use public concessionary capital to attract private capital into the fund. The fund will invest in a portfolio of natural capital projects that can generate revenue from ecosystem services to provide a return on investment. These initiatives will support the growth and commercialisation of the natural capital market.

I thank the noble Baroness, Lady Hayman, for her support for the government amendment in my name. I again reassure noble Lords that it was always the Government’s intention that the bank could invest in projects to increase energy efficiency—for example, the retrofitting of homes. In fact, this forms a key aspect of the bank’s strategic plan. However, recognising the points raised in debate on this, I have tabled this amendment to add “energy efficiency” to the non-exhaustive definition of infrastructure in Clause 2 to ensure that it is explicit that the bank can invest in projects to increase energy efficiency.

Amendments 6A, 7, 9, 10 and 11 all seek to make further changes to the definition of infrastructure in the Bill. Amendments 6A and 7 seek to add “nature-based solutions” to the definition of infrastructure. As noble Lords have already heard, the Government are confident and, through our review of the bank’s environmental objectives have sought third-party views to ensure, that the definition we have included covers nature-based solutions. The bank’s strategic plan also makes clear its commitment to supporting the development of a circular economy.

On Amendment 9 in the name of the noble Baroness, Lady Bennett, I hope she has received the letter from John Flint, the bank’s CEO, on this issue. As highlighted in the bank’s strategic plan, we do not anticipate the bank investing much in roads. However, it is important that it has the flexibility to do so under the right circumstances. The bank may, for example, consider supporting local authorities in road upgrades that feature as part of their wider transport infrastructure and transport decarbonisation plans. For example, the bank has already financed the West Midlands Combined Authority’s sprint bus programme, which includes road adaptations such as priority signalling, redesign of junctions and additional bus lanes.

I take this opportunity to comment on the bank’s investment in gas, which the noble Baroness, Lady Hayman, asked about. The bank will not lend or provide other support to projects involving extraction, production, transportation or refining of crude oil, natural gas or thermal coal, with very limited exemptions. These exemptions include projects improving efficiency, health and safety and environmental standards, without substantially increasing the lifetime of assets, for carbon capture and storage or carbon capture, usage and storage where projects will significantly reduce emissions over the lifetime of the asset, or those supporting the decommissioning of existing fossil fuel assets. The bank will not support any fossil fuel-fired power plants unless this is part of an integrated natural gas-fuelled CCS or CCUS generation asset.

Finally, I come to Amendments 10 and 11 tabled by my noble friend Lord Holmes and the noble Baroness, Lady Jones of Whitchurch. This is a difficult area to tackle, so let me set out how the bank considered the wider environment within its policy framework. First, there are investments which, while addressing climate change or growth, can help to improve the environment. Separately, there is a policy framework considering whether and the extent to which the bank’s investments impact environmental factors beyond climate change. With this in mind, I shall set out how the objectives of the bank relate to pollution.

The bank’s objectives are tackling climate change and regional and local economic growth, but not wider pollution. The bank can invest in projects that tackle pollution, but only so long as they also help to achieve its core objectives of tackling climate change or regional and local economic growth. Investments directly into infrastructure to tackle other pollutants that can impact clean air will already be broadly covered by the existing definition of infrastructure and the objectives in the Bill. For example, tyres would fall under transport, in the same way that water pollution is covered by water, and tackling those pollutants is in scope as long as that investment is also tackling climate change and/or facilitating regional and local economic growth. As we have discussed, there are likely to be large numbers of synergies in this area.

I know that there has been interest from Peers in broadening the bank’s definition of infrastructure to ensure that the bank takes into account the wider environmental impacts, beyond climate change, of its investment decisions. Widening the definition of infrastructure in this way is not the best way to achieve this. Instead, the way that wider environmental impacts are dealt with is via the bank’s environmental, social resilience and governance policy. The ESRG policy and framework that the bank is developing will be used to screen projects and provide transparency on its portfolio. Part of this policy will involve collecting data from each investment to meet reporting standards, such as the forthcoming sustainability disclosure requirements, which will include green taxonomy reporting. The objectives of the green taxonomy include pollution prevention and control, which the bank will need to report on for its investments.

More broadly, infrastructure projects are subject to a range of environmental regulations appropriate to their specific type and circumstances. It would not add value to apply these directly to the bank when they already bind the project developers directly. Defra is consulting on new legal targets for air quality, water, waste, and biodiversity, which the Government are required to set under the Environment Act by October this year and which noble Lords will be well aware of.

I hope, therefore, I have provided sufficient reassurance for the noble Baroness, Lady Hayman, to withdraw her Amendment 1 and for other noble Lords not to move the other amendments in this group when they are reached.

[Baroness Hayman (CB)]

My Lords, I am extremely grateful to all noble Lords who have spoken in this debate. As in Committee, we saw support from all around the House. Unfortunately, the Minister has not completely reassured me. I am grateful for her reassurance on gas and understand the reason for including roads, with caveats, in the infrastructure. I sort of understand not wanting to change the objectives, because of the process she described with consultation and wanting to keep clarity for the two objectives.

What I cannot understand is refusing to include the circular economy and nature-based solutions in the infrastructure. I am afraid her arguments are undermined by the Government’s actions. They keep roads in there even though they need to be caveated and we need reassurances that they will not be a mainstream activity of the bank. However, they tell us that they are absolutely committed to making these an activity for the bank. We know that the Treasury, departments and everyone who talks about these issues understands the connection between nature-based solutions and climate change. They understand that we need to tackle these areas; there is no difference between us. These are not tablets of stone, unlike the objectives—and the Government are seeking the leave of the House to change the objectives on energy efficiency. If they can do it for energy efficiency, why cannot they do it for nature-based solutions and the circular economy?

I rest my case on that issue and will return to it when we come to Amendment 6A. I beg leave to withdraw Amendment 1.

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[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.

