UK Infrastructure Bank Bill [HL]

Lord Vaux of Harrowden Excerpts

2nd reading
Tuesday 24th May 2022 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, I was privileged to be a member of the EU Financial Affairs Sub-Committee when it conducted its inquiry into the impact of Brexit on our membership of the European Investment Bank. One of the key recommendations in our report was that the Government should consult on establishing a UK infrastructure bank to replace our access to EIB finance, so I am delighted that the Government have chosen to do so.

That said, I have some concerns about what the Government are proposing in this Bill. While I am sure that we are all extremely grateful that the Bill does not run to the usual hundreds of pages, it could be improved with a bit more content. I hesitate to use this first sentence after the speech of the noble Lord, Lord Davies, but the principal function of an infrastructure bank should be to correct market failures that prevent a good project obtaining private finance in the market. That might mean the bank taking on new-technology risk, for example, or term risk where a project is longer term than is usually covered by the private sector. It should aim to act as a cornerstone investor, fostering confidence for other investors and facilitating projects that would not otherwise achieve sufficient funding to crowd in private finance, as we heard earlier. There are good examples of this. I think it is generally accepted that the UK offshore wind sector would not be where it is without the EIB investment behind it.

What it should not do, and here I strongly agree with the noble Baroness, Lady Noakes—I hope all this agreement is not going to go to her head—is become a replacement for private sector finance; in effect, competing with and crowding out private sector finance that would otherwise be available. Again, there are examples of this. The EIB’s investment in the Thames sewer is almost certainly an example of it and, frankly, the examples of the investments made so far by the UK Infrastructure Bank do not give an awful lot of confidence at this stage.

It also should not, generally, be the sole financer of a project. To have the credibility to crowd in private sector finance, the UK Infrastructure Bank will need to develop real depth of expertise and due diligence ability—a real strength of the EIB, incidentally. That requires investment. The EIB employs 3,000 full-time staff, including financial professionals, engineers, economists and environmental experts with significant engineering and scientific expertise. If the UK Infrastructure Bank is to succeed, it will need to build similar skills. So, can the Minister provide some information around the resources the bank currently has and what it is intended that it should have?

The effectiveness of the UK Infrastructure Bank should be measured not on how much it has invested, loaned or otherwise provided—anyone can spend money—but on how much private sector finance it has generated or facilitated that would not otherwise have been available, or investments that could not otherwise have been made. That should be specifically included in the review of the bank’s effectiveness and impact in Clause 9. Like others, I agree that 10 years is a ridiculous length of time before the first review.

The UKIB policy design and framework documents issued by the Treasury actually cover the crowding in of private sector finance quite well and, given the comments of the Minister earlier, the Government obviously agree with me on this. Perhaps she could therefore explain why this critical objective is not even mentioned in the Bill, despite the importance given to it. The policy design and framework documents are actually quite good, including six pretty sound operating principles and four related investment principles. Again, these are not mentioned in the Bill. In some cases, they are actually contradicted by the Bill. They appear to have no legal status and could be changed at any time without scrutiny. If I may, I will comment on three of the six operating principles.

The first is:

“Achieving policy objectives via sound banking … whereby investments help to achieve the core policy objectives … whilst generating a positive financial return to ensure the financial sustainability of the institution and to reduce the burden on the taxpayer.”


This is reinforced further in the investment principles. Again, the Bill does not mention this requirement to generate a positive return, and the definition of “financial assistance” is so widely drafted that it would allow grants and other similar funding that has no return. While the EIB also does not have to make a positive return, it has been consistently successful in doing so. I think making that a requirement for the UK Infrastructure Bank would be a very good financial discipline. Whatever is decided in that respect, I think it is important that the financial requirements that apply to the bank are included within the objectives in the Bill, and that any future change to that principle should be subject to parliamentary scrutiny.

The next operating principle I will touch on is:

“Additionality: the Bank will prioritise investments where there is an undersupply of private sector financing and, by reducing barriers to investment, crowd in private capital.”


Again, I have talked to this before: it is not in the Bill and it really should be there as a key objective.

The next one to look at is “Operational Independence”, which the noble Baroness majored on quite strongly in her speech. The bank

“will operate within a strategic framework set out by government but will have operational independence in its day-to-day activity including investment decisions.”

