Green Investment Bank

Debate between Caroline Lucas and Iain Wright

Thursday 29th October 2015 Westminster Hall

[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Crausby. I thank hon. Members who are present and the Backbench Business Committee for selecting this important topic for discussion. I particularly want to thank the hon. Member for Beverley and Holderness (Graham Stuart), who gave an excellent, thoughtful and skilful speech that got to the heart of the key issues. It is to his credit that he did so in such a balanced manner. The future of the UK Green Investment Bank and the Government’s plans for it to be privatised have not been given sufficient attention, so this opportunity is very welcome. I also welcome the hon. Member for Warrington South (David Mowat). He and I were present at the creation of the Green Investment Bank, because we sat on the Bill Committee of the Enterprise and Regulatory Reform Act 2013, which set it up. We challenged the Government on some of the things to which the hon. Member for Beverley and Holderness referred, such as green purposes and where the bank can invest.

It is probably appropriate when discussing the future of the Green Investment Bank to consider, as the hon. Gentleman did in his opening speech, its status and achievements in its relatively brief life. Most stakeholders would agree that the bank’s first three years have been a success. It has enjoyed broad political consensus, which has allowed it to establish itself quickly and in some depth without risk of political knockabout and the turbulence that that causes. For an organisation barely out of nappies, the bank has proven to be remarkably mature. It already feels like an established and respected part of the financial and public sector architecture. As somebody who supports institutions designed to promote long-term and sustainable growth in competitive sectors, I think it is on a par with the likes of catapult centres, the Automotive Council and the Aerospace Growth Partnership, all of which should be long-standing players in a UK industrial strategy.

The bank was established to address and help to correct market failure and the reluctance of investors to put funds into the low-carbon sector because of risk or the lack of a track record. The bank has provided confidence in what remains a stuttering, albeit fast-evolving new part of the global economy. For example, the bank’s financial services arm has just enjoyed a second close of over £350 million into its offshore wind fund, bringing the fund to a total of £818 million and establishing its credentials as the largest renewable energy fund in the UK.

I am particularly interested in the three-year collaboration agreement between the bank and the Offshore Renewable Energy Catapult, designed to better manage the risks of investing in offshore renewable energy. The hon. Gentleman mentioned Siemens and the work of an offshore wind cluster in Humberside, and I have a similar cluster in Hartlepool and Teesside. Yesterday in the Chamber we were discussing the crisis in the UK steel industry, yet it could be an important component of the offshore wind supply chain, putting the steel industry in our country on a sustainable footing in every sense.

I fully support the comments about the collaboration between the bank and the catapult made by the Minister for Small Business, Industry and Enterprise. She said:

“This collaboration is a very positive step for our offshore wind industry—helping to increase business productivity, encourage green innovation and stimulate long-term growth,”

because it will bring down costs and ensure that the UK’s goal is to be the largest and most innovative and competitive global player in the offshore wind industry.

The hon. Member for Beverley and Holderness alluded to the bank’s projects and the funds invested. To date, the bank has invested in 55 green infrastructure projects and committed about £2.1 billion to the UK economy in the process of leveraging somewhere in the region of £8 billion to £9 billion more widely, as the hon. Gentleman said. After less than three years of operation, the bank has now posted a profit. Combining green credentials in a new, emerging and uncertain sector with a rapid move into profitability is fantastic work—I think we all agree on that. Credit must go to the bank’s leadership, Lord Smith of Kelvin and the chief executive, Shaun Kingsbury, as well as to every member of the bank’s staff, for the great combination of business and investment acumen with a green ethos and a commitment to environmental concerns.

Given that the bank has achieved so much in such a short period of time, the next phase of its life is truly promising—the opportunity to go to a new level of financial scale, which could boost investment in low-carbon technology and assert Britain’s leadership of this modern and exciting part of the global economy. Having established credibility, environmental sustainability and commercial profitability, the bank might look to relax its risk profile to diversify its investment to ensure that it invests in truly innovative technologies.

[Caroline Lucas]

I congratulate the hon. Gentleman on the compelling case that he is making. Does he agree that removing legal protection for the Green Investment Bank’s green credentials would be an economic own goal? Right now we have no real guarantee that the bank’s purposes will remain green, but that is the value added and what makes it so special—that it will focus on such areas. If we lose those purposes, the bank will lose its essence. We therefore need some kind of contractual commitment from prospective buyers that they will keep that focus.

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[Mr Wright]

I disagree, because of the bank’s financial track record so far. We are talking about a policy decision by the Chancellor. Throughout the bank’s life to date, he has stopped the ability to borrow. He has said in the past that once overall public debt is falling as a proportion of GDP, the bank might be allowed to borrow. He seems to have changed his tune now. However, based on the bank’s track record, the banks could leverage in further private sector money through borrowing as a means of strengthening its balance sheet.