[Baroness Penn (Con)]

My Lords, I will first take Amendment 2 from the noble Lord, Lord Sharkey, which, as he explained, seeks to probe our use of “and” in the activities of the bank to see whether it must meet both objectives or just one. As we discussed previously, the bank’s two objectives—to help tackle climate change and to support regional and local economic growth—are both stand-alone but complementary objectives. I can confirm that the Bill’s drafting does not mean that a project must meet both of those objectives but rather that over the breadth of its activities the bank must meet both.

The bank can invest in projects which meet only one of these objectives, so long as supporting a project to deliver regional and local economic growth does not do any significant harm against the bank’s climate objective. The bank wrote to noble Lords with further detail on the “do no significant harm” policy on Friday.

To address the noble Lord’s two specific questions, there is no reverse or equivalent “do no significant harm” policy for climate change investments with regard to local and regional economic growth. However, in reality we do not consider the bank likely to invest in something harmful to economic growth given the need to crowd in private capital and be additional, in line with its investment principles. The bank will create its own framework for assessing what “do no significant harm” means, drawing on best practice from around the world.

Amendments 4 and 5 from the noble Baroness, Lady Bennett, and the noble Lord, Lord Ravensdale, attempt to define levelling up within the local and economic growth objective of the bank. I reiterate why we have taken the approach that we have. The Bill sets the foundation on which the bank will operate. The specificity of how the bank’s objectives will be achieved will be contained in the framework document and in the strategic steer and strategic plan. This is the appropriate use of primary legislation, which can be a blunt and inflexible tool. Specificity in the Bill must be backed up with detailed and precise drafting, and a number of the aspects which we will discuss today are not easily defined. Failure to do this unnecessarily increases the risk of legal challenges which the bank will face, and that increased risk could result in the bank having a decreased risk appetite for investment.

That is why we have taken the approach we have done with the objectives. We have kept the high-level principles in legislation and supplemented those with additional information in the strategic steer and the framework document. The definition of local and regional economic growth is addressed in the first strategic steer, issued by the Chancellor in March, which stated that a focus on geographic inequality must be a priority for the bank. It also pointed to the Levelling Up White Paper to set out the missions with which the bank should align itself when considering investments. We could not do something like that in the Bill.

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[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.

[Lord Holmes of Richmond (Con)]

My Lords, I thank all noble Lords who have spoken on this group, and particularly my noble friend Lady Noakes for bringing forward Amendment 24. I shall summarise what the Minister said: that additionality is pretty much impossible to define, but the bank will definitely do it—so that is good. It is unfortunate that we cannot have that in the drafting of the Bill given that, as I said in opening the group, this is the raison d’être of the bank: its only ultimate purpose is additionality. As other noble Lords have said, not having this could lead to less rather than more, and taxpayers’ money being put to that purpose.

It is desperately disappointing that we cannot have additionality in the Bill. I will withdraw my amendment but, in doing so, I gently, politely and respectfully request that my noble friend the Minister considers not moving government Amendment 23 and working to meld it with my noble friend’s Amendment 24 to come up with something that actually covers both crowding out and crowding in. Certainly, as drafted, government Amendment 23 does not do this. I beg leave to withdraw Amendment 6.

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Moved by

[Baroness Penn]

8: Clause 2, page 1, line 25, after “heat” insert “and, in relation to electricity, gas and the provision of heat, energy efficiency”
Member's explanatory statement
This amendment would make it clear that energy efficiency, in relation to electricity, gas and the provision of heat, is within the definition of infrastructure.

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[Lord Tunnicliffe (Lab)]

My Lords, I am grateful to the noble Lord, Lord Sharkey, and the noble and learned Lord, Lord Thomas, for tabling the various amendments in this group. I was pleased to sign Amendment 18, which would increase transparency relating to Treasury directions. The Minister and her officials have offered several helpful assurances on this subject during discussions between Committee and Report. I am grateful for those assurances, but I am not convinced that they go far enough. As with the earlier group on job creation and levelling up, this may be another area where the Treasury leans on the framework document as the preferred way forward. If that is where we end up after the Bill has been considered in another place, so be it, but there is merit in this House taking a view on transparency safeguards today.

Sadly, we have become all too familiar with non-legislative commitments or safeguards being flouted. By strengthening Clause 4, we can at least ensure that the bank will have a voice if there are concerns around the Treasury’s use of its powers. Accordingly, if the noble Lord, Lord Sharkey, divides the House on this issue, he will have our support.

Elsewhere, I appreciate the wish of the noble Lord, Lord Sharkey, to see the regulations under Clause 2 subject to a form of super-affirmative procedure. However, this concern was not raised by your Lordships’ Delegated Powers and Regulatory Reform Committee, and we will of course debate relevant regulations if and when they are brought forward in the future. The noble and learned Lord, Lord Thomas, has tabled a number of amendments in this group, and I hope that the Minister will be able to provide a comprehensive reply.

As with so many other pieces of Whitehall legislation, there is a clear overlap with devolved competence, and the Government will therefore have to seek consent Motions. I have huge sympathy for Amendment 21, which seeks to ensure formal consultation with the devolved authorities in certain circumstances. While the Government will dispute this, they have a poor and arguably worsening record in engaging with colleagues in the devolved nations. However, I am not convinced that an amendment to the Bill would change that, or that Conservative MPs will defy the Whip when the Bill is considered in the Commons. I hope this is an area where the Minister can provide strong, non-legislative commitments. Crucially, the Government must then follow through on them.

The union is at least fragile, and the way these relationships are conducted can add to that fragility. It is crucial on this occasion that the Government do everything they can to overcome the present concerns on this matter.