The National Infrastructure Commission stressed the importance of governance to safeguard the operational independence of the institution, and it was also a common thread we heard in evidence to the EU Financial Affairs Sub-Committee when we were doing our inquiry. Private sector finance will not have confidence to co-invest if there is a perception that an investment opportunity, or indeed the institution itself, is subject to the whims of political expediency. That is especially important given the long-term nature of infrastructure investment. But the Bill does not include anything that safeguards the bank’s operational independence. In fact, it actively undermines it. The Bill allows the Treasury to revise or replace its statement of strategic priorities at any time, with no scrutiny or even consultation. Worse still, the Bill allows the Treasury to give specific or general direction—again, at any time—about how the bank is to deliver its objectives, with which the bank must comply. That would allow the Treasury to direct the making of a particular investment, or on particular terms. The only safeguard is that the Treasury must first consult with the directors, who, I again remind noble Lords, are all appointed by the Treasury.

Operational independence means having the ability to refuse to finance government vanity projects. As currently drafted, for example, the Bill would allow the Government to mandate the financing of ludicrous ideas such as the bridge to Northern Ireland, and the bank would have to comply. That is not operational independence in any sense that I understand it. This area of the Bill really needs work.

Those three operating principles, along with the other three—partnership, impact and credibility, and flexibility; the Government’s own principles, not mine—are very important and should be put on a statutory basis in the Bill, with any changes subject to proper scrutiny. Where the Bill contradicts the principles, it should be amended.

I will touch briefly on devolution, as one or two noble Lords have. The bank will operate across the whole UK, which I welcome. However, as usual, the Government have given no role in the Bill to the devolved Governments beyond seeking legislative consent, we are told. Living in Scotland, I am no great fan of the current Scottish Government but devolution is a fact, regardless of one’s views of the Government whom the devolved nations have chosen. It would be appropriate for the devolved Governments to at least be able to appoint non-executive directors to the board to reflect their legitimate interests. Could the Minister comment on that?

I have one last question. I have not been able to find anything that would allow the bank to raise finance externally as loans, bonds or equity. Other similar organisations can raise finance on the capital markets, which has the dual benefit of raising greater capital and introducing valuable private sector disciplines. It would also reduce the scope for government meddling. For example, Germany’s KfW, which we heard about earlier, funds itself almost entirely from the international capital markets, being able to obtain cheap finance because of its AAA rating due to its government backing. The EIB does the same, relying on the backing of member government guarantees. Its subsidiary, the European Investment Fund, has minority private sector ownership. What consideration have the Government given to the UK Infrastructure Bank being able to raise external finance alongside government finance?

As I said at the start, I support the creation of the UK Infrastructure Bank, but we have work to do to ensure that the Bill enables it to be successful.

UK Infrastructure Bank Bill [HL]

Lord Vaux of Harrowden Excerpts

Committee stage & Lords Hansard - Part 1
Tuesday 14th June 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, this first group of amendments all cover the financial aspects of the bank. Amendment 1 in the name of my noble friend Lady Noakes and Amendment 53 in the name of the noble Lord, Lord Teverson—I shall not quibble about the wording of the amendments; I understand their purpose —would subject the UK Infrastructure Bank to all financial services regulation and the senior managers and certification regime in turn. This goes against the exemption that Parliament approved for the bank last year.

The Government’s view is that adopting this position at this stage would create a disproportionate regulatory approach that would unnecessarily add to the cost, complexity and burden of a relatively small and new organisation. Financial services regulation was not intended for public sector institutions with a policy objective. UKIB does not require regulation in the same way as commercial banks. The practice of regulatory exemptions in this way follows precedent for similar institutions operating in the public sector—for example, the European Investment Bank.

It may be helpful to note that even though UKIB has a general exemption from financial services regulation, UKIB’s framework document is clear that, as far as reasonably practicable and as appropriate, UKIB will abide by the principles of the senior managers and certification regime and relevant elements of the FCA’s Principles for Businesses. As part of its compliance framework, UKIB will adopt and implement policies to safeguard itself against fraud, theft, corruption, bribery, insider dealing, market abuse and money laundering. It is therefore important to emphasise that the general FSMA exemption UKIB has been granted already does not mean that UKIB is absolved of all compliance obligations. Rather, the exemption means that UKIB has flexibility to adopt a bespoke approach to its governance that is proportionate to its activities.

Amendments 42 and 38 in the name of my noble friend Lord Holmes of Richmond would increase UKIB’s powers to borrow from international capital markets and give UKIB an unfettered ability to determine its own investment levels without Treasury authorisation respectively. With regards to Amendment 42, I assure my noble friend that UKIB already has these powers under company law.

