Crown Estate Bill [HL]

Lord Howard of Rising Excerpts

2nd reading
Monday 2nd September 2024 Lords Chamber

[Lord Howard of Rising (Con)]

My Lords, it should be a matter of concern that the Crown Estate, an entity with which the sovereign has such a close association, should be used for political purposes, however good and noble the intention may be. The Crown is apolitical and the Crown Estate must surely come under this umbrella. To not only use existing resources but to arrange to borrow to further a political ambition only compounds the error of judgment. It is out of order and, in my view, unconstitutional. This is not a criticism of the Government’s wish to have more wind farms and to generate more clean energy; it is a strong criticism of breaking convention and risking politicising the Crown.

I am sure that the thought has not crossed the present Government’s mind but if a Government of the day wished to conceal their level of spending, they could, under the proposed arrangements, lend to the Crown Estate, call the loan an asset and ask the Crown Estate to do the spending on their behalf. Doing so would allow them to camouflage spending by calling it a capital asset.

Over the past few years, commerce has been littered with large, prosperous companies which increased borrowings to modernise—and then failed. A notable example is the General Electric Company—GEC. When its long-standing managing director, Lord Weinstock, retired, it had £4 billion in cash. Lord Simpson took over, modernised and reviewed the whole company and within two years had managed to bankrupt it. When I read in the Explanatory Notes to the Bill:

“The intention behind the power to borrow is to enable The Crown Estate to invest to maintain and modernise its Estate to ensure it can continue to operate successfully in the modern commercial environment”,


I take a deep breath.

I thought the comments made by the noble Lord, Lord Liddle, on the difference in expertise between the people currently running the Crown Estate and the expertise required to make money commercially were very relevant.

Why is it necessary for an organisation as prosperous as the Crown Estate to borrow in order to continue to operate successfully in the modern commercial environment when it already does so? There is no reason. Its continued success is more secure if it has no such borrowings.

If owned assets are to be developed, the existing income for the Crown Estate, together with cash from the proposed commercial operator, should provide adequate resources. If it is not a project for which a partner can be found, it is questionable whether the Crown Estate should be going ahead, both in the future and today; we should bear in mind the extent of government money being pumped into energy through Great British Energy. While it is true that borrowings can enhance success, they can also sink companies. The track record of Governments, regardless of political persuasion, in choosing winners does not provide any reassurance.

If the Crown Estate really does have a genuine need to borrow to upgrade its facilities, there must be, as there is in virtually all enterprises, a limit on borrowing. This can be expressed in various ways, but I would suggest to the Minister that a limit could be set as a percentage of capital reserves; for example, 10% would allow £1.5 million of borrowings.

It could be argued that as the Crown Estate would be borrowing from the Treasury, there would be no need for a limit on borrowing because the Treasury could impose the necessary discipline. However, I refer your Lordships to the point I made earlier: lending to the Crown Estate could be used to conceal government spending. A limit on borrowing would significantly reduce the risk of abuse.

To summarise, there are three strong reasons why the Bill is unsatisfactory. The first and most important is that the Crown, even at one remove, should not be associated with a political act or ambition. The second is the potential abuse of the proposed borrowing facility in allowing the Government to disguise current spending as a capital asset. The third is that unlimited borrowings can be just as harmful as beneficial and there should be some control over this.

I hope the Minister has considered fully the ramifications of this legislation in its present form, and will address the concerns I have raised.

Crown Estate Bill [HL]

Lord Howard of Rising Excerpts

Committee stage
Monday 14th October 2024 Lords Chamber

[Lord Macpherson of Earl’s Court (CB)]

My Lords, this is an interesting and important amendment that goes to the heart of Treasury control. Historically, it is fair to say that, when it came to nationalised industries, the Treasury set external finance limits that were not subject to constraints ex ante from Parliament. The proposal to borrow is definitely the right one. I recall having to jump through extraordinary hoops to enable the Crown Estate to invest in creating special purpose vehicles, usually with foreign sovereign wealth funds, to support the financing of investment. So moving to give the Crown Estate borrowing powers is the right approach.

The question then is: to what extent do those need to be constrained by Parliament? There are precedents. For example, Scotland is constrained in the quantity of its borrowing. However, the Crown Estate has more in common with nationalised industries. I hope that the Minister will confirm that in each Budget and spending review, the Treasury will publish three-year to five-year plans for the external financing limit of the Crown Estate. This will allow Parliament to scrutinise those proposals along with the rest of the Budget but should not require overarching constraint in legislation, which would effectively constrain the Treasury’s decisions on who should borrow across government and how best to allocate borrowing resources.

