Enterprise Bill [HL]

Lord O'Neill of Clackmannan Excerpts

Monday 30th November 2015 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I thank the Minister for sending a very useful letter on this amendment. It was a late addition to the Bill and we were not entirely clear about its full purpose, so I am very grateful that she wrote to us as she did.

It is fairly standard for machinery of government changes to be announced in this way, but it gives us our first opportunity to ask a series of questions about how the change is likely to work. First, we understand that the amendment establishes powers to enable the Treasury to pay the bills of the new body and underwrite its liabilities. It can provide loans or grants to these entities as it wishes. We would be grateful if the Minister could give us some idea about the combined costs of UKGI and whether there are cost savings as a result of merging the two entities. What is the anticipated run rate over the next few years of UKGI?

Naturally, the argument for removing the Shareholder Executive from the Department for Business, Innovation and Skills and establishing it as a separate company with UKFI is, in essence, that the Shareholder Executive proved useful beyond the Department for Business, Innovation and Skills and now works across government. It should therefore go to the Treasury to ensure that it can work better with all departments and be much better utilised in government. Accordingly, it needs a degree of independence, which will be enshrined in its governance arrangements and its board duties. So, across the areas, perhaps I may ask the following questions.

On the suggestion that this structure allows it to attract top talent from the private sector and the Civil Service, was there an assessment of the existing Shareholder Executive and where it had failed to recruit staff of a sufficient quality, or where there were gaps in its current operation that this structure will support? Who will be responsible for recruitment for each of the operating divisions? Could UKGI exist without civil servants? Could it recruit only from the private sector? If civil servants are recruited, are they on secondment or will they sign new employment terms with the agency directly? Will all the employees of every part of UKGI be subject to the proposed public sector exit payment restrictions that are in the Bill? Will guaranteed bonuses be offered to the staff, which, for the higher earners in government, is a traditional method of incentive and currently outside the public sector exit payment provisions?

On whether it strengthens governance arrangements and the commercial disciplines and will be useful going forward, what is the case for a Permanent Secretary sitting on the board? Do the Government not think it would be better for governance arrangements to separate shareholders from company directors and their duties? How will the Permanent Secretary square their role as an accounting officer and their duties to the company under company law? Who will select the board? Who will appoint the leading executives? What will the relationship to Ministers be? Will the new body provide better governance to the management of external advisers? Will there be an internal market whereby individual departments can consider which provides the best cost option, be it the new agency UKGI or external advisers? Who will set the objectives and strategy? Will it be the board or will it still be the Treasury?

In identifying that there is a role to build a unique identity and culture, will the Minister explain what this means, or flesh out what the notions of identity and culture are for such an agency? What is the target culture of a government asset manager and what is the target culture of a government corporate finance vehicle?

Finally, on improving service to customer departments, what are the current identified weaknesses that this arrangement will help to improve? What is the Government’s current plan to evaluate this? Who evaluated the current working arrangements and found the gaps? What independent body will be charged to evaluate whether it has provided a better service to customer departments?

[Lord O’Neill of Clackmannan (Lab)]

I am always suspicious when Governments introduce amendments rather late in the proceedings because it tends to suggest that the initial thought processes have not been that rigorous. However, having said that, I am sure we have to be grateful to the Minister for some of the points to which she alluded in her introduction of this amendment.

One of the problems that we have encountered in recent years has been the issue of state aid and the European dimension. Can the Minister tell us how this arrangement will stack up with the requirements of Brussels? Obviously, if we are to be able to use some public money—money that has been earned through the success of earlier amendments—this will be a welcome step. However, we need to know what is going to happen because we would be concerned if the money ended up back in the Treasury via one massive loop, when we would want it to be reinvested in a whole range of worthwhile projects.