Further, UKIB has a maximum financial capacity of £22 billion, including an overall borrowing limit of £7 billion. Within this limit, UKIB can borrow up to £1.5 billion a year from either the Debt Management Office or private markets, including international markets, depending on the best value for money and subject to standard approval processes.

Similarly, the spirit of Amendment 38 mirrors the Government’s ambition for the UK Infrastructure Bank: that it should have operational independence in its day-to-day operations and investment activities. The framework document outlines that UKIB has the freedom to set the pricing of its transactions. It is already using this power.

[Lord Vaux of Harrowden (CB)]

I am sorry to interrupt, and I thank the Minister for giving way. She has referred to the framework document a few times. Can she clarify exactly what its legal status is?

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[Baroness Penn (Con)]

My Lords, the Committee’s debate on this group has helped to ensure that we have properly considered the purpose of the bank, particularly around its levelling-up and climate change objectives. I will first address Amendments 3, 4, 5, 15 and 20, which seek, in various forms, to provide additional scope for the bank to pursue natural capital improvement, biodiversity or to deliver environmental improvement plans, by either splitting the climate change objective or adding a third environmental objective.

The bank has a broad mandate, which includes the flexibility to support a wide range of projects to help tackle climate change and support regional and local economic growth—two of the defining missions of this Government. As noble Lords will know, the Government conducted a review, which reported in March following wide engagement with environmental stakeholders and market participants, to consider a potential broadening of the bank’s objectives to include other areas such as improving the UK’s natural capital. Most stakeholders observed that there is already significant scope for intervention in nature-based solutions within UKIB’s existing mandate, particularly through its climate mitigation and adaptation objective, and scope to invest in flood defences, water and wastewater infrastructure.

Therefore, following this review, the Chancellor confirmed in his first non-statutory strategic steer to the bank that natural capital opportunities are in scope of its existing remit and that it should explore early opportunities to support the development of markets for ecosystem services and nature-based solutions within its existing climate and levelling-up objectives. The bank will reflect the contents of this strategic steer in its first strategic plan, which will be published later this month.

Adding a third objective for the bank could dilute its focus. Although projects to deliver nature-based solutions and enhance the UK’s natural capital are within scope for the bank, these projects must link back to its core purpose, which is to deliver economic infrastructure projects. It is an infrastructure bank, and that is why the environmental review landed sensibly on nature-based solutions as a means of delivering the ends of economic infrastructure through natural technology.

The review recognised the significant potential for increased use of nature-based and hybrid infrastructure solutions, including for the water sector and greenhouse gas removals. These opportunities will be important to meet our objective to leverage at least £500 million per annum in private finance for nature’s recovery by 2027 and more than £1 billion per annum by 2030.

However, other steps must be taken to ensure that a successful market is created to finance nature. The review found that the market for nature-based solutions is constrained by multiple barriers, including insufficient scale of projects, lack of proven revenue streams and a lack of data. The bank can help to overcome some of these barriers, but work is also under way by Defra to improve standards and accreditation and to improve early grant funding through the £10 million natural environment investment readiness fund launched in February 2021 and the big nature impact fund, a blended finance vehicle that will help to create a commercial portfolio of projects.

I turn now to the bank’s “do no significant harm” commitment. Amendment 2 from the noble Lord, Lord Tunnicliffe, seeks to raise and firm up the environmental floor for UKIB projects, and Amendment 16 from the noble Baroness, Lady Bennett, seeks to remove fossil fuels from the scope of the bank, as she explained.

With respect to Amendment 2, while there is naturally some risk of the bank’s growth objective coming into conflict with its climate change objective, we believe that this has already been robustly and appropriately covered in the bank’s framework document, which states:

“Where an investment is primarily to support economic growth, the Company will ensure that it does not do significant harm against its climate objective.”


It will be for the bank to decide exactly how to administer this “do no significant harm” clause and how to interpret it when considering individual transactions, and it is already doing this.

On Amendment 16, I say that the “do no significant harm” clause is accompanied by a sensible exclusions list, prohibiting the bank from entering into fossil fuel investments, with a small number of exemptions—for example, for carbon capture, usage and storage, which will significantly reduce emissions over its lifetime. I hope the noble Baroness, Lady Bennett, can see why we need these exemptions and why it would not be appropriate to exclude fossil fuels entirely from the bank’s scope. As a package, it is sensible to keep all these conditions together in the framework document so that they may be kept under review and ensure that the environmental baseline for the organisation is sufficiently high.