I have mentioned the risk profile, which is another concern. As I said, the bank turned a profit quickly, which is welcome, but a scaled-up bank could diversify its investments, concentrating to an extent on higher-risk and innovative technologies. In many respects, what the bank has done in the first three years of its life is to invest in important and environmentally sustainable, but commercially lucrative opportunities, such as offshore wind, and in driving down costs by investing in, say, product and process innovation. In the next phase of its life, there is a real opportunity to think about the products and technologies that have not even been invented yet. A traditional market will not consider that unless a state-backed development bank both de-risks and crowds in further investment. In this field, Britain could have first-mover advantage, thanks to investments led by the Green Investment Bank. That would have positive effects for UK prosperity and employment opportunities.

In giving evidence to the Enterprise and Regulatory Reform Bill Committee in June 2012, the CBI told us something that stuck with me: that the bank could encourage

“investment into technologies that are not entirely proven yet, or that will require a little assistance to get going. The Green investment bank is part of helping private sector investment and it could have a role in topping up investment in new technologies.”––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 19 June 2012; c. 5, Q5.]

I certainly agree, and we are putting that at risk with the Government’s plans. The Government have talked about securing safeguards and reassurances, but they cannot provide them because by sacrificing control and repealing the bank’s green purposes, they will have no input whatever. Clearly no safeguards can match legislation on the statute book.

The repeal sends out entirely the wrong message. The Minister is a decent, good man on a whole range of different matters, and I know that this is not his policy area—he has been cast into the lion’s den—but when he responds to the debate, I would like him to answer this question. If he cannot provide adequate safeguards now and he cannot articulate the criteria for the safeguards that would reassure us, why do the Government expect Parliament to repeal the part of the 2013 Act that provides the green purposes?

The Government have got themselves in a real bind. They want to scale up the bank’s operations, but they do not want it on the balance sheet. They have had conflicts with the Office for National Statistics, which said it was not possible to do anything and retain control without completely repealing part of the legislation.

The Government will have no direction whatever because they had to go for the nuclear option of repealing part 1 of the 2013 Act. They will therefore have no control over what the Green Investment Bank does, which leaves it entirely vulnerable to its private ownership. The strategic direction of the bank could completely alter.

[Caroline Lucas]

I agree with what the hon. Gentleman is saying. Does he think we could learn from some of the European public banks that do not seem to have the same squeamishness about having things off the balance sheet? Banks such as KfW in Germany leverage equity by a factor of 28 and the Portuguese national bank is leveraging by a factor of 17. They seem to have much less horror about having things off-balance sheet. We have had other things off the balance sheet—the CDC is off-balance sheet—so why is there so much horror about that in this country?

[Mr Wright]

I thank the hon. Lady for her remarks. I wonder whether she agrees that, in future, state-backed development banks will be part of a modern, innovative, dynamic economy. The UK is unusual in that we are the only one of the G7 countries without such a financial institution. Ensuring that the state, through a development bank, can drive forward the innovations and technologies of the future is the hallmark of a modern, successful and prosperous economy. It is madness that we are moving away from that model; we need to accelerate towards it and concentrate our efforts.

The bank has achieved so much in such a short period of time and it has the potential to achieve much more if its scale is expanded. The move the Government propose, given the bind they find themselves in, means that the privatisation is fraught with risk. It will compromise Britain’s environmental credentials and any ambition we should rightly have to lead global commercial and industrial opportunities in the new, low-carbon economy.

Enterprise and Regulatory Reform Bill

Debate between Caroline Lucas and Iain Wright

Wednesday 17th October 2012 Commons Chamber

[Mr Wright]

The hon. Gentleman will recall that I mentioned this issue at length in Committee, when he quite rightly probed me on it. I reiterate my answer to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) a few moments ago. There is a conflict here. What is the purpose of the green investment bank: is it to ensure that we have innovative technologies where there is current market failure making it difficult to get investment, or is it to ensure that we do as much as possible to tackle carbon emissions, meet low-carbon targets and so forth? Within that, nuclear could be a source of investment.

[Caroline Lucas (Brighton, Pavilion) (Green)]

rose—

[Mr Wright]

Before I give way, I should declare an interest in that I have a nuclear power station in my constituency. I would quite like another one, and I think that part of that supply chain could be considered by the green investment bank. I would certainly like more clarity on this from the Government.

[Mr Wright]

I shall give way to the hon. Member for Brighton, Pavilion (Caroline Lucas) first, and then to the Minister.

[Caroline Lucas]

To be honest, I do not see this contradiction. Given that nuclear takes so long to get up and running, it is not going to help us to meet our carbon targets fast enough. It also requires Government subsidy, which is why the whole of the EMR—electricity market reform—is being rigged to deal with that. Also, the jobs that we hope the green investment bank will create will surely be jobs that we would like to see here in the UK. If we use the bank to subsidise nuclear, what we are doing is basically subsidising jobs in places like Russia, China and France.