What, if any, will be the role of DECC in the new company? It is the department with responsibility for environmental improvements. It is also, in a number of respects, the most important department in terms of government input. One thinks of the Treasury largely in the context of making sure not that the money is necessarily well spent, but that it might not be spent at all if it does not like the look of this new creature. When the Minister responds to what I imagine will be a relatively short debate, perhaps she could take up the following issues: Europe, the role of DECC and, ultimately, the degree of independence that this body will have, particularly independence from the Treasury, whose dead hand many of us would be very suspicious of in pretty much any government involvement apart from the collection of taxes. But, of course, it has other responsibilities. Can the Minister give us some assurance on these points? I think the House will then consider this proposal an improvement on the original recommendations set out in the earlier version of the Bill.

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord, Lord Mendelsohn, for his questions and the noble Lord, Lord O’Neill, for his intervention, which perhaps I may come on to. As I set out at the start, this amendment is of a technical nature allowing the Government to fund UKGI in an efficient and transparent manner. Noble Lords should rest assured that the Treasury will keep the required control of funding for the new company and it is not expected to expand into totally new areas in perhaps the way the noble Lord, Lord Mendelsohn, has suggested. UKGI will have additional independence and a corporate governance structure that will allow it to provide expert advice to its customer departments. Staff who transfer into UKGI will be public servants rather than civil servants. They will retain their existing terms and conditions and will not be treated worse, and their pension provisions will be covered by the new Fair Deal arrangements and protected, as will be their wider terms. UKGI staff will be subject to public sector pay policy, including the exit cap. Therefore, while we expect UKGI to attract staff of high quality from both the Civil Service and elsewhere in the economy, they will not be in any way an overpaid elite. However, it will obviously be an interesting place for people to work as part of their career path.

[Lord O’Neill of Clackmannan]

Before the Minister leaves that point, is it not the case that the people engaged in this work, interesting and worth while though it will be, may well be attractive to employers outwith the public sector? Although they will be doing good work, we may well find that they are poached by those from outside. That was the case, for example, in the Nuclear Installations Inspectorate, which was responsible for overseeing the expansion of the nuclear industry. There was great heart-searching on the part of the previous Labour Government, and then the NII was changed so that its staff would not be subject to Civil Service pay and conditions, allowing them to stay in their jobs because they had become less attractive to poachers.

[Baroness Neville-Rolfe]

The noble Lord makes a good point. Having worked, rather uniquely, in both the public and the private sectors, I think that the move between the two can be valuable. We will obviously need to watch for the kind of point he has made, but we are trying to set the company up so that we get an elite corps drawn from both sectors who will be working on very important issues of corporate finance and governance right across the government machine.

UKGI will be a government company: that is, a Companies Act company with HM Treasury as its sole shareholder. ShEx, which is currently part of the business department, will transfer and be rebranded as UKGI. UKFI will become a subsidiary company of UKGI, continuing to operate with its existing board and operating model of board, articles, framework document and investment mandate, until it fully merges with UKGI. UKGI’s activities will in turn be governed by its articles, a framework agreement, and the UKGI board, which will, as I think I have said, be accountable to the Chancellor of the Exchequer and to Parliament.

The intention in setting up UK Government Investments as a company is to ensure that the culture is suitably commercial, that it can attract and retain staff with commercial skills, and that, while the Treasury is the shareholder, it has a distinct legal personality and is trusted by departments. The matter of its funding will not involve significant changes to the status quo. UKGI will be made up of personnel from the shareholder executive. As the shareholder executive is part of the core Civil Service, its costs are met from BIS, but the budget allocated to it will be transferred across to the Treasury. The proposed amendment will ensure that payment to UKGI, as a new government-owned company, can be made transparently and efficiently. Funding will be allocated from within the HM Treasury baseline agreed at the spending review.

For the same reason, I do not see a new issue with state aid. EU state aid rules will apply in the same way that they currently do. Asset management and disposals will have to be undertaken in a way that is compatible with those rules, as at present.

The new company will build on the existing shareholder executive staffing model and bring together staff from the private sector and the Civil Service. That mixture could be very powerful. As I have said, remuneration arrangements will be overseen by and agreed with Treasury Ministers. The change is not about enabling large pay increases for staff or a route around public sector pay policy.