Amendments 6, 8 and 9 all seek in some way to add more specificity to the existing objectives. For reasons that I will set out, the Government believe that the current drafting of the Bill is a more appropriate way to deliver against these, although they recognise the policy aims that the amendments seek to deliver. At statutory level, the correct approach is to set out the overarching policy goal and, in this context, phrasing the bank’s objective as one of supporting regional and local growth provides a clear direction for the bank without being overly prescriptive.

We would not want to use language or terms in statute that could result in unintended consequences. For instance, if we adopted the drafting of the noble Lord, Lord Ravensdale, in Amendment 6, terms such as “geographical inequality” and “areas of economic disadvantage” would require detailed and complicated definitions that could change over time or be context dependent. We would not necessarily want to preclude the bank from providing funding in disadvantaged areas of the south-east but, if we adopted the proposed amendment, the bank might be put in difficulty as the south-east as a whole might not qualify as an area of economic disadvantage.

However, all three amendments are addressed in the Chancellor’s first strategic steer to the bank, which states:

“Addressing the deep spatial disparities across and within UK regions is a central ambition of this government. Economic infrastructure connects people, both physically and digitally, to opportunities and the Bank has a key role to play in providing infrastructure finance across the UK and targeting investment to support faster growth in regions with lower levels of productivity … The government’s recently published Levelling Up White Paper (LUWP) outlines the need to end the geographical inequality which is such a striking feature of the UK”,


as noble Lords have noted,

“and it is important that UKIB supports this ambition. Therefore, I would encourage the Bank to target its portfolio of investments towards projects across the UK that deliver against the missions set out in the LUWP”.

Further, the steer is also clear that the economic growth objective should provide “opportunities for new jobs”. I will happily confirm to the noble Lord, Lord Tunnicliffe, that it is the Government’s ambition across the economy to have more high-skilled, better paid and securer jobs. The bank’s investments to date, consistent with its strategic steer, already meet the aims of these amendments. Investments in the Midlands, Northern Ireland and Wales are already helping to boost productivity across the UK and support the creation of good new jobs.

Finally, I turn to Amendments 7 and 10, in the name of the noble Baroness, Lady Bennett, which focus on improving the life outcomes of people in disadvantaged areas, reducing the use of natural resources and emissions and securing the interests of future generations. I would argue that these are consistent with the existing objectives for the bank. In the long run, productivity gains and economic growth are the fundamental source of improvements in prosperity. Productivity is closely linked to incomes and living standards and supports employment. Improvements in productivity also free up money to invest in jobs and support the Government’s ability to spend on public services. The climate change objective will help to secure the interests of future generations by reducing emissions and, as discussed, investing in nature-based solutions.

The Government recognise that protecting and enhancing the natural environment and the biodiversity that underpins it is crucial to supporting sustainable, resilient economies, livelihoods and well-being. We are therefore determined to support the development of private markets that drive investment in projects that restore or enhance our natural environment.

I thought it might be worth touching again on the question from the noble Lord, Lord Vaux, about the framework document, in order to aid our discussion. The framework document is a non-legally binding agreement between the Treasury and UKIB that sets out details of how the bank works that it would not be appropriate to have in statute. Notwithstanding that, it does create some legal force, as UKIB is expected to abide by it and can be judged against it in normal public law ways. It is a public document and there are reputational reasons for UKIB to follow it, and the Treasury can enforce it both as a shareholder in the bank and through the issuing of a direction. Of course, there will be parliamentary scrutiny, given that it is a published document. It can be changed and updated by agreement of both parties, the Treasury and the bank. UKIB’s articles of association are binding in company law and have been filed with Companies House.

[Lord Vaux of Harrowden (CB)]

The Minister mentioned that it will be subject to parliamentary scrutiny. What will be the mechanism for that?

[Baroness Penn (Con)]

There are many mechanisms of parliamentary scrutiny that we are subject to every day. There are committee hearings, Questions in the House and many other different routes of parliamentary scrutiny.

To pick up on one final question, from my noble friend Lord Holmes of Richmond, about the bank’s ability to invest in overseas territories, the intention is for UKIB to invest in UK projects; it is not expected that it would invest in UK overseas territories.

I therefore hope, given those explanations, that the noble Lord, Lord Tunnicliffe, will withdraw his amendment and that other noble Lords will not move theirs when they are reached.

UK Infrastructure Bank Bill [HL]

Lord Vaux of Harrowden Excerpts

Committee stage & Lords Hansard - Part 2
Tuesday 14th June 2022 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I rise to move Amendment 12 and hope we can pick up a little speed with it. At Second Reading, I raised the issue of the UK Infrastructure Bank’s activities having the effect of crowding out private sector investment. My view is that there can be a role for state-sponsored organisations such as the UK Infrastructure Bank only if there is a market failure which needs to be addressed. The Government appear to agree with this, as the framework document for the bank includes an operating principle that the Bank should

“prioritise investments where there is an undersupply of private sector financing”.