[Mr Wright]

I shall come on to this in a few moments. Because of a huge lack of clarity in the Government’s energy policy—anywhere, but particularly in respect of the renewable energy component—many foreign investors will not view the UK as the destination of choice for investment in any case. We have huge potential to be the market leader for renewable and low-carbon technologies, but I think we are missing a trick when it comes to the scale of ambition and the time scale of the green investment bank. The purpose of the new clause is to probe and challenge the Government to ensure that we make this part of a growth strategy rather than to allow it to happen somewhere in the future in a way that makes it virtually meaningless.

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[Mr Wright]

I agree. The same point was made by the CBI, which concluded in a report produced this summer entitled “The Colour of Growth: Maximising the potential of green business”:

“while business wants to keep up the pace, they are equally clear that the government’s current approach is missing the mark, with policy uncertainty, complexity and the lack of a holistic strategy damaging investment prospects.”

The Government and the Minister—when he is listening—must respond to that. They must provide policy certainty so that investment can be made in the UK.

In Committee, when we discussed the green investment bank and its borrowing powers, I said that we had thought long and hard about the issue. At the time the then Minister, the hon. Member for North Norfolk, said:

“The Government have also committed that the Bank will borrow from April 2015”,

although he then qualified that by using the stock phrase

“subject to public sector net debt falling as a percentage of GDP.”—[Official Report, 12 July 2012; Vol. 548, c. 793W.]

However, given the Government’s failures in relation to its own borrowing targets, that commitment is so far from being achieved as to be virtually meaningless. I would contend that a deficit reduction plan without an accompanying growth and employment programme is no deficit reduction plan at all.

Ours is one of only two G20 countries in recession. In March, the Office for Budget Responsibility reported that the Government might meet their debt target by the skin of their teeth, but since then borrowing figures have been significantly higher than forecast. The deficit is now going up—borrowing is now going up; it has increased by 22% so far this year, as a direct result of this Government’s policies. Citigroup forecasts that the Treasury may have to borrow £48 billion more than it originally forecast by 2015-16, meaning that the Chancellor’s key fiscal target of having public sector net debt falling as a proportion of GDP by 2015 will not be reached. It is widely anticipated that the Chancellor, in his autumn statement to be held in winter, will have to carry out a humiliating climbdown from that important target of his, based largely on his misguided economic policies.

Where does that leave the green investment bank? At a time when our potential as a leading market for green business is under threat, both from intense overseas competition and from uncertainty from this Government, what impact does this failure of fiscal policy by the Chancellor have on this growth area? That is the context behind our amendment 76. We want the green investment bank to be able to provide a stimulus for growth in our economy as soon as possible, but we are equally mindful of the double-dip recession that the Chancellor’s policies have inflicted on the country. Our amendment would ensure that state aid approval on the green investment bank’s borrowing power would be sought and achieved no later than 31 December 2013. What the Minister has said about that is certainly welcome, but what impact will it have? Does it mean that borrowing will take place earlier than 2015? When does he imagine borrowing from the capital markets will be permitted?

Our amendment proposes that the bank must be able to begin borrowing by April 2015 or, if that is not achievable, Parliament must be provided with a clear and alternative date as to when such borrowing may be permitted, based both on OBR forecasts regarding the state of the public finances and on advice from the green investment bank on the need for borrowing powers to achieve its objectives.

[Caroline Lucas]

I wonder why the hon. Gentleman is insisting on that caveat, as the position shared by his Front-Bench colleagues not that long ago was unequivocal in saying that as of June 2015 the bank should be permitted to borrow. The Opposition are now moving away from that position and I simply do not understand why. They are watering down what was there before and is contained in my amendment 89.

[Mr Wright]

My firm policy commitment is to ensure that we have the green investment bank borrowing as soon as possible, as a stimulus to growth. We were mindful of amendments that we tabled in Committee about that, but we also have to consider the appalling financial mess that the Government are dealing with in respect of increased borrowing. Borrowing was going down prior to the general election, but now it is going up. We do not know what the circumstances will be in 2015, so we need to ensure that there can be certainty, based on the imperative to have the green investment bank borrowing from the capital markets as soon as possible while being mindful of the need for rigour and discipline in the public finances.

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[Mr Wright]

Absolutely. I think the hon. Gentleman can go to the toilet now. Recent research has concluded that capital expenditure costs for something as important and significant as offshore wind projects, in which my constituency could play a leading part, could fall by a third in the next decade if a greater proportion of the parts were made in the UK. We need to be mindful of that and the Government must work with business to enhance the supply chain possibilities, opportunities and capabilities in the UK. I suggest to the hon. Gentleman, with the greatest of respect, that that is not happening, largely because of policy uncertainty. That is what amendment 77 is designed to address.

[Caroline Lucas]

The hon. Gentleman is talking passionately about policy certainty, yet his amendment 76 reintroduces uncertainty. I cannot emphasise enough that it is amendment 89 that would ensure that the bank would be able to borrow from 2015. It is actually what the Liberal Democrats agreed at their party conference only a few weeks ago. If the hon. Gentleman wants policy certainty, why will he not support amendment 89?