Bank of England and Financial Services Bill [HL]

Lord Teverson Excerpts

Wednesday 11th November 2015 Lords Chamber

[Baroness Kramer]

My Lords, I realise that some of your Lordships will be surprised that we have introduced an amendment with a clause referring to the Green Investment Bank into a discussion of a Bank of England Bill. Your Lordships will be aware that the Green Investment Bank has been one of the great successes of the coalition era. It filled a gap left by a market failure which had resulted in any green project requiring long-term, patient investment having great difficulty in accessing that kind of financing. The Government put something in the range of £3 billion into the Green Investment Bank, which has been so successful that it has since leveraged an additional £6 billion from the private sector. It is universally regarded as one of the most successful creations for enhancing our long-term investment in green infrastructure.

This Government have made the decision that they wish to privatise the Green Investment Bank. Discussions around that should and must take place in the context of the Enterprise Bill, but it is clear from the discussion so far that privatisation presents a problem. In order to completely remove the Green Investment Bank from their books, as the Government intend, they cannot continue to exercise any control over the bank after it has been privatised. They cannot require that the mission of the bank continues to be green investment; new owners could convert the bank to any other purpose at will after privatisation. Indeed, the Government cannot even require that the bank continue as a going concern. It would be quite possible for a new owner to absorb the existing assets into other parts of its business and make the decision that, as those assets were paid down, it would invest in a whole variety of other activities; it need not continue to provide a green investment bank at all. The Government, as I understand it, believe that they are helpless to provide for that requirement post privatisation. I do not think that is the wish either of the Government or, frankly, of Parliament.

As I say, this has been a successful bank. There are real concerns that private investors might turn the bank to another purpose—not because it is not successful but because there will be other ways to make money once the assets begin to return cash. Indeed, as I said, the reason why the bank was created in the first place was that the market showed very little interest in providing financing for these kinds of projects. Hopefully, attitudes have changed because the Green Investment Bank has established a very positive track record, but there is absolutely no guarantee. The future of the Green Investment Bank once it is in private hands is in question.

We faced a very similar problem when the system was set up to enable Royal Mail to be privatised. That privatisation is now going ahead. The Royal Mail, as your Lordships will be aware, was and is the vehicle through which a universal postal service is provided, under which every area of the country is covered by a postal service at a single, identical rate, which applies no matter where in the country anyone is. So my question became: if the Government could find a mechanism through which Royal Mail continued to have that set of obligations, could a similar mechanism provide for the Green Investment Bank to continue to have its existing obligations? The mechanism used for Royal Mail was that of the regulator, Ofcom.

I do not pretend that there is any quality in the drafting, but I have pulled together provisions from the Postal Services Act 2011 and the Enterprise and Regulatory Reform Act to try to establish a similar framework for the Green Investment Bank. The regulator in this case would appear to be the PRA, because that is the role it plays in relation to the banking industry.

I understand that the Government are willing to listen if we can find ways to keep the purpose for which the Green Investment Bank was created. I very much hope that moving the new clause creates an opportunity for the Government—for the Treasury—to become engaged. One problem that we often suffer from within government is that actions get siloed to one particular area. Frankly, the Green Investment Bank has ended up getting siloed over to BIS. But it is an issue that could impact equally well on the Treasury, because the Treasury has the relationship with the banking regulator which I propose to use in this case. It is on that basis that I move the amendment, and I hope that the Government will seriously look to see whether this route offers everyone a mechanism to get to the solution that most wish for.

[Lord Teverson (LD)]

My Lords, the Green Investment Bank has been one of the great successes of the coalition Government. To quote the words— which I fully endorse—of the Conservative manifesto of 2010,

“we will create Britain’s first Green Investment Bank—which will draw together money currently divided across existing government initiatives, leveraging private sector capital to finance new green technology start-ups”.

Absolutely. It was also in the Liberal Democrat manifesto and, I think, the Labour manifesto. After the Wigley commission, set up by the Conservatives, we all felt that this was an excellent way forward and one that would be successful. The management team at the Green Investment Bank has delivered that well over its first three years.

We on these Benches would prefer that privatisation did not take place quite so quickly. We do not feel that the Government will get its full value at the moment, but we accept that that is the Government’s policy. If the bank does not have proper access to additional private funding, in reality, it will be starved of sufficient future investment by the Treasury. Hence, we want to co-operate strongly with the Government to find a way to ensure that we do not just remove the legislative requirements in the Act, but keep those principles of the bank’s operation not just in its constitution but in the way that it can operate.