[Lord Howard of Rising (Con)]

My Lords, I rise to speak to Amendment 8. There should be a limit on the level of borrowings that the Crown Estate can have. It would be irresponsible to issue a blank cheque that risks, even encourages, abuse by the political system. At Second Reading, I suggested that a limit could be set as a percentage of capital reserves, and I proposed 10% as an appropriate amount. When added to the Crown Estate’s cash position, 10% would retain a generous amount of flexibility while guarding against the risk of abuse and overborrowing. Amendment 8 does just this. I thank the Minister for seeing me to discuss my amendment, but regret that he did not agree with the principle that a limit on borrowing is necessary. He believes that the approval needed by His Majesty’s Treasury would act as a sufficient safeguard. There are two important reasons why I believe that this is not the case.

First, relying on the good intentions of His Majesty’s Treasury to provide the necessary safeguards is simply insufficient. The First Lord of the Treasury is the Prime Minister. There is also the Chancellor of the Exchequer, who could, if the political ambition was sufficient, persuade His Majesty’s Treasury that a loan to the Crown Estate was desirable. The Minister said at Second Reading that he did not envisage the Crown Estate borrowing in the near future. However, there may be a less responsible Government in the future who may make use of this possible sleight of hand to encourage profligate or political spending.

Secondly, if a current or future Government wished to disguise spending, it is possible for the Crown Estate commissioners to carry out the desired spending for the Government with funds provided by the Treasury. Loans to the Crown Estate would be classed as an asset, meaning that the spending would be seen not as an expense but as a capital asset. Without restrictions on borrowing, there is an incentive for future less responsible Governments to increase lending to very high levels. A limit on the Crown Estate’s borrowing would go some way towards safeguarding against this. However, I also welcome Amendment 10, in the name of my noble friend Lady Vere of Norbiton, which provides another safeguard against this happening by ensuring that loans made to the Crown Estate are included in the Government’s assessment of the national debt.

I remain concerned about the lack of safeguarding against excessive borrowing, which poses a significant and unnecessary risk that the Crown Estate does not need to continue operating successfully. As we have heard, I am not the only member of this House who has concerns about permitting the Crown Estate limitless borrowings from His Majesty’s Treasury. Amendments 2 and 5, tabled by the noble Earl, Lord Russell, and Amendments 3, 4, 6 and 7, tabled by my noble friend Baroness Vere of Norbiton, all propose alternative limits to borrowing which would be quite acceptable. Should the Minister find these amendments too restrictive, Amendment 8 provides him with a generous alternative.

Finally, as the Minister has been made aware, I would like to degroup Amendment 9; as such, I will save my comments on it for the next group. I apologise for any inconvenience this may cause the House, but having reflected on the matter, I feel it important to deal with that amendment separately.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my noble friend and agree with many of his comments, and to give more than a nod to the amendments in the name of my noble friend Baroness Vere of Norbiton.

I rise to speak to Amendment 20 in my name. The Crown Estate has a unique position in our society, our economy, across many of our communities and right around our shoreline. This position will only be increased and enhanced through many of the measures set out in this Bill, not least the yet to be discovered tie-up with GB Energy. To this end, my Amendment 20 seeks to put in statute the principle of additionality for all spending decisions of the Crown Estate. It seems sound that, given the potential not least of offshore wind, the activities of the Crown Estate cannot at any point be seen to be crowding out other private funds. An additionality principle which seeks to apply measures on crowding out and ensure crowding in, and a report to that effect, would be not just a principle of additionality but a good addition to this Bill. I look forward to the Minister’s comments.

--- Later in debate ---

Moved by

[Lord Howard of Rising]

9: Clause 1, page 1, line 26, at end insert—
“(c) borrowing by the Commissioners must not exceed an amount equal to 200% of capital and reserves of the Crown Estate.”

--- Later in debate ---

[Lord Howard of Rising (Con)]

My Lords, I thank the Minister for accepting the principle that there should be a limit on lending; 25% is probably more than I would have liked to go for, but nevertheless I am grateful that the principle has been accepted. That would probably be better in statute than in a memorandum of understanding, but perhaps I could reflect on that. Really, the Minister has taken the wind out of the sails of my Amendment 9, so I beg leave to withdraw it.

[The Deputy Chairman of Committees (Lord Geddes) (Con)]

As the noble Lord has spoken to the amendment, the Government may reply if they so wish.

Crown Estate Bill [HL]

Lord Howard of Rising Excerpts

Report stage
Tuesday 5th November 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My Lords, I thank my noble friend Lord Howard of Rising for his support on the amendment and for his very wise counsel in our discussions to ensure that the change that is proposed is both reasonable and rational. The Official Opposition have made a clear and consistent argument for the insertion of essentially two things: parliamentary approval to borrow up to 25% of net debt to asset value, and a second and simple check from the Government of the day when the borrowing is forecast to increase over that higher ratio.

This two-step process is quite important. The initial use of the power would ensure that Parliament and your Lordships’ House can take into account a revised business case. I am incredibly grateful to the Minister for publishing a business case that sets out the rationale as to why the Crown Estate needs this borrowing. Unfortunately, it does not include the partnership with GB Energy. Noble Lords will know that this partnership was announced with great fanfare, and one must assume that it is significant. Therefore, I believe it would be appropriate for the business case to be revised in due course and that that would be expected. I am sure that the Minister will agree that that will happen. However, on the basis of that business case, I think it is important that Parliament and your Lordships’ House can then say that it is wise for the Crown Estate to seek the borrowing required.

