John Denham
Main Page: John Denham (Labour - Southampton, Itchen)
The Secretary of State for Business, Innovation and Skills (Vince Cable)
Today I am publishing detailed plans for a green investment bank, building on the announcements that the Deputy Prime Minister made yesterday. Copies of the document will be placed in the Libraries and will be available to download from the BIS website. I would like to take the opportunity from inform the House of these proposals.
The UK will be the first country in the world to create a bank dedicated to the greening of the economy. This Government are committed to ensuring that the UK makes a successful transition to a low-carbon economy. This will be a big challenge. The UK is committed by law to a 50% reduction in carbon emissions by 2025. Over the coming decades, much of the UK’s energy, transport and waste infrastructure will have to be revolutionised or even rebuilt in order to achieve the ambition of decarbonised electricity, low-emission cars and an end to landfill. This transition will involve considerable costs, but also considerable benefits if new enterprise can seize the opportunities presented by the green economy. The task for our Government is to ensure that these benefits exceed the costs.
Vital to achieving a successful transition is the development of well-designed, long-term and stable policies. They are needed to provide the incentive for businesses to invest in new green infrastructure, which by its very nature repays the investment only over many years. To this end the Government have introduced a carbon price floor, proposals on electricity market reform, the green deal for energy efficiency in buildings, a major waste policy review and new initiatives to encourage the roll-out of electric vehicles.
However, the lack of available finance could be a limiting factor. Detailed research and market analysis have established the need for an institution to address market failures that are constraining the flow of finance. The proposals published today set out a vision for a new and enduring institution—the world’s first dedicated national green investment bank—to complement the existing policy landscape.
The green investment bank’s mission will be to accelerate private sector investment, with an initial remit to focus on relatively high-risk projects that are otherwise likely to proceed slowly or not at all. It will work to a “double bottom line” of both achieving significant environmental impact and making financial returns delivering value for money. It will also operate independently and at arm’s length from Government, who will agree its strategic long-term priorities. Initial market analysis suggests that the early contenders to be priority sectors for the bank are offshore wind, industrial energy efficiency and waste, but a wider range of energy and other activities could become relevant over time.
The new institution will need to comply with state aid rules. Therefore, the proposals that I am publishing today will need to be approved by the European Commission before we can establish the bank. The time to act is now, so in order to make rapid progress, from April 2012, my department will start to make direct, state aid-compliant investments in green infrastructure projects. Investments could be in the form of equity, subordinated debt or senior debt on a pari passu basis. In due course, we will transfer these investments to the new institution.
I am also creating a green bank advisory group, comprising independent finance experts, who will advise Government on the setting up and strategic direction of the new institution. Sir Adrian Montague has very kindly agreed to chair this advisory group.
As the Chancellor set out in the Budget this year, the initial capitalisation of the GIB will be £3 billion and the bank will invest with and through the private sector and tackle risks that the private sector cannot adequately finance. In this way, the bank will mobilise projects significantly in excess of the Government’s contribution. With the funding provided in this Parliament the GIB could mobilise an extra £15 billion of private investment. We do not envisage that this level of activity will require a large institution—an estimated 50 to 100 professional staff during this Parliament. Proposals have been made to locate the headquarters in, among others, London, Edinburgh and Bristol, and a decision will be taken in due course based on their ability to deliver the aims of the bank.
The Government will enable the GIB to have borrowing powers from 2015-16 and once debt is falling as a percentage of GDP, which will allow it to scale up its operations significantly at a time when the financing need is greatest. We are not seeking at this stage to be prescriptive about which form borrowing should take or, more generally, about the bank’s products or structure. Once state aid approval is achieved, we will move to enshrine the institution’s enduring status in legislation.
In conclusion, setting up a bank of this kind is a major undertaking. There is much work to be done to build and grow the green investment bank, and the Government look forward to updating the House on further milestones in future.
Mr John Denham (Southampton, Itchen) (Lab)
I thank the Secretary of State for his statement, but although the Deputy Prime Minister announced this policy yesterday and the statement was timed for 12.30 pm today, I had not received a copy by 10 minutes to 1, and did not receive it until five minutes to 1.
