Enterprise and Regulatory Reform Bill

David Mowat Excerpts

Wednesday 17th October 2012 Commons Chamber

[Neil Carmichael (Stroud) (Con)]

rose—

[David Mowat (Warrington South) (Con)]

rose—

[Mr Wright]

I shall give way to two eminent members of the Public Bill Committee, but I must bear in mind the fact that we do not have time to debate these issues at length.

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[Mr Wright]

I understand that. The hon. Gentleman will recall that I posed a number of questions in Committee: could the green investment bank invest in forests or in the supply chain for the automotive industry to ensure that we have low-carbon engines? There was a whole range of different debates in Committee, which I thought were useful. As I said, there is a balance to be struck, and that is what new clause 22 is about. Is the aim to achieve what we all want to achieve—igniting, for want of a better term, the green economy—or is the provision too prescriptive? There is a balance between being too broad and too narrow.

[David Mowat]

I thank the shadow Minister, but I am a bit disappointed by the tone of his remarks. I want to get clarity about the point that was raised a few moments ago about nuclear, so that I can understand the position of those on the Opposition Front Bench. Would Sheffield Forgemasters, for example, which is a nuclear supply chain company, be eligible for assistance from the bank?

[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.

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that investment would fail to materialise if the Chancellor and the Government did not take steps to address the high levels of uncertainty and political risk that were afflicting the sector.

[David Mowat]

Will the hon. Gentleman give way?

[Mr Wright]

I know that the hon. Gentleman is a keen advocate of manufacturing in this country, but we require policy certainty. I hope that he will address the point made in an excellent article by Camilla Cavendish that appeared in The Times last month. She wrote that

“instead of building the equipment in England”,

companies were building offshore wind turbines elsewhere:

“These companies remain uncertain about investing in the UK… the impression that the coalition is split has spooked companies whose boards need to commit capital for 20, 30, 50 years, whether in wind or nuclear power, biomass or solar.”

Is not the lack of the long-term certainty that is so necessary undermining the chances of jobs and growth in this crucial area?

[David Mowat]

I thank the shadow Minister for telling me what I should say in my intervention. What I was going to say was that, although I did not catch the name of every company in the list that he read out, I am pretty sure that the headquarters of all of them are outside the UK—as, by the way, are those of the major manufacturers of offshore wind. And, yes, it is a problem.

[Mr Wright]

That is why I am pleased that the hon. Gentleman will be supporting our amendment 77—which is intended to promote the growth of small and medium-sized enterprises in the supply chain and to ensure that we can realise the great potential of the green economy—and will object to the Government’s amendments 1 and 3, which state that investment can take place not in the UK but elsewhere. As someone who wants to support manufacturing in the UK and the ability of home-grown businesses to provide jobs, growth and export potential for our companies, he will doubtless be supporting us in the Lobbies.

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[David Mowat]

I believe the Minister said that the European permission excludes nuclear power, which forms by far the largest part of low-carbon electricity in this country and is likely to continue to do so. Given that, will he amend the purpose stated in clause 1(1)(a), as it is no longer accurate?

[Matthew Hancock]

The application, which has just succeeded, did not include nuclear. We do not plan to amend that purpose, not least because the Bill provides that the bank can, in time and if appropriate, be moved from the public sector into the private sector using secondary legislation, without changes having to be made to primary legislation.

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[Matthew Hancock]

Clearly, one reason for establishing a green investment bank is to ensure that it delivers against the green purposes. Of course cost is vital. That is why we are setting up the bank so that it will act on a commercial basis. The crucial point is that it must act in accordance with one or more of the green purposes; otherwise there would be no point in it being a green investment bank.

[David Mowat]

For clarity on the point that was made from the Opposition Benches, there is a proposal for a very large wind farm in the Republic of Ireland, whose output would come over to the UK through an interconnector and would therefore hit our green purposes. Could we invest in that scheme in the Republic of Ireland under the Bill?

[Matthew Hancock]

I would want to look at the details of the scheme. However, the amendments that we have made to the articles of association refer to the bank contributing in the UK. I would expect, though I cannot formally confirm, that an interconnector would have an impact in the UK as well as on the other side of the Irish sea. I will write to my hon. Friend with more details.

Amendment 2 was tabled in response to a suggestion from the hon. Member for Hartlepool (Mr Wright) that the designation of the bank should be subject to an affirmative resolution of Parliament. We made it clear in Committee that we are looking towards that. We want to ensure that Parliament has the full ability to scrutinise these issues and I hope the Opposition will support that change in arrangements.

Amendments 4 and 5 deal with directors’ pay. The Government have repeatedly demonstrated their commitment to ensuring that UK companies apply the highest standards of corporate governance. We have already introduced measures under the Bill to require quoted companies to seek shareholder approval for the directors’ remuneration policy. This change ensures that the bank will abide by these new commitments so that it is treated as a quoted company for the purposes of chapters 4 and 4A of part 10 of the Companies Act 2006, and so that the company is required to seek shareholder approval for the directors’ remuneration policy. This requirement would continue if the bank were one day moved into the private sector. I am sure hon. Members on both sides of the House will support the Government’s commitment to the very highest standards of corporate governance.

Opposition amendments 76 and 89 deal with the bank’s ability to borrow. As I said, the Government committed in Budget 2011 to fund the green investment bank with £3 billion to 2015. This is a serious demonstration of the Government’s green credentials and it is an appropriate level of funding for a new financial institution so that it can build market confidence and show a positive commercial return, while mobilising additional capital for green infrastructure projects in accordance with its green purposes. It is a major injection of capital which underlines our strong commitment to the bank.

We have also already given a clear commitment that the bank will be able to borrow, including from the capital markets. It may help if I explain the legal position in respect of borrowing by the bank. As a company formed under the Companies Act, the bank already has the power to borrow. The bank’s constitution provides, understandably, that the company will not incur borrowing without Government consent. This restriction is imposed by the Secretary of State as shareholder and does not affect the underlying position under company law that the company, as a legal person, has the ability to borrow.

I want to be clear that we are considering carefully the case for the bank borrowing from the capital markets from 2015-16, subject to the caveats I have mentioned. It is too early to make commitments about the level or type of funding. The views of the bank’s board will be an important factor, so we will have to discuss with it the appropriate level and source of future borrowing. We made a firm commitment in Committee to seek state aid approval from the Commission in respect of borrowing before the end of this Parliament. However, we cannot move to seek that approval before we know the mechanism for and quantum of borrowing. The bank’s borrowing will clearly be scored against national debt totals, so it is entirely reasonable for the Government to take that into account as part of our future spending and fiscal plans.

In summary, the Government agree with hon. Members about the importance of the issues relating to the bank’s funding, and their role in highlighting those here is welcome, as the Government want no one to be in any doubt about our serious ambitions for the bank and the green economy. These considerations will clearly be critical to the bank’s future and we will consider carefully how to provide clarity, either through the company’s constitution or by other means, about the legal position with regard to the bank’s borrowing.