[Baroness Penn (Con)]

My Lords, Amendment 13 in the name of the noble Lord, Lord Sharkey, seeks to make the bank’s delegated powers subject to the super-affirmative procedure. As indicated in Erskine May, the super-affirmative procedure has been deployed for secondary legislation where an exceptionally high degree of scrutiny is thought appropriate. This procedure has rarely been considered the appropriate one to prescribe in primary legislation; where it has, the relevant instances have tended to be of a particularly substantive and wide-ranging sort. The noble Lord, Lord Sharkey, gave us an example but I had another: the Legislative and Regulatory Reform Act 2006, where the super-affirmative procedure was used to regulate significant powers under which Ministers could amend legislation to remove regulatory burdens. It cannot be said that amending the bank’s activities or the definition of infrastructure reaches the threshold of requiring the super-affirmative procedure. I have noted comments from noble Lords, but I also draw to their attention the Delegated Powers and Regulatory Reform Committee’s response to the Bill, which stated:

“There is nothing in this Bill which we would wish to draw to the attention of the House.”


On the other amendment from the noble Lord, Lord Sharkey, in this group, Amendment 18 on the power of direction, I recognise that there has been some concern about the wording in the framework document in relation to the issuing of directions. In particular, there were concerns that the Treasury would be able to “gag” the bank. That is clearly not the intention, and I have taken away the wording in section 15 of the framework document to make it clear that Her Majesty’s Treasury is not able to prevent publication of a written direction or any reservation notice in respect of that direction.

It is incumbent on the Treasury to meet its obligation to publish the direction and any associated reservation notice as soon as appropriate. Of course, there can be circumstances in which the publication of a written direction or any associated reservation notice needs to be delayed for reasons of national security or commercial sensitivity. An example of this occurred, in relation to a similar power in a different circumstance, during the sale of British Steel Ltd, where the Secretary of State directed the Permanent Secretary to continue an indemnity with the official receiver but delayed publication during negotiations with Jingye, despite value-for-money uncertainties, as to publish at the time would likely have undermined the rescue deal due to commercial sensitivity concerns. However, I will be clear with the House that if publication of a written direction were to be delayed for reasons of commercial sensitivity or national security, we would ensure that it was sent to the chair of the Public Accounts Committee immediately and on a confidential basis.

I hope that I have addressed the points made by the noble Lord, Lord Sharkey. However, to be absolutely clear, and maybe to go further than I did in our previous discussions, we will amend the framework document to be clear that where a direction is issued, an accompanying reservation notice “must” be published—rather than “may”—and, to further clarify, the content of the direction and reservations must be published rather than the fact of their existence. I hope that that provides further reassurance to noble Lords on that matter.

The amendments to Clause 3 in the name of the noble and learned Lord, Lord Thomas, seek to ensure that the bank’s framework document is updated to reflect any strategic steer, and that any revised framework document will be laid in Parliament. In maintaining the bank’s framework document, the Treasury will follow the guidance set out in Managing Public Money. This guidance states that framework documents should

“be kept up to date as the partnership”—

between a department and its arm’s-length body—

“develops.”

The Treasury will update the bank’s framework document as needed to follow this guidance. As has already been noted, the Treasury is currently reviewing the framework document and will publish a new version once the Bill has passed, which will include changes brought about by this House; for example, the clarification which I mentioned earlier in relation to the bank’s ability to publish a reservation notice if the Treasury subsequently issues the bank with a direction, and, in reference to an earlier debate, the clarification of the second objective in local and regional growth relating to levelling up and regional inequalities.

On the publication of framework documents, Managing Public Money is clear. Any revised framework documents should be published and laid in Parliament. Further, the Chief Secretary to the Treasury laid a Written Ministerial Statement today where he set out that all departments should lay their framework documents in Parliament. This has put the question of publication beyond doubt.

On whether the bank’s framework document should be updated to reflect the content of the strategic steer, I think that in that respect I differ in opinion from the noble and learned Lord, Lord Thomas. Managing Public Money sets out that framework documents should contain information on purpose, governance and accountability, decision-making, and financial management. It does not specify that they should contain information on current policy steers or priorities.

The bank’s framework document and strategic steers fulfil very different purposes; the framework document providing an agreement to govern the relationship between the bank and the Treasury, and the strategic steer providing an opportunity for the Government of the day to provide steers on current priorities and policy emphases. That does not mean that there will never be circumstances in which the framework document is updated. I have already told the House that we will reflect on the wording in the framework document on the regional and local economic growth objective. However, I do not think that the framework document needs updating every time a strategic steer is issued. It should be updated only when necessary, to provide for continuity and to avoid creating unnecessary resource burdens. The noble and learned Lord, Lord Thomas, would be inventing a new process for the framework document, when there is already a process set out in Annex 7.2 of Managing Public Money.

On this, I also refer noble Lords to the strategic steer issued by the Chancellor in March. This provided a steer on priorities for the bank in light of the situation in Ukraine, and the recently concluded environment review, as well as other priorities for the bank to reflect in its first strategic plan. None of this information impacted the high-level framework under which the bank operates, as set out in the framework document, and therefore a mandatory update to the framework document would have been unnecessary. However, the strategic steer must be reflected in the bank’s strategic plans. This is provided for in the Bill.

Amendment 21 seeks to bring a consultation process on the use of some of the powers in the Bill with the devolved Administrations. I appreciate the intent, but this will cut directly across the negotiations that we are having with the devolved Administrations on the legislative consent process. This was brought up in Committee and I explained then that the normal practice is to bring forward any amendments required for a legislative consent Motion in the second House, which for this Bill would be the Commons. It would not be appropriate to accept this amendment until we have begun those negotiations with the devolved Administrations in earnest.

I hope that I can reassure noble Lords by saying that we have begun those discussions with the devolved Administrations in a positive fashion. Engagement with the devolved Administrations on the set-up of the bank was also positive. They all support the establishment of a national infrastructure bank. The bank has also been developing its own relationships with the devolved Administrations and their respective institutions, such as the Scottish National Investment Bank. The bank has now also completed deals in all four nations.