A successful green investment bank can make a significant contribution to developing low-carbon technologies and enabling British companies to succeed in the low-carbon green technology markets of the future. That is why the green investment bank was in Labour’s manifesto. Will the Business Secretary confirm that it has taken a year of infighting to get to this stage? Is it not true that the Government are at odds over green policy, and will he confirm that only a month ago he tried to block the adoption of the carbon emissions targets announced this week? So much for “the greenest Government ever”!
Progress is welcome, but have the Government not already taken a series of decisions that have damaged investment in green technologies and activities? Did they not set feed-in tariffs that encouraged many investors into green energy and then suddenly change the rules, leaving investors high and dry and deeply cynical about the Government’s commitment to green technology? Is the Business Secretary aware that the target for zero-carbon homes by 2016 was encouraging new and innovative business approaches to architecture, building technology, skills training and offset technologies? It was already encouraging a supply chain to make our homes greener. Now that has been changed by the flip-flops of Government decision making. Is it not true that when the Severn barrage was abandoned the Government ruled out any tidal investment for five years, so that when this country turns to tidal power we will end up relying on foreign technology?
Despite all the talk of private investment, where is the evidence for it? Is it not damning that the Pew Environment Group’s report in March stated that investment in renewable technology in the UK crashed from £11 billion in 2009 to £3.3 billion in 2010—due, it says, to political uncertainty. That saw the UK drop from sixth to 13th in the ranking of countries encouraging green investment—another example of the Tories letting go Labour’s green legacy.
As with the green deal and the electricity market reforms, green businesses know enough about the green investment bank to be excited, but not enough to start planning investments and changing business models. Does the Business Secretary not accept that the bank will not work without much greater consistency, certainty and clarity about Government policies for green energy and the low-carbon economy than we have seen to date?
When will the green investment bank legislation be brought forward? Will he publish draft legislation so that all those interested can help shape it and ensure that the bank truly does become a long-term part of the infrastructure? How will the bank be staffed, and will he ensure that it is not an offshoot of the Treasury or his Department? Will he learn the lessons of Labour’s technology strategy board, where private sector leadership and real operational independence have helped to contribute to its considerable success? Given non-governmental organisations’ role in shaping all parties’ policies on this issue, will the Secretary of State at least consider allowing an NGO representative to join in the work of the advisory board that he proposes to set up?
Will the Secretary of State tell the House why the bank will be barred from raising its own finance until 2015 at the earliest? What does he say to the CBI, which made it clear at the time of the Budget that the investment
“is welcome, but the bank should have powers to borrow from the outset to give investors confidence.”
Has the Treasury imposed this rule? If so, is that not another case of the Government allowing their preferred reckless approach to deficit reduction to take priority over the investment in jobs and growth that would make it easier to get the deficit down?
Can the Secretary of State confirm that, as of today, he does not even know whether the activities of the green investment bank will be on or off the public balance sheet? And is it not essential that that is clarified at the earlier possible opportunity? Does he not recognise that denying early investment in fledgling green industries will hinder their ability to create and expand into new markets? Does he agree that, above all, the UK needs long-term investment in the innovative, entrepreneurial companies that have the potential to become the pace setters and global market leaders of the future?
Does the Secretary of State recognise the risk that the available funds could easily be absorbed by major energy supply companies—companies that, relatively speaking at least, have access to capital—which would invest largely in the installation of established technologies, often supplied by overseas companies? Does he recognise that that risk could prevent UK-based innovators and suppliers from winning market share and developing the established technologies of the future? What assurances can be given that the bank will focus not only on the areas of activity named by the Deputy Prime Minister yesterday, but on the less mature technologies that remain unmentioned, such as solar and marine energy?
There is clearly a balance to be struck between major infrastructure investment and all the activities of innovative companies, but will the Secretary of State tell us how he intends to ensure, in the legislation that will set out the green investment bank’s remit, that he will strike the right balance between those activities?
Finally, given the huge uncertainty and inconsistency that the Government have shown over the past year, can the Business Secretary set out how he intends to create greater confidence in green industry companies about the future direction of Government policy? There was precious little about that in the Government’s growth plan, but without that market confidence none of the high hopes that we all share for the green investment bank will come to fruition.
Mr Speaker
Order. Before I ask the Secretary of State to reply, I make the point that I allowed the right hon. Member for Southampton, Itchen (Mr Denham) to reach his conclusion because I saw that he was getting towards it, but we cannot again have a situation in which the response to a statement is longer than the statement.