UK Infrastructure Bank Bill [HL]

Lord Tunnicliffe Excerpts

2nd reading
Tuesday 24th May 2022 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I am grateful to the Minister for introducing the Bill. It has received wide-ranging analysis by Members of the House, which I will not comment on directly. Rather dangerously, I think I recently found myself agreeing with the noble Baroness, Lady Noakes, over something. It is good to be on the opposite side again; I feel comfortable.

The Bill formalises not only UKIB’s objectives but a range of accompanying governance arrangements and reporting or review requirements. As we have heard, this process arose from a recommendation by the National Infrastructure Commission in its 2018 baseline report. The bank has been allocated an initial £12 billion in capital and will be able to issue £10 billion of government guarantees, in the hope of unlocking contributions from investors across the private sector. Although this total broadly matches the recommendation of the National Infrastructure Commission, it is, as has been commented on, small compared to the capital available to other national infrastructure banks, particularly that in Germany.

The capital allocated to the bank does not strictly form part of the Bill. Nevertheless, as we accelerate our green transition, there is every possibility that the bank will need additional resources in the future. When responding, can the noble Baroness outline how the level of capitalisation will be kept under review? Will it form part of the Budget process or will there be a separate mechanism? The bank will have to compete with other initiatives for additional funds. It would be interesting to hear the Minister’s view of how this may play out in the coming years.

Given some of the Government’s infrastructure-related decisions in recent years, it was perhaps unsurprising that the commission called for

“a new, operationally independent, UK infrastructure finance institution.”

The privatisation of the Green Investment Bank in 2017 appeared at that time short-sighted. MPs expressed concern then that the Government had not sought stronger assurances about that organisation’s future. At the same time as that sale, Ministers were deciding the nature of the UK’s departure from the EU. Despite the option of an ongoing relationship with the European Investment Bank—the EIB—they opted to leave that framework.

The Government have been clear that UKIB is not designed directly to replicate the work of the EIB. That is fortunate because, at the current level of capitalisation, it is not clear that it could. Between 1973 and 2017, the EIB invested in the region of €165 billion in UK projects. Its due diligence on projects unlocked billions in private finance too. This new bank may not have the capital to match the EIB’s clout or that of Germany’s infrastructure bank, but we hope that it will replicate some of those institutions’ processes, which will provide confidence to private investors.

I am grateful to the Minister for hosting an initial meeting with officials last week, allowing us the opportunity to discuss the Treasury’s hopes for so-called “crowding-in”. Will she comment on the Treasury’s target for external investment? Is she confident that private funds will arrive at the expected rate, particularly in the current economic context? The reviews required under Clause 9 of the Bill would help us keep track of progress but, at present, the first is not due for a period of 10 years. We understand the need for UKIB to ramp up its operations and that the impact of individual investments may not be measurable for some years, but is there not a case for accelerating that timescale? Everybody who has spoken on that issue seems to think there is; I am sure we will discuss that in the coming weeks.

However, the most important debates will focus on the Government’s definition of infrastructure and the scope of the two core objectives. We must get these core components right from the off, including a consideration of whether there should be three objectives. If we do not, the bank will be nowhere near as effective as it needs to be to make a genuine contribution to meeting the 2050 net-zero target. I am sure that we will also discuss UKIB’s operational independence, as mentioned by several noble Lords. It states over and over again that it will be operationally independent, but a number of noble Lords have commented on power of the Treasury to de facto control this bank.

On definition, we generally welcome the range of technologies and facilities included in Clause 2. We note the inclusion of a delegated power to amend the definition of infrastructure and welcome that regulations to update it will be subject to the affirmative procedure. Of course, not everything is included in the definition. The bank’s lending will not, for example, help to address the country’s chronic shortage of new housing. Some will be disappointed by that decision, given the Government’s ongoing failure to deliver a suitable supply of quality, affordable homes where they are needed most. More needs to be done to support first-time buyers and young families, who find property prices climbing far faster than they can save—a situation that will be exacerbated by the cost-of-living crisis.

While housing is not included in UKIB’s remit, it is sensible for its funds to support the rollout of infrastructure associated with residential and other forms of development. If the bank can lower the cost of financing these kinds of projects, that is good news for local authorities and partner organisations as well as the residents who will benefit from new services. However, can the Minister confirm that it is not the intention for this mechanism to replace others, such as the community infrastructure levy, which aim to ensure that developers cover most infrastructure costs arising from their projects?

At first glance, the two objectives outlined in the Bill are sensible. However, as always, the devil is in the detail. The bank itself has acknowledged in a discussion paper that

“occasionally these objectives will be in tension with each other.”

It goes on to say that where an investment is “primarily” focused on growth, it will ensure that it does not do “significant harm” to the climate objective. Does the Minister feel that this safeguard is sufficient?

Although the bank is and should be operationally independent, are the Government satisfied that UKIB will have the expertise needed to make informed decisions, or would the Minister welcome an outside body, such as the Climate Change Committee, having some form of advisory role? It is important that we understand how these potentially competing objectives will interact.

This matters because in the last Session your Lordships’ House debated climate-related amendments to what is now the Subsidy Control Act. Those amendments would have required public authorities to include consideration of climate-related issues in the so-called balance test when deciding whether to grant a subsidy. The Government fiercely resisted them. Given the urgency of the challenge we face, why are they not taking a consistent approach across departments? If we expect applications for finance from UKIB to meet certain green thresholds, why is that not applied to entities seeking taxpayer-funded subsidies from public authorities?

Overall, we welcome this initiative and wish the leadership of the UK Infrastructure Bank well. The institution has the potential to do a lot of good across the UK. However, given the bank’s relatively limited capital, and in the context of wider government policy, we should not kid ourselves that this sets us on course for 2050. We look forward to working with colleagues across your Lordships’ House to strengthen the Bill, and we hope the Minister will approach the process with an open mind.