Enterprise and Regulatory Reform Bill

Lord Teverson Excerpts

Wednesday 14th November 2012 Lords Chamber

[Lord Teverson]

My Lords, I welcome the Bill and my noble friend at the Dispatch Box who will take it through the House.

I should like to give the House some figures on the green economy. World-wide, the green economy is worth something like $4 trillion, or £3.3 trillion; in the UK it is worth some £1.2 billion, which is 8% of GDP and is only a couple of percentage points away from the financial services industry. It accounted for something like one-third of total growth in the economy in the last fiscal year. It employs some 950,000 people—almost 1 million people—of our workforce in the sector. It is estimated that by 2015 it could provide an extra £20 billion of GDP and reduce our trade deficit by some £0.8 billion. Those figures are not from an NGO or a green pressure group but from that hard-nosed organisation called the CBI, which feels that there is an opportunity to be taken to make sure that the green economy works for this country and provides that growth and that employment. That is why I particularly welcome the fact that this Bill includes the Green Investment Bank, which was a core part of the coalition agreement. It provides a way of adding the extra piece of the jigsaw to ensure that we as an economy can capture green growth and call it our own.

There is other good news. As I understand it, we have had state aid approval in terms of the initial proposals, and we have the chairman and the board. As we heard earlier, the noble Lord, Lord Smith of Kelvin, is confident that this bank can be effective and move forward. I like the subsection in the Bill that will ensure the independence of the bank in terms of decision-making. Clearly nothing is more important for potential future investors and indeed for those who the bank will lend to than knowing that the decisions which are made will be objective and taken properly by an investment bank-style committee and not swayed by politicians. That is vitally important for the integrity and the reputation of the bank.

The noble Lord, Lord Smith, expressed his concerns about ensuring that this is the institution that is able to provide a longer perspective for investment in this country’s green sector. While it often sounds like a cliché, we need to be clear whether the bank is to be a fund or is it to be a proper investment bank. I am the first to accept that the £3 billion birthright that it is to start with is not inconsiderable in today’s fiscal position, but in the end the bank has to build up a reputation and find investors. The last thing we want to do is rush into investments that will not work. We have seen that kind of pressure from time to time and it is a very negative one. It is £3 billion, but 2015 is not that far away, so we have to start planning for the position after the £3 billion has gone away. It is important to recognise in the Bill that the bank will be able to borrow on the commercial markets and that it is able to produce leverage not just through the initial investments it makes, which no doubt will be matched by considerable private sector funding, but that it is able to bring in its own leveraged funds from the markets so as to make the institution a far more powerful one financially as time goes on. The scale of the challenge is huge. We know that the electricity generation industry alone—the grid and so on—is potentially worth £200 billion. There are other areas for the bank to look at, including the extraction of energy from waste, adaptation issues and so on. It could get involved in a broad range of sectors, so it needs to be a financially strong and significant institution.

I would like to see the implementation of two ideas that were discussed at length by the Environmental Audit Committee of the other place: being able to raise money through green bonds and the democratisation of green growth by the use of ISAs and similar instruments. In that way we will involve individuals and households in investing in the sector through the new and reputable channel of finance that we are launching as a part of the Bill. I shall be interested to hear from the Minister when and how he thinks green bonds might be brought about.

There is also an issue around the scope of the lending of the Green Investment Bank. The noble Lord, Lord Smith, is obviously content with it as it is, but I think that we need to investigate it further. I hope that the Government will look at this to make sure that we are clear about the areas where the Green Investment Bank can, and more particularly cannot, invest for the future.

Another crucial aspect is the Chancellor’s statement that the bank will not be able to borrow beyond being a fund, if you like, until the deficit as part of GDP starts to decline. That is currently estimated to happen in around 2017. That is of real concern to me. Like all Members on this side of the House, and I am sure on the other side, I understand the importance of bringing the deficit down. We see it as a core part of the coalition’s mission. But if we are not able to move into a much more geared level of funding until 2017, we will forgo economic growth, quality and important jobs for the future. Indeed, let us look at the German equivalent of the Green Investment Bank, the KfW banking group. It is a much broader state bank that is owned both by the federal Government and the Länder. It has a balance sheet worth some €400 billion, so it is even larger than the European Investment Bank and only slightly smaller than the China Development Bank, which makes it one of the highest ranking banks in the world. As I understand it, its balance sheet and borrowings do not come under the German federal state’s public sector debt. Given that, I would like to ask the Minister why we are not so favoured, given that that bank also has to go for state aid provisions and that presumably it is subject to the same European fiscal rules as we are. Why is that much larger bank able to bypass this constraint while we feel that we are not able to do so?

I shall make one last point on the Green Investment Bank. It is an important piece of the jigsaw in terms of the investment we need to make into this nation’s future energy and green infrastructure. What is absolutely clear is that we on the Government side need to make sure that our message is singular and clear: in this country we want investment in this sector. We are determined not just to make our economy the greenest economy, which is perhaps a cliché but an important one, but are steady in our vision of decarbonisation.