That is, however, only in the framework document; we are coming back to our theme in Committee of what should be in the framework document and what should be in the Bill. It is unsatisfactory for this issue not to be in the Bill. My Amendment 12 is modest, because it states merely that the activities of the bank as specified in Clause 2(4) must be carried out

“only where there is an undersupply of private sector financing”.

I go slightly further than the wording used in the framework document, which refers to prioritising where there is an undersupply of private sector financing, but I believe that the UK Infrastructure Bank should positively avoid those activities which are adequately supplied with private sector finance.

Amendment 14 in the next group, with which I suggested my Amendment 12 be grouped, sticks faithfully to the wording of the framework document and includes the other operating principles, to which we will come. If the Minister prefers the formulation in Amendment 14 when we get to the next group, I certainly would not object, because my priority is to have the issue of crowding out firmly in the Bill. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, this amendment goes to the core of what the UK Infrastructure Bank should be about, and I am in complete agreement with the noble Baroness, Lady Noakes, about the importance of the crowding out or crowding in of private finance, which was raised by many noble Lords at Second Reading.

I am stepping in to speak on this group because it impinges on the next, in which I have an amendment. The NIC says that the Bank should act as an “anchor investor” and should

“catalyse innovation, support due diligence functions and enable projects of public significance that may not otherwise take off”.

Most of us would agree that if the bank simply competes with or replaces available private finance, then it is a waste of time, damaging, distorts the markets and wastes taxpayers’ money. As the noble Baroness said, it must aim to solve market failures where otherwise good projects cannot be easily financed by the private sector. The Government obviously agree, but have not put this fundamental point anywhere in the Bill.

I support the principle behind the amendment proposed by the noble Baroness, Lady Noakes, but I am not sure that the wording fully captures the crowding-in concept. That may be because the framework document does not do it terribly well either. The amendment and the framework document refer to the bank undertaking its activities only where there is an undersupply of private sector financing. Crowding in happens where private financing is available but the private sector is reluctant to invest, perhaps because of a particular risk. In that situation, we would want the bank to be able to invest, precisely to facilitate the investment of the private sector—to remove the blockage preventing the private sector involvement.

As I said, in the next group, we will come to my Amendment 14, which tries to solve the same problem in a slightly different way by putting the operating principles, which expressly highlight the need for the bank to aim to crowd in private finance, on a statutory basis, but that may not be robust enough for some. The noble Lord, Lord Holmes of Richmond, has proposed Amendment 65, which is also aimed at the same problem, but with only a one-off report at the outset rather than an ongoing obligation, so I think that does not go far enough.

We have different ways to try to achieve the end of ensuring that the bank fulfils its primary purpose of crowding in private sector finance and does not fall into the trap of crowding it out. I am agnostic as to how we achieve it, as long as we get that requirement into the Bill—and that we measure it, which we will come to in a later group. Does the Minister agree that this is a fundamental element and, if so, why is it not in the Bill? If she does not like our wording, could she suggest a different way to achieve it? Would she be happy to meet us to talk it through and try to work out how best to get it in?

[Baroness Kramer (LD)]

My Lords, I want briefly to join this conversation because, like the noble Baroness, Lady Noakes, and the noble Lord, Lord Vaux, I believe strongly that the purpose of the bank is additionality. It is not to substitute for financing that is available out there, or even to provide it at a freckle below what might otherwise be the market price—although I note that the UK investment bank has to make a commercial return anyway. I think we can help towards that by strengthening the objectives that we discussed earlier, so that it is clear that they focus on those areas which we recognise today are crucial but which are finding it very difficult to access finance. That would be a step forward. I also very much agree with the noble Baroness and the noble Lord that additionality needs, in one way or another, to be in the Bill.

I have one minor caveat, which is that I think it is tricky to craft the language, but that does not mean it is impossible. The reason I say that is that I notice that in the noble Baroness’s amendment, she wants to ensure that the bank carries out its activities only if there is an undersupply. In one of the financings I was deeply involved with, which was one of the very early mobile phone financings in Eastern Europe, we tried to bring in private financing, but until we managed to lock in a commitment from the European Bank for Reconstruction and Development and some KfW money, the private sector was unwilling. Once that kitemark was there, that reassurance that entities which they felt had understanding of both the sector and the potential risk were engaged, private sector money came in. Some of it came in pari passu with the EBRD and KfW. If a person were to look backwards at that transaction, they might say, “Well, wait a minute, private finance was willing to take exactly the same risks that EBRD and KfW were, so, essentially, those two organisations were crowding out private finance”, but the reality was that without their presence, the private money would not come in. So we need to be a little careful about how we frame this, but the underlying principle is crucial.