The second use of the power—which according to current forecasts, which I am sure the Minister would probably agree with, will not be needed for many years—to go beyond 25% of net debt to asset value based on the current total assets of the Crown Estate would mean going above a borrowing requirement of about £3 billion. That is a significant amount of money, and the Crown Estate is not forecasting that it will need that amount of borrowing, so the further use is for much further down the road. In terms of the initial use, our view is that it is appropriate to put that check in place now to ensure that all information is considered as the Crown Estate is given this new power to take on borrowing.

I am grateful to the Minister for his engagement to date on this important matter. I know he has had some useful conversations with myself and my noble friend Lord Howard of Rising. Underpinning all of this and many of the amendments before your Lordships’ House today is that the assets held by the Crown Estate are absolutely critical to the national, cultural and environmental importance of our nation. Not only are the assets incredibly important, but the Exchequer receives a very handy income from the Crown Estate, which then supports the nation’s public services. We must not put either of those things at risk unduly.

I believe that some form of parliamentary oversight is critical here. It is right that, under this Bill, there is a lessening of that oversight, as Parliament, particularly the House of Commons, will no longer need to approve the salaries and expenses of the commissioners of the Crown Estate. Given that reduction in parliamentary oversight, ensuring the correct financial structure of the Crown Estate is, to my mind, critical. Doing that on the basis of the new business case is also incredibly important.

This is a simple amendment. It is in two stages: one would have to happen quite soon, and one would happen many years hence, but I think it is right that we not only address the financial situation of the Crown Estate as it is now, following the partnership with GB Energy, but ensure that the Crown Estate does not risk the temptations of excessive borrowing in the future, which would therefore put our nation’s assets at risk. I hope noble Lords will be able to support the amendment.

[Lord Howard of Rising (Con)]

My Lords, I support my noble friend. In Committee, the Minister was good enough to agree that controls on borrowing by the Crown Estate must be in place and that they would be set out in a memorandum of understanding between the Crown Estate and the Treasury at a loan-to-value ratio not to exceed 25%. This figure is more than I would have wished for, and using asset value rather than capital reserves in the definition allows a still greater level of borrowing. Nevertheless, I am grateful that the Minister acknowledges that there should be a limit on borrowing. However, there must be a tighter control than a memorandum of understanding. Amendment 1 proposes an affirmative statutory instrument to achieve this. It requires the Government to limit borrowing to net debt-to-asset value of no more than 25%, purposely copying the wording of the Minister’s comment in Committee.

Should His Majesty’s Government need more flexibility in the future, this statutory instrument would provide for that. It would be better if the limit on borrowing were in primary legislation, but in seeking a solution which His Majesty’s Government might find acceptable, the amendment would be a fair compromise, retaining any flexibility that the Government might need while providing a stronger safeguard than a memorandum of understanding. As the Minister said, this limit is unlikely to be of concern to the present Government. Therefore, I hope he will accept this very modest suggestion to safeguard the Crown Estate for the future.

[Baroness Kramer (LD)]

My Lords, I think I started this hare running at Second Reading, when I basically said to the Minister that the Government were asking us to give borrowing power to the Crown Estate but we did not have the business case that argued why it needs a borrowing power—it is not evident from the annual report. Also, the framework agreement, which at that time governed the relationship between the Treasury and the Crown Estate, was silent on the issue of borrowing, other than to say it was not allowed, so clearly we needed changes to the framework report and we did not have them at Second Reading.

I am so impressed by the Minister’s response—and appreciative, because I have sat on these Benches looking at a Conservative Government for quite a number of years when every attempt to get transparency was rejected, I was handed documents based on Henry VIII powers and there was complete resistance to oversight by Parliament. Instead, the Minister has provided us with the business case—which is, frankly, virtually unheard of. It is an excellent document that completely clarifies why the change that this legislation contains has come to us. We can now understand that. It provides the draft changes to the framework document that we expect to see fully negotiated and enacted by the end of the year, we hope, but well ahead of any borrowing. Even more importantly, it provides a document that we usually cannot extract from the Treasury’s fingers, which is the memorandum of understanding that takes us into the much greater detail behind the whole rationale and sets out the rules in a very open and public manner.

This is the way that Governments should handle situations such as this. I want to respond from these Benches to those actions by the Government in a completely positive way. I understand that the Conservative Benches feel that opposition is a very different role from government and therefore they behave completely differently in opposition from the way that they would choose to do in government—that is their choice—but I am very content with the information that has been offered to us. As it has been given to us by the Government, it will last and will survive passage through this House and the other place. I think we can say with confidence that borrowing and financial liability in the Crown Estate are within a sensible and appropriate framework. Therefore, I ask that these Benches do not support the amendment proposed by the Conservative Benches and instead grasp the opportunity of a very responsible and appropriate offer from the Government.