We are not happy about the fact that the five principles currently in statute will be put into the mem and arts of the company, because clearly those can be changed by a special resolution of 75% of the shareholders. As my noble friend Lady Kramer said so well, we have no guarantee that the bank will not be purchased just to run it down, make the most of its income stream and use it as an investment for future cash flow. That would be a tragedy for everybody. I am sure that that is not the Government’s intent but at the moment we have no guarantee through legislation that it would not be the case.

--- Later in debate ---

[Lord Davies of Oldham (Lab)]

My Lords, the Minister is faced with a rather challenging task here. First, he operates against a background where the Government’s record in recent months has caused great anxiety among all those concerned with improving the environment and reducing the threats of climate change. Here he faces a fairly significant issue—the Green Investment Bank. Of course, the additional complexity is that the bank is itself subject to other legislation under consideration. Irrespective of the merits of the amendment, I could understand if the Minister felt that this were really quite a challenging situation. I will try to find a way out for him as well, as the Liberal Democrat noble Lords emphasised their solutions.

We are not averse to privatising the bank but we are not very appreciative of the urgency of doing it at this time. Crucially, the question that emerged during the debates on the Enterprise Bill and have been identified again today is how the Government intend to maintain the bank’s mission. Of course, it is easy to privatise if one disregards the fundamental objectives of the foundation of the bank. We need to know how the Government intend to guarantee that the bank does not morph in private hands into a different sort of institution and bank. What is the Government’s answer to that? They may not be totally enamoured of the Royal Mail example. Of course, that is buttressed by regulatory standards that we have not so far seen adduced as far as the green bank is concerned.

It is obvious that the Minister must make some progress on this, otherwise the proposal the Government are putting forward elsewhere will occasion increased opposition from this side of the House. I am always in favour of helping Ministers, particularly when it involves them rather than the Opposition doing the work. I suggest that the Minister consults his colleagues in the business department concerned with the process on the green bank and, after those consultations, comes back on Report with a much clearer identification of the progress of the Government’s thoughts on the bank. At present, in the debates on either the Enterprise Bill or this one we have certainly not yet heard anything remotely convincing from the Government to give the assurances we need that if this bank, which has proven to be a successful initiative and is respected for its work, goes into the private sector it will not all too readily be led down paths that depart from its much-valued objectives.

[Lord Teverson]

As we are in Committee, I will briefly come back to the noble Lord opposite about whether the Bank of England or the PRA is the right organisation for this. The Green Investment Bank is the Green Investment—I emphasise—Bank, so it seems to me appropriate. I want to make clear that we are open to other suggestions to solve this, if the Government and Minister do not believe this is the best way.

For instance, I am involved in an organisation called Regen SW, which used to be a wholly owned subsidiary of the South-West of England Development Agency. It was privatised and is very successful. I am one of three trustees who look after it. If there were a hostile takeover by a non-green organisation, there are three of us who can exert power to make sure that the original aims of Regen SW are maintained. If something creative can be done in that way, I would be absolutely delighted and we would like to hear it.

[Lord Bridges of Headley]

My Lords, I thank the noble Baroness, Lady Kramer, and the noble Lord, Lord Teverson, for their extremely constructive remarks—and, indeed, the noble Lord, Lord Davies, who on Monday offered me sympathy for my position and today offered to be very constructive. Where do we go next? It is going to be very interesting.

--- Later in debate ---

[Lord Teverson]

I am that sure my question is as much of a concern to the Minister as it is to me. The purchasers of this bank could just buy it as an asset to wind down—just to buy the cash flow into the future—which none of us would want. But if there was a public sale, it could indeed happen. That is separate from the ongoing green credentials. Do the Government have an approach to how that might be solved or prevented?

[Lord Bridges of Headley]

The noble Lord makes an extremely good point, and one that the CEO, Shaun Kingsbury, was asked directly. I am not going to prejudice what my noble friend the Minister in BIS is working on, but that is clearly something that we need to look at. I note that Mr Kingsbury himself said that he believed that the purchasers of or investors in the Green Investment Bank would look expressly to ensure that the specialisms that the bank currently has would continue, and we would want to make sure that that specialism and focus are the core of their investment. That said, I heed entirely what the noble Lord says and will draw it to my noble friend’s attention.