The tone and tenor of the bank’s relationships with the devolved Administrations and their respective institutions, and the way that the bank has gone about its business so far, give noble Lords in this House quite a bit of reassurance, I hope, about the collaborative approach that the bank has taken so far and intends to take in future. Therefore, I hope that the noble Lord, Lord Sharkey, feels able to withdraw Amendment 13.

[Lord Sharkey (LD)]

I thank the Minister for her response and thank all other noble Lords who spoke to Amendment 13. I detect a chillier wind from my right than I would have liked. Under those circumstances I can only repeat that the House will not have a substantive opportunity to scrutinise these important things. I regret that. The loss of both parliamentary authority and the ability to scrutinise what comes before us is a critical issue, which I have no doubt we will come back to in future Bills. In the meantime, I beg leave to withdraw Amendment 13.

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[Baroness Bennett of Manor Castle (GP)]

My Lords, I offer Green group support for Amendment 20, to which we would have attached our name had there been space.

In Committee, I suggested that the bank should not be in the hands of the Treasury at all. I got some expressions of interest but not enough support to bring it back on Report. However, it is clear that we need systems thinking, as I often say in your Lordships’ House. We need an approach that looks beyond the narrow growth in GDP to something broader and more holistic. This amendment is a step towards achieving that.

[Baroness Penn (Con)]

My Lords, I speak on this group with some trepidation; I hope I do not show the lack of humility that the noble and learned Lord, Lord Thomas, has accused my department of. I will stand up for the Treasury: in my dealings with this group of public servants, they have been bright and suitably humble, trying to work in the best interests of the country.

I will take the amendments in reverse order. The amendment tabled by the noble and learned Lord, Lord Thomas, as he explained, seeks to ensure that the bank’s board has the necessary expertise to deliver on its objectives. He is right to focus on the importance of the bank’s board in steering this nascent institution to deliver on its two wide-ranging objectives across the whole of the UK.

I reassure noble Lords that the bank’s board already contains a wealth of experience in infrastructure finance, policy-making, economics and green investments, across the public and private sectors. Collectively, its members have worked at similar national organisations, such as the Canada Infrastructure Bank, the UK Green Investment Bank and UK Export Finance, as well as leading financial services firms and central government departments. John Flint, the bank’s CEO, was chief executive of HSBC, and Annie Ropar was the CFO at the Canada Infrastructure Bank. So, in its infant form, it has already attracted some high-quality individuals to work there.

The bank’s non-executive directors were recruited in line with the guidelines set out by the Office of the Commissioner for Public Appointments, and were selected based on the skills they could bring to the board to deliver on the bank’s mandate. These appointments could be audited by OCPA in due course. OCPA’s guidelines include a principle of merit, which means

“providing Ministers with a choice of high quality candidates, drawn from a strong, diverse field, whose skills, experiences and qualities have been judged to meet the needs of the public body or statutory office in question.”

As I have said in previous groups, in drafting this Bill, we are seeking to create a high-level framework within which the bank can operate, while providing for the longevity of its objectives. Therefore, given that appointments are already recruited in line with OCPA’s guidelines, which we expect OCPA to review and which include a principle of merit, I do not think it is necessary to add greater specificity to the Bill on this point. Including these provisions could be overburdensome and prevent the bank and Treasury hiring the most appropriate people for the roles.

I spoke about the recent appointments in Committee, so do not propose to do so in detail again, but I would be very surprised if the noble and learned Lord, Lord Thomas, could find much fault with the appointees. He has also expressed an interest in the representation of the devolved Administrations and, as he spoke about on the previous group, in making sure that the board and the bank command the confidence of all four nations in the UK. As I said to him before and will happily say again, commanding that confidence is central to how the bank has gone about its business. The skills of the board will adequately represent the needs of all four nations, although, as I said on the previous group, specifics in that area are not necessarily a discussion for now, as they are part of the process of legislative consent. I therefore hope that the noble and learned Lord does not move his amendment when it is reached.

The amendment of the noble Lord, Lord Tunnicliffe, seeks to ensure that the bank always has a representative of the workers on its board. The UK Corporate Governance Code already states that a company should have one or a combination of a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director to facilitate engagement with the workforce. It also states that, if the board has not chosen one or more of these methods, it should explain what alternative arrangements are in place and why.

I give the noble Lord my absolute reassurance that the bank will comply with the UK Corporate Governance Code; however, as I have said, it is a nascent institution, with its board appointments made and the non-executive directors joining only recently. The bank has not yet had the opportunity to determine how it will meet this specific provision. It is currently establishing its governance and will report on its progress in its annual report and accounts. The noble Lord can expect an update there.

[Lord Tunnicliffe (Lab)]

Before the noble Baroness sits down, could she find a device—a statement or something—to advise us on when that process has been completed and in what form that requirement has been met?

[Baroness Penn (Con)]

I am happy to write to the noble Lord to set out those anticipated timelines. The annual report and accounts are published and laid before Parliament so, between those two pieces of information, I will endeavour to cover this for the noble Lord. If we reach the annual report and accounts and are not in a position to do so, I will pick this up again then and ensure that I get back in touch.

[Lord Tunnicliffe (Lab)]

My Lords, I thank all noble Lords who have participated in this debate, and I thank the noble Baroness for her assurances on my specific point. I hope that it is seen through and that the result is not that the bank explains that it is not following the code, for some reason. This is an alternative, but one that I would deeply regret if it were chosen. With that, I beg leave to withdraw my amendment.

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Moved by

[Baroness Penn]

22: Clause 9, page 4, line 2, leave out “Treasury must” and insert “Chancellor of the Exchequer must appoint an independent person to”
Member's explanatory statement
This amendment (and the others to clause 9 in the Minister’s name) would require: reviews to be carried out by an independent person; the reviews to include consideration of “additionality”, or the extent to which the Bank’s investments encourage additional investment by the private sector; the independent person to give reports to the Treasury; the Treasury to publish those reports. The time limit for completing the first review would be 7 (rather than 10) years.