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Moved by

[Lord Vaux of Harrowden]

14: Clause 2, page 1, line 22, at end insert—
“(4A) In carrying out its activities under subsection (4) the Bank must ensure that its activities are undertaken in compliance with the following Operating Principles—(a) the Bank will work towards achieving a double-bottom line, whereby investments help to achieve the core policy objectives to tackle climate change and support regional and local economic growth, whilst generating a positive financial return to ensure the financial sustainability of the institution and to reduce the burden on the taxpayer;(b) the Bank will operate in partnership with private and public sector institutions and other stakeholders to finance and support infrastructure investment;(c) the Bank will prioritise investments where there is an undersupply of private sector financing and, by reducing barriers to investment, crowd-in private capital;(d) the Bank will be able to provide long-term patient capital through its investments.”Member's explanatory statement
This amendment makes it a requirement that the Operating Principles, as proposed by the Treasury in the UK Infrastructure Bank Framework Document (except for Operational Independence and Flexibility, which are dealt with elsewhere in the Bill) must be followed when the Bank undertakes its activities.

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[Lord Vaux of Harrowden (CB)]

My Lords, I speak to Amendments 14 and 29 in my name. I thank the noble Baroness, Lady Kramer, for her support in these.

Ultimately, these amendments are aimed primarily at strengthening the operational independence of the bank. I explained at Second Reading the importance of the bank being genuinely operationally independent, so I will not repeat those arguments. The Government claim that they agree, and the framework document is clear that the bank should be operationally independent, as is the NIC. However, as drafted, the Bill does not achieve that. In fact, it actively undermines operational independence.

On Second Reading, the noble Baroness, Lady Noakes, referred to the Treasury having its fingers all over the Bill, and that must be right. We have seen the strategic priorities, which include some stuff which can be changed at will. We have the framework document, which can be changed at will and which has no legally binding basis. I am not even sure that it has to be published if it is changed, though maybe I am wrong on that. There are the articles of association, which the only shareholder can change at will. There are no safeguards over the independence of the bank.

Three things are required to ensure that operational independence is a reality. First, the mandate and the parameters within which the bank is allowed to act must be clearly defined—the barriers within which it can operate independently. Secondly, that mandate and those parameters must not be subject to political interference and change without scrutiny on a whim. Finally, the bank must then be able to operate independently without political interference within that mandate and those parameters. If any of those is too weak, you do not have operational independence.

These two amendments are aimed at the first two of those points. The direct meddling in the operations will be dealt with in a later group. Amendments 14 and 29 are aimed at ensuring that the mandate and operating parameters are clear and complete, and are on a statutory basis so cannot be changed on a whim. Amendment 14 brings into the Bill the operating principles that the Government have previously set out in the framework. These are extremely important. You would think that something called an operating principle was precisely the sort of thing that should be on the face of the Bill. These operating principles include the principles that the bank should aim to make a positive return, that it should operate in partnership with the private and public sector when financing investments, and that it should provide long-term finance. Most importantly—here we go back to the discussion that we have just had on crowding in and crowding out—the operating principles state clearly that the bank should aim to ensure that its activities crowd in private investment.

It is extremely important that these four operating principles are part of the mandate—the defined, statutory mandate—under which the bank operates. If they are not included in the Bill, the extent to which the bank is governed by them would not be clear and the Government would be able to change them at any time without scrutiny and, in some cases, without disclosure.

Amendment 14 simply lifts the Government’s own operating principles from the framework document. I have to assume that the Government are happy with them and therefore should not have any great difficulty accepting their inclusion in the Bill. If that is wrong, I would be interested to hear the Minister explain why she thinks that the Government’s own operating principles are inappropriate.

As the debate has gone on, I have become increasingly uneasy. Like the noble Lord, Lord Teverson, was in the first group, I have been rather woefully unambitious with this amendment. We keep hearing, “It’s all right; it’s in the framework document”, or “It’s okay; it will be in the strategic priorities”. But we have also heard that the framework document is a non-binding agreement, which is an interesting concept, subject to scrutiny that is not a definition of scrutiny that many of us have ever heard.