The noble Lord, Lord Mendelsohn, asked a number of questions and the noble Lord, Lord O’Neill, asked about DECC. With their permission, I will take away those detailed questions and answer them in a letter that I will copy to anyone with an interest in this issue.

I have set out our main approach, which to me is eminently sensible. It is not a major change of policy or substance but, importantly, it brings together these teams in an appropriate way that complies with the rules of the 1932 concordat.

--- Later in debate ---

[Lord Framlingham (Con)]

My Lords, I shall briefly follow the noble Lord, whose concerns I am sure we all share.

There is always a debate to be had about the balance to be struck between state and privately run enterprises. The truth is that it largely depends on the nature of the enterprise. In the case of the Green Investment Bank, I think that this launch is the right move at the right time. There is now—and, I believe, in the future—no shortage of investors because of the essential, green, environmentally friendly nature of the core business of the bank. Green is attractive in every way in banking terms: it is profitable and at the same time good for the environment; it captures both the imagination and the capital.

The bank must, of course, remain true to its green principles, and this is what particularly concerns me. I believe that it will do so, for two reasons. First, its strict terms of reference and articles of association oblige it to do so, and it will no doubt be subjected to the closest possible scrutiny from all quarters as it proceeds. Secondly, if it is not genuinely green, it is nothing; it becomes at once just another bank—it loses its claim to be different, its environmental integrity and its investor appeal.

Under all the circumstances, I believe that to allow the bank to move forward in this way is the right move at the right time. Freed from government constraint, the bank will—if you will forgive me for using the word—blossom. I trust that the House will give the proposal a fair wind this evening.

[Lord O'Neill of Clackmannan (Lab)]

My Lords, I congratulate the noble Lord, Lord Teverson, on his amendment. He covers a number of the concerns which we all have about the proposals. He laid great and correct emphasis on the systems of control of this bank—the board, et cetera—but one thing has not yet been mentioned. Perhaps the Minister can give us some information on whether the Green Investment Bank will continue to be British. The international character of banking is such that many banks are not British, and they will take an interest in this. We have already seen that many railway companies are not British—indeed, some of them are not even private enterprise companies—and they take ownership of British assets. Can we get an assurance that the process of privatisation will not involve the selling off of these assets—which are of an almost unique character, given the ambitions and mission of the bank—and that they will not be put into the hands of countries which may not be wholly sympathetic to the green ambitions which this Government and most of us in this Chamber espouse? One would question, for example, some of the green credentials of our new-found friends from China or, indeed, the green credentials of a number of Indian institutions, to mention only two. So the House needs reassurance that before we pass legislation to dispose of these government-owned assets—in the main: I realise there will be a UK element—all efforts will be taken to avoid a unique British institution becoming foreign-owned in the main.

[Lord Leigh of Hurley (Con)]

My Lords, I rise to support the Minister’s amendment. The Green Investment Bank is a great success. It is the first of its kind, and it probably has the largest specialist team of green investment experts in Europe. The Government did the right thing in starting it up and are now doing the right thing in allowing private investors to assess whether it is credible and whether it will produce a proper return but keep to its core principles of staying as an investor in green ideas and businesses. Clearly, investors will not invest in it unless they are assured that it will remain a green investment bank that does what it says on the tin. There is enormous private sector appetite looking for investments of this type, so the Government should press ahead and not rely on taxpayers’ money to support it.

With respect, I disagree with the noble Lord, Lord O’Neill. Surely the whole purpose of this is to encourage foreign direct investment into the United Kingdom. Will the Minister assure us that foreign investors will be encouraged to take a stake in the Green Investment Bank? This country has done exceptionally well in FDI. I think that we are second in the world after the United States. We have sent a very clear message to overseas investors that this is a great country to invest in, for all sorts of reasons. Let us hope that the GIB continues this path.