[Baroness Penn (Con)]

My Lords, I turn to Clause 9 of the Bill, on the statutory review. We had an extensive debate on this in Committee and, reflecting on that debate, the Government have tabled several amendments to this clause.

On the timing of the review, in Committee I set out the rationale for the first statutory review of the bank taking place after 10 years. This was for two reasons: first, to ensure that we could accurately measure the effect of the bank’s long-term investments and, secondly, to ensure that we do not overburden the bank with constant reviews. As I have previously noted, the Treasury is currently undertaking a review of the bank’s framework document and will undertake a review by spring 2024 of the bank’s capitalisation. The bank will also be subject to frequent Cabinet Office-sponsored arm’s-length body reviews, which should be conducted by an independent person.

However, I understand the strength of feeling in the House and, for this reason, I tabled an amendment to shorten the timescale for the first statutory review. Bringing forward the initial review to take place no later than seven years after Royal Assent will mean that the first statutory review will be conducted in 2029. This fits neatly with the timing of the levelling-up missions, which the bank’s work will support, that are due to be achieved by 2030.

I turn to my other amendments to Clause 9. I heard concerns in Committee that the Treasury would, in these reviews, be marking its own homework. That was not the intention, and so I have brought forward an amendment to clarify that the Treasury will appoint an independent reviewer to conduct the review. Noble Lords will, I hope, be further reassured that the Cabinet Office-sponsored reviews, as I have just noted, will have a recommendation that they be conducted by an independent reviewer too. I hope noble Lords are content with these amendments. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I rise to speak to my Amendments 30 and 32. I am grateful to the noble Baronesses, Lady Noakes, Lady Kramer and Lady Bennett of Manor Castle, for their support. In fact, I think I may have achieved a world first in getting the noble Baronesses, Lady Noakes and Lady Bennett, to sign the same amendments. I hope, therefore that the Minister might take note of this extraordinary event and take the amendments seriously.

First, I thank the Minister for her amendments in this group, and for listening to and acting on the concerns that were raised by noble Lords as the Bill has proceeded. Her amendments are very welcome, especially those that deal with the issue that was previously raised about the Treasury marking its own homework. Having an independent person carry out the review is an important step. I also welcome the reduction of the period before the first review from 10 years to seven years. I think everyone agreed that 10 years was way too long, but even after that change, there will still be a review only every seven years, which I still think is too long. Amendments 30 and 32 would reduce this to every five years.

The argument in favour of the longer period seems to be that infrastructure investment is long-term, which it is, and therefore it will take a longer period before the success of the bank can be evaluated. I think this rather misses the point. Although it is true that the success of a particular investment may take more than seven years—indeed, it might be 20 or 30—to become clear, the review should be covering how effectively the bank has performed in making investments. Is it making enough investments, are they appropriate, are they in the appropriate parts of the country and, importantly, do they meet the additionality principle and, as we discussed earlier, the crowding-out problem? We do not need to wait until the investments themselves reach maturity to be able to see how well or badly the bank is performing in making investments.

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[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.

[Baroness Penn (Con)]

My Lords, as I have said, I have listened to the concerns of the House around Clause 9, and it is for that reason that I have sought a compromise and tabled the government amendments to this clause, as I outlined earlier.

On the shortened timescale proposed by the noble Lords, Lord Vaux and Lord Tunnicliffe, and others, I have already set out the rationale for why the Government have gone for seven years. To reassure noble Lords on their questions about needing more regular information, quite rightly, on how the bank is performing, the bank’s strategic plan set out a whole range of KPIs that it will be assessed against, including additionality, to address the point made by the noble Lord, Lord Vaux. Those KPIs will be reported on in the annual report and in the updates to the strategic plan in future.

So more regular information will be provided on the progress of the bank, not just through the statutory review. In addition to the other reviews that I mentioned in my opening speech, there is currently a review by the National Audit Office looking at the set-up of the bank. As I said in Committee in response to my noble friend Lady Noakes, the bank is also subject to reports and investigations by Select Committees of both Houses and has already come to give evidence before those committees. I reassure noble Lords that the statutory review is not the only avenue through which the work of the bank will be scrutinised. There will be ongoing scrutiny through several different avenues, including in its annual report and accounts, which will judge its progress against many KPIs. With that, I beg to move.

Amendment 22 agreed.

Moved by

[Baroness Penn]

23: Clause 9, page 4, line 5, after “growth” insert “(including the extent to which its investments in particular projects or types of project have encouraged additional investment in those projects or types of project by the private sector)”
Member’s explanatory statement
See the explanatory statement for the Minister’s first amendment to clause 9.

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Moved by

[Baroness Penn]

25: Clause 9, page 4, line 5, at end insert—
“(1A) After each review, the independent person must—(a) prepare a report of the review, and(b) submit the report to the Treasury.”Member’s explanatory statement
See the explanatory statement for the Minister’s first amendment to clause 9.

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Moved by

[Baroness Penn]

31: Clause 9, page 4, line 11, leave out “published” and insert “submitted to the Treasury”
Member’s explanatory statement
See the explanatory statement for the Minister’s first amendment to clause 9.

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Moved by

[Baroness Penn]

33: Clause 9, page 4, line 11, at end insert—
“(5) In this section, references to an “independent person” are to a person who appears to the Chancellor of the Exchequer to be independent of—(a) the Treasury, and(b) the Bank.”Member’s explanatory statement
See the explanatory statement for the Minister’s first amendment to clause 9.

UK Infrastructure Bank Bill [HL]

Baroness Penn Excerpts

3rd reading & Lords Hansard
Monday 11th July 2022 Lords Chamber

Moved by

[Baroness Penn]

That the Bill be now read a third time.