What this really means is that the Treasury can enforce the framework agreement on the bank, but can also change it at any point that it wishes. That is quite the opposite of operating independence. I am beginning to wonder whether we need to bring that framework document into the Bill more widely, on some sort of statutory basis, subject to some form of scrutiny if it is changed. That goes beyond my amendments at the moment. As I say, I have pulled four elements out of the framework document, but I am increasingly of the view that we may need to go further.

Amendment 29 follows on and says that, if the operating principles are to be changed, they need to be subject to parliamentary scrutiny—in this case only secondary legislation, which is of limited value but is better than nothing. I beg to move.

[Lord Teverson (LD)]

My Lords, as the noble Lord, Lord Vaux, said, I am afraid I am going to offend again in that my amendment is suboptimal. If we are stuck with the level of dependence on the Treasury that there is, I would like to see those directions from the Treasury at least being guided by or having to take notice of the infrastructure commission. This is referred to in the framework document, but also needs to be in the Bill.

Having said that, we are going to have a major debate on governance and independence issues and I suspect that my amendment would be overwhelmed by those points. It is important that there is a major connection between the National Infrastructure Commission and the UK Infrastructure Bank. There needs to be some definite joining up beyond the wish list there may be in the framework document. Exactly as has been said on this before, I like the idea of trying to put it into secondary legislation somehow, but we know that we cannot amend secondary legislation in this House and we rarely reject it. At least any changes going through Grand Committee or whatever is a higher degree of scrutiny and the Government know that.

This amendment is looking for the Minister’s response on how she sees the National Infrastructure Commission practically being taken into account by the Treasury in any directions it makes. This is important, because bodies such as the NIC can go on doing brilliant work but if, at the end of the day, they have no real effect or do not have to be taken notice of, I would rather abolish than keep them. It is an important body, but one that needs to be included in the Bill to make sure that its recommendations are properly taken into consideration.

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[Viscount Younger of Leckie (Con)]

My Lords, perhaps I may be allowed to intervene with a response. I thank all noble Lords who have contributed to this short debate. The baton has been passed to me temporarily.

The amendments in this group broadly focus on the operational aspects of the bank and so clearly my remarks will seek to address those. I start with Amendments 14 and 29 in the name of the noble Lord, Lord Vaux. The approach of the Bill has been to add in what we think is necessary. We do not believe that setting out the details of the operating principles for the bank, which are set out clearly in the framework document, is required in legislation. I am very aware that this takes us back to a key theme of some of the debates today. I was extremely grateful for the views of my noble friend Lady Noakes—if I heard her correctly—supporting the view that we do not want to get into too much detail in this respect, for a very good reason.

Amendment 32, spoken to by the noble Lord, Lord Tunnicliffe, would ensure that the strategic steer includes a reference to the creation of jobs. I am pleased to inform him that, in the strategic steer issued in March, there were two references to job creation. I of course build upon the comments made by my noble friend Lady Penn in an earlier debate, and indeed the noble Lord, Lord Tunnicliffe, has raised the matter just now. I add to what has been said already two examples I would like to give from the strategic steer in respect of job creation.

First, the bank’s framework document explained this objective as supporting growth

“through better connectedness, opportunities for new jobs, and high levels of productivity.”

Secondly, the bank’s existing objectives are to help tackle climate change, as we know, particularly meeting the Government’s net-zero emissions target by 2050, and to support regional and local economic growth through better connectedness, opportunities for new jobs and higher levels of productivity. I think that these comments play reasonably well in answering the questions raised in an earlier debate, particularly by the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Ravensdale, who is not in his place, and link with the levelling-up agenda. The noble Lord, Lord Teverson, and the noble Baroness, Lady Kramer, are absolutely right that our aspiration, and the necessity, is the creation of high-quality jobs. That is essential as part of our levelling-up agenda.

Amendment 39 in the name of the noble Lord, Lord Teverson, seeks to tie any direction given by the Treasury to the National Infrastructure Commission reports. He raised the relationship with the NIC at Second Reading and earlier today, so I hope that I can set that out and reassure him. The bank is intended to complement the work of the NIC. To that extent, there is a definite joining up, as was referred to by the noble Lord and the noble Baroness, Lady Kramer. It is a complementary rather than a duplicative process, and an assessment of the UK’s long-term economic infrastructure needs. Central government will then decide on any policy response to the NIC’s recommendations, and UKIB will consider the case for providing financing to support projects within the economic infrastructure sectors that are within the remit of both the NIC and the bank.

