Enterprise and Regulatory Reform Bill

Baroness Pitkeathley Excerpts

Monday 3rd December 2012 Grand Committee

[Baroness Worthington]

This, as noble Lords can see, is a probing amendment but continues on the theme. We are trying to address a market failure in the creation of this bank. There has been a financial crisis and, as we emerge from it, it is clear that commercial bank lending is going to be further constrained. The Basel III requirements will mean that the recapitalisation of banks will discourage them from holding longer-term loans on their balance sheets, which will potentially increase costs. That means a reduction in loans, just at the time when we need to see more money flowing into these solutions. Things are getting much more difficult.

In that context, it is important that we have a bank that can help to compensate for the increased constraints coming in the private sector. Yet, as I have mentioned, we have created a bank that, sadly, is constrained because it has a relatively small amount of starting capital. I am not saying that it is easy to spend money, and we should not just be seeking to spend it rapidly and not wisely. However, we must weigh up the scale of the challenge with what we are creating. It also forces us to think about how we are going to increase the leverage of that finance and ensure that it is seen to grow to the kind of levels that we need.

Our amendment is along similar lines to the amendment of the noble Lord, Lord Teverson, and talks about two other ways in which finance could potentially be raised. We would encourage the Government to consult on these. We are not saying that we have a final, detailed position on this, but these are fertile areas for exploration. The bond market is huge, as I am sure that noble Lords are aware. As yet, the bond market is largely untapped for low carbon investment because, by its nature, it is fairly conservative and seeks out asset classes with a long track record of delivery. Time is needed to develop new assets, and that requires expertise.

This is exactly what we hope is being created in the Green Investment Bank—a new set of experts who could help to create the sorts of asset classes that enable private-sector bond market participants to come in behind and start to invest in them. That is why we have tabled the amendment. There is no shortage of private sector investment looking for safe and credible investment vehicles. The fact that the bank is, under this legislation, a wholly owned non-departmental body is attractive, so this is an important area for it. There is a good fit here as regards bond issues; they tend to have a long lifespan, which is exactly what some of these infrastructure projects will have. By their very nature, it is infrastructure that will be here for a long time.

We therefore encourage the Minister to think about bonds as a mechanism for raising finance. In particular, I have learnt a reasonable amount today about covered bonds. This is an interesting mechanism that could help to raise finance without adding to the public debt. In effect, we would create a new class of covered bond, which would give comfort to investors by providing a double security on the loans. The UK’s covered bond legislation could be examined to see how it could be adapted to encourage investment in green and low carbon technologies.

The other matter on which we would like to consult is quantitative easing. That is also an obvious way in which we potentially could create mechanisms for a greater flow of finance into this bank. We understand that it is not the Government but the Bank of England that controls it, but we also know that there are close ties between them, and this area could also be very fertile and is definitely worthy of consultation. This is why we have tabled amendments on these important issues. I beg to move.

[The Deputy Chairman of Committees (Baroness Pitkeathley)]

Amendment proposed:

“Page 3, line 10, at end insert”,

the words as printed—but not quite as printed, because there is a typo in the fourth line. After:

“The Secretary of State shall consult the Bank of England”,

we need to insert the word “on” before,

“granting the Bank access to the Quantitative Easing programme”.

[Lord Teverson]

I had not noted that. Perhaps I should change my whole speech because of it.

The whole area of bonds issuance is important. In fact, it was looked at in some depth by the Environmental Audit Committee in the other place, together with green ISAs. It is a method, which I know the Government and the Treasury are very keen on, to use money from pension schemes in particular to invest in the UK and in areas of quick growth. Although I am sure that my noble friend the Minister will go through the whole question of whether these would be government-guaranteed bonds and the effect that would have on the public accounts, I believe that this is an important area of fundraising. It is one that could, with the length of investment in these sorts of projects, appeal very much to the pension industry and pension funds, which have large amounts of money, as we know, to invest successfully. This would be a good way of moving forward and I am sure that the Government have considered it a great deal.

I would like to ask the Minister whether the Government have thought further about the area of green ISAs and about involving not just fund managers and corporates, as one would do with bonds, but ordinary people to support the purposes of this bank. I note that some 18 million people have ISAs at the moment. That is one in three adults. Some £220 billion is invested by individuals in ISAs, which clearly have all sorts of tax breaks that are attractive to individual savers. Both these financial instruments could really make a difference in terms of the Green Investment Bank and green ISAs. You could get a public and personal commitment to this cause and create extra employment and growth in the UK.