Relevant document: 2nd Report from the Delegated Powers Committee

[Baroness Penn (Con)]

My Lords, before we progress with Third Reading, I shall make a very brief statement on legislative consent in relation to the Bill. My officials have worked closely with their counterparts in the devolved Administrations throughout the set-up of the bank and the passage of this Bill. All three Administrations have welcomed the establishment of a national infrastructure bank. The bank has also been developing its own relationship with the devolved Administrations and their institutions—for example, the Scottish National Investment Bank. I am pleased that the bank has now completed a deal in all four nations of the UK. We continue to discuss the requirements for legislative consent with the devolved Administrations, and I am grateful for their continued engagement on this. I beg to move that the Bill be read a third time.

Motion agreed.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, obviously my colleagues and I support the creation of the UK Infrastructure Bank. We regret that it does not have the genuine operational independence that was a clear statutory characteristic of the Green Investment Bank, which was sold off by this Government as soon as the coalition ended, but we are where we are.

The work of this House has improved the Bill significantly. The Government amended it to provide absolute clarity on the UKIB’s role in supporting investment in energy efficiency; we thank the Minister for that. Noble Lords from all sides of the House also supported further changes to establish that the bank’s objectives extend to nature-based solutions in a circular economy. I hope that the Government will not attempt to reverse these meaningful improvements.

However, the Bill has followed what has become a consistent government thrust: diminishing Parliament and enhancing the power of the Executive; I will not repeat all our previous arguments about Henry VIII powers and the power of direction. The Government have promised to amend the framework document by the end of the year to assure us that not only the directions, including their content, but any objections made by the bank to such directions, including letters of reservation, will be made public. This transparency is vital; I thank the Minister personally for making sure that we got a meaningful response to this issue with a commitment not just to removing the gagging clauses originally in the framework document but to ensuring full transparency through the publication of the relevant documents.

I thank the Minister and her team for their openness and willingness to meet. I thank Peers around this House who worked together to get improvement—they are too many to name—but I believe that the Government’s nightmare is an amendment in the name of the noble Baroness, Lady Noakes, supported by the noble Lords, Lord Tunnicliffe and Lord Vaux, the noble Baroness, Lady Bennett, and me.

Last of all, I thank my own ranks. I thank Sarah Pughe and Mo Souidi in the Whips’ Office, who provided us with organisation and backing. I thank my noble friends Lord Sharkey and Lord Teverson, who brought their particular and extensive expertise to bear on this Bill; they have earned and enjoy the respect of this House.

[Baroness Penn (Con)]

My Lords, I thank all noble Lords for their constructive approach to each stage of this Bill. In particular, I thank the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Kramer.

The level of scrutiny and debate on the Bill demonstrates the importance of the bank’s mission and has served to demonstrate once again the expertise of this House on topics from corporate governance through to the definition of infrastructure and our target for tackling climate change. Although this is a short Bill—something that may be welcomed—it is an important one given the bank’s potential to deliver a step change in tackling climate change and supporting levelling up through supporting the development of high-quality infrastructure across the whole of the UK.

I am therefore pleased to see the Bill progress towards becoming law, supporting the bank to become a fully-fledged, operationally independent institution able to deliver on its mandate as agreed by this House. I thank noble Lords on all Benches for working constructively on this both during debates and in the many separate discussions that I have had on this Bill.

Finally, I recognise the work of the parliamentary counsel in drafting this Bill and in supporting its passage so far. I also thank the House staff, the excellent Bill team, and my noble friend Lord Younger for his support. I am not alone in this House in looking forward to seeing the impact of the bank’s investments in improving the vital infrastructure of this country. I beg to move.

Bill passed and sent to the Commons.

UK Infrastructure Bank Bill [HL]

Baroness Penn Excerpts

Consideration of Commons amendments
Tuesday 14th March 2023 Lords Chamber

Moved by

[Baroness Penn]

That this House do agree with the Commons in their Amendments 1 and 2.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, with the leave of the House, I shall speak also to the other amendments and that in the name of the noble Baroness, Lady Hayman.

I start with Commons Amendment 2. As was noted in the other place, the Government agree that the bank will make it a stipulation that any investment into the water sector must be in line with the company having an appropriate plan and making sufficient progress against that plan to deal with sewage discharges. However, I want to make it clear that in this circumstance the word “preventing” is aimed principally at preventing harmful discharges and does not mean eliminating all discharges. I want to make this distinction in the House because I do not want the bank to be prevented by fear of legal action from investing in water companies which have a plan in place to meet their obligations.

I reassure the House that the Government are already taking major steps to improve water quality. We have announced legally binding targets on water quality under the Environment Act and ambitious interim targets to deliver these in our environmental improvement plan.

This Government have also implemented the strictest ever targets to crack down on poor water company performance. On sewage spills, our storm overflows plan requires companies to deliver the largest ever environmental infrastructure investment—£56 billion over 25 years. Where water companies are found to have broken the law and face fines for this behaviour, this Government have committed to reinvest those fines directly back into schemes to improve our water environment.

Commons Amendment 3 removes the Lords amendment to include nature-based solutions and the circular economy in the definition of infrastructure. As noble Lords will recall, we debated this issue extensively in this House and it came up frequently in the Commons. At the time, I noted that nature-based solutions were already included under the inclusive definition of infrastructure and, as such, we did not think it necessary to add it explicitly in the Bill. The Government have reflected on the debate and recognise the strength of feeling on the matter and, as such, think the amendment from the noble Baroness, Lady Hayman, strikes a careful balance of making it clear that nature-based solutions are within the bank’s remit without being overly prescriptive.

The Government agree with the removal of the circular economy from the definition. We do not think including the circular economy—which is an imprecise term—in the definition of infrastructure would be helpful for the bank. However, I thank all noble Lords, and in particular the noble Lord, Lord Teverson, for raising this issue during the passage of the Bill. We reassure them that the circular economy is an incredibly important principle and will be key as we transition to a more sustainable economy in a number of sectors. While we do not wish to expand the scope of the bank, I reassure the noble Lord that several of the areas highlighted in the debate on the circular economy are covered within its existing remit and objectives; for example, nature-based solutions, waste and energy efficiency, as was clarified in an earlier amendment to the Bill. I therefore anticipate that the bank will invest in and be a key proponent of a circular economy wherever it is in line with the overall objectives.