The NIC provides recommendations to the Government which the Government then act on. It would not be appropriate to remove that part of the process. Additionally, the Government do not have to implement the NIC’s recommendations or reports, so we believe that it is not appropriate to put this in legislation.

Perhaps the noble Lords, Lord Teverson and Lord Vaux, are concerned about the Government directing the bank in a way that is not in line with its objective. That rather paraphrases some of the mood of the debate. That is not possible with the drafting of the Bill at the moment. The bank must comply with its objectives and the Government cannot direct the bank to act in a manner that falls outside its statutory objectives.

The noble and learned Lord, Lord Thomas, tabled the characteristically thought-provoking Amendment 52. I hope I can convince him that the clause as drafted is sufficient. Much policy thought has gone into setting up the bank and detailing its objectives—which reflect government policy—and governance provisions, including provisions to allow the Treasury and Parliament to review its performance.

In the unlikely event that the bank breached its duties and agreement could not be reached via more usual engagement, the Treasury would clearly be motivated to use its powers, including under Clause 8, to enforce those duties. If a scenario occurred where the bank was in breach and the Treasury did not enforce for some reason, Questions could be asked in the House or a judicial review could be brought against the bank or the Treasury regarding use of its powers, and, if successful, give rise to mandatory or prohibitory orders.

Finally, to help the noble and learned Lord, I see no reason for Clause 8 ever to come into use. The framework document goes into some detail in Chapter 5 on the usual process for engagement between the bank and the Government, and any issues would be resolved much before the need to injunct the bank.

I turn to Amendment 68 in the name of the noble Baroness, Lady Bennett. She again raised the importance of independence but also focused on oversight. The amendment would allow other departments that she mentioned to have oversight of the bank. I assure her that the infrastructure strategy very much represents the view of the Government collectively, and should the Treasury need to exercise any of its functions, it would not do so in isolation or in silo, to use the language we might know better.

With those explanations, I hope that the noble Lord, Lord Vaux, will see fit to withdraw his amendment.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank everyone who has taken part in this short and interesting debate. I do not think the noble Viscount will be particularly surprised that I am not entirely satisfied with his response.

I take the point from the noble Baroness, Lady Noakes. She is right: this is not about taking the whole of the document into the Bill or secondary legislation, but there is a balance. This seems to be one of those situations where the Government are creeping things that are really quite fundamental into areas where they do not get parliamentary scrutiny of any sort. That is unacceptable. As was mentioned, we have seen the same with secondary legislation, but this is a whole new element: there is not even secondary legislation scrutiny. The framework document can be changed at any time at will by the Treasury. The stuff that really matters to the bank should be subject to some form of scrutiny and recognised in the Bill. To me, things that are called “operating principles” clearly fit on that side of the balance, but some of the more day-to-day activities that the noble Baroness, Lady Noakes, referred to are fine.

The noble Lord, Lord Tunnicliffe, talked about the need to find consensus on this and finding the balance. That is really important. Perhaps the noble Viscount or the noble Baroness—I am not sure what the collective noun is for the Lords the noble Lord, Lord Tunnicliffe, mentioned—would be prepared to add this to the agenda of the meeting we have agreed to have. This is a really important area where we have to get the balance right. We cannot have a situation where the Government or the Treasury can change at will things of fundamental importance. Assuming they are prepared to meet to discuss and see whether we can find that consensus, I beg leave to withdraw the amendment.

Amendment 14 withdrawn.

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[Lord Sharkey (LD)]

My Lords, I will speak briefly to all the amendments in the group. They are in my name and variously in the names of the noble Lord, Lord Vaux, and my noble friend Lady Kramer. I am very grateful for their support.

Amendment 28 would remove from Clause 2 the two Henry VIII subsections, subsections (6) and (7). These subsections allow subsections (4) and (5) to be amended without constraint and without meaningful parliamentary scrutiny.

Subsections (4) and (5) are at the heart of the Bill. The first sets out what the bank’s activities are to be; the second sets a non-exhaustive list of infrastructure for the purposes of the Bill. It is entirely proper that these two elements should be in the Bill. Taken together with the bank’s objectives, they set out government policy. Parliament is invited to debate and scrutinise these elements to consider modifying or otherwise amending them, which is what we are in the process of doing now. But we might be wasting our time: no matter what we say, resolve, add, subtract or amend, the Government can override all of it by using the Henry VIII powers in subsections (6) and (7).

The Government can change any the activities in any way and at any time they choose. They can change the meaning of “infrastructure” in any way and at any time they choose. They can do all this without meaningful parliamentary scrutiny. The suggested use of the