Commons Amendment 4 removes subsection (6) from Clause 2 of the Bill. The subsection included the wording “have regard to”, but this would still have had a significant impact on the bank. For example, on improving jobs, we understand the intention of the amendment and do not disagree with it as a general principle. However, we are concerned that there may be consequences if the principle were to be applied across the board as a statutory requirement in relation to every investment proposal. It could lead to the bank being overly cautious for fear of legal challenge.

The second part of this subsection, on reducing regional inequality, is also of concern. We do not want the bank to be under a statutory duty to consider regional disparities in the same way in relation to every investment proposal that comes before it. The strategic steer makes it clear that the bank must focus on geographic inequalities. However, this is best done on a portfolio basis rather than investment by investment, which would be required by the proposed amendment.

Although the Government agree with the Commons amendment, we recognise the concern of the House, and I pay tribute to the work of the noble Lord, Lord Tunnicliffe, on this matter. I recommit to this House that after the Bill achieves Royal Assent the Government will amend the bank’s framework document to provide clarity on the role on the bank in levelling up the United Kingdom. We will include under the operating principles the wording:

“The bank will also address the spatial disparities across and within UK regions.”


This is in addition to the wording already in the framework document under its second objective:

“to support regional and local economic growth through better connectedness, opportunities for new jobs and higher levels of productivity”.

Commons Amendments 5, 6, and 9 concern provisions to add a duty to consult relevant Ministers in the devolved Administrations on the use of delegated legislative powers in the Bill, including the power to amend the bank’s activities or the definition of “infrastructure”, and to issue the strategic steer. Commons Amendment 7 is related and sets out a requirement for UKIB’s board to appoint one or more directors to be responsible for ensuring that the interests of the devolved Administrations are considered in the board’s decision-making. These amendments have come as a direct result of positive engagement we have had with the devolved Administrations, and I am pleased to say we have received legislative consent Motions from the Welsh and Scottish legislatures. Unfortunately, given that the Executive have not formed, it was not possible to get a legislative consent Motion from the Northern Ireland Assembly.

Given we are on the subject of the board of directors, I know that the noble Lord, Lord Tunnicliffe, was interested in whether the bank would appoint a workers’ representative to the board. I reassure him that the bank is abiding with the requirements of the corporate governance code and has appointed a non-executive director, Marianne Økland, to facilitate engagement with the workforce.

Commons Amendment 8 reduces the time period for statutory reviews of the bank following the first such review from seven to five years. This balance reflects the fact that we need to allow a nascent institution time to embed and fully establish itself in the market, which is why the first review will take place after seven years. However, subsequent statutory reviews will take place every five years to ensure proper scrutiny of the bank’s performance.

Commons Amendments 1 and 10 are of a technical nature and broaden the definition of “public authority” in relation to the bank’s capacity to lend. The drafting as is broadly meets the policy aims and would allow the bank to lend to local authorities and the Northern Ireland Executive. However, given that primary legislation can be something of a blunt instrument, we do not want inadvertently and by implication to preclude the bank from lending to other public authorities, such as any public bodies created by local authorities or government departments in future.

Finally, as is standard for a Bill that starts in the Lords and concerns matters of public finance, a privilege amendment was passed. Commons Amendment 11 removed this.

The Government have listened to concerns in both Houses and have made changes to improve the Bill. I look forward to the debate and hope that noble Lords will accept these amendments. I beg to move.

[Baroness Hayman (CB)]

I declare my interest as co-chair of Peers for the Planet and rise to speak to my Motion 3A, which as the Minister said would reintroduce nature-based solutions into the definition of infrastructure in which the UK Infrastructure Bank may invest.

We had some very helpful conversations after Report and the debates in the other place, and I think we have now reached a highly satisfactory position on this amendment, in no small part due to the Minister’s customary constructive approach to the debates that have taken place in this House, for which I am very grateful.

Of course, the original amendment included the “circular economy”, and I know that there will be some disappointment that that is not included now, but the bank’s strategy is reassuring on that issue. Anyone who listened to the item on the “Today” programme this morning about data centres using the heat they normally have to dispose of to heat up the water in local swimming pools will have heard a lovely example of how we need to put those sorts of issues together.

I thank all the Members of this House who have taken part in the debates, and in particular those who signed the various iterations of my amendment, including the noble Lord, Lord Bourne of Aberystwyth, the noble Baroness, Lady Jones of Whitchurch, and the noble Lord, Lord Teverson. This amendment has had significant cross-party support because of the increased recognition that nature-based solutions have a critical role to play in the fulfilment of the bank’s objectives. The Chancellor’s strategic steer in 2022 encouraged the bank to

“explore early opportunities in nature-based solutions”

and aim to have

“a positive impact on the development of the market”.

The bank has since published a discussion paper setting out its initial thinking on how it can invest in and support the growth of natural capital markets, and I look forward to the results of this consultation.

The discussion paper clearly explains the importance of natural capital as a form of infrastructure and the vital contributions it makes to our society and economy, often in ways which are more cost-effective to the taxpayer. Carbon removals through creating and restoring woodlands, wetlands and peatlands, flood mitigation measures, providing “clean and reliable” water supplies, underpinning our food security and bolstering our resilience to climate change: these constitute numerous examples of how we can deploy nature-based solutions to support our infrastructure and provide social, economic and environmental benefits. There is also an ever-increasing recognition of the key role that nature can play in solving climate change, nature being our biggest asset with which to fight it. Nature-based solutions also provide significant co-benefits, such as jobs and good health and well-being outcomes, with considerable economic advantages.

I welcome that the UK is leading on the Taskforce on Nature-related Financial Disclosures, but there is an average $700 billion funding gap for protecting and restoring nature globally, and evidence that more needs to be done to help market participants mainstream and scale these products alongside growing investor demand. This simple addition to the definition of infrastructure in the Bill sends a strong signal to the markets that the UK recognises this and the Government are serious about taking action to help build and develop this nascent market. It also provides certainty to the bank, which recognises that it has a role in developing capacity towards a pipeline of investable projects and is poised to act. It will encourage others to do the same and further develop the UK finance sector’s position as a leader in this important emerging new market.

As I said, I am very grateful to the Minister and her officials for the support they have given and the resolution that I think we have reached.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister, both for her introduction today and for a helpful briefing held last week. When your Lordships’ House considered the Bill in the first half of last year, we were told that passing it should be a mere formality. The UK Infrastructure Bank was already operating, having made its first handful of investment decisions. The Bill was therefore essentially a technical exercise to give the organisation statutory underpinning. The Government resisted several sensible amendments, including one on worker representation on the bank’s board, partly on the basis that this legislation needed to be on the statute book quickly. I pause to note that the inclusion of a non-executive director at least moves in that direction. I thank the Minister, as I do for everywhere in the Bill where she has persuaded the Government to seek compromise.

However, in reality, it took some time for the Bill to get through the other place. The legislation having been introduced last July, Second Reading did not take place until November and Report not until last month. The delay was presumably the result of the Conservative Party’s summer of chaos, with a succession of Prime Ministers and Chancellors of the Exchequer, and—if I remember correctly—a short period when the noble Baroness was not a Minister on this subject. We are back to our familiar form. The extra time has seemingly allowed Ministers to reflect, in some areas at least, as evidenced by the various Commons amendments that we are debating today.

We welcome the clarifications around the definition of “public authorities” and the importance of costed plans should UKIB funds be used to support the work of water companies. The devolved provisions, which have facilitated the passing of legislative consent Motions—something of a novelty in recent years—are also welcome. We are also glad that the Minister and the Bill team have been persuaded of the merits of including nature-based solutions in the definition of infrastructure.

The noble Baroness, Lady Hayman, made a persuasive argument but, as we have often seen, that does not always lead to the Government making a concession. I pause again, however, to note, as happens with so many Bills, the extent to which she and her supporters are making incremental progress in embracing the green thrust. Even now, I have a bit of optimism that we might move quickly enough to save at least some of the planet that we now enjoy. It is good to see that thrust building on both sides of the House. I hope that in a couple of years the sides will change but, if one has that general direction in the membership and on the Front Benches, it is possible that we will get there. In another two years we may be passing green amendments that will amaze us when we look back five years, at when some official or other said, “You can’t put green in there because it is nothing to do with the Bill”. We have put green in here and have persuaded people that it is something to do with the Bill.

I understand the disappointment of the noble Lord, Lord Teverson, with regard to the circular economy, but that concept will become ever more apparent and he will no doubt have other opportunities to promote it.

I regret that the Government have overturned my amendment. Colleagues may think, “You would say that, wouldn’t you?”, but I remain unconvinced of the Government’s reasoning for removing their own levelling- up mission from the Bill. I reluctantly accept the offer to make changes to the bank’s framework document and articles of association after the Bill receives Royal Assent. It is not exactly where we want to be but it is a small step in the right direction.

Finally, we gladly accept the reduction of the interval between reports on the bank’s effectiveness. I was somewhat amused by this, as we were previously told that an interval of five years was simply not practical and could even somehow undermine the bank’s work.

Overall, while the Bill is a short, technical piece of legislation, the UK Infrastructure Bank could make a significant contribution to some of the big challenges that we face. We fully support the bank and, while there may be cause to revisit its mandate in the future, we wish it well in its work. Again we thank the Minister for her co-operation in bringing us to this consensus position.

[Baroness Penn (Con)]

My Lords, the Bill is mercifully short, so I shall also keep my remarks brief. I thank all noble Lords who have spoken today and who contributed when we took the Bill through its substantive stages in this House a while back. I reassure them that the time it has taken for the Bill to progress is not unusual: I was working on the skills Bill in this House, went off on maternity leave and was back in time for ping-pong, so it is not necessarily an unusual passage for a Bill in Parliament.

I reassure the noble Baroness, Lady Bennett, that the Government are committed to moving towards a more circular economy which will see us keeping resources in use as long as possible, extracting maximum value from them, minimising waste and promoting resource efficiency. I hope I made that clear in my opening remarks. When it came to including a legal definition of “infrastructure” in the Bill, that is where my remarks about the potentially imprecise nature of the terms lay, but it does not reflect a broader lack of understanding or commitment by the Government to that agenda.

I also reassure the noble Lord, Lord Teverson, that His Majesty’s Treasury is very much committed to ensuring that nature and climate change are on the agenda for the Government and that we meet our global goals, committed to both in terms of Paris alignment and the new framework agreed at COP 15 in Montreal at the end of last year. He knows better than most that we published the Dasgupta review that looked at the role of nature in our economy. We have had an amendment to the Bill today, and that commitment will be ongoing.

Most noble Lords were very kind in not replaying my words on the review period for the bank. All I can say is that it is always a pleasure to listen to the contributions of noble Lords and be persuaded of the art of the possible. I am pleased with the changes that we have been able to make to the Bill; I think these have shown how effective Parliament can be in scrutinising our legislation. The UK Infrastructure Bank has transformative potential, which I know is recognised and supported on all sides of the House. I beg to move.

Motion on Amendments 1 and 2 agreed.

--- Later in debate ---

Moved by

[Baroness Penn]

That this House do agree with the Commons in their Amendment 3.

Amendment to the Motion on Amendment 3

Moved by

--- Later in debate ---

Moved by

[Baroness Penn]

That this House do agree with the Commons in their Amendments 4 to 11.

Motion on Amendments 4 to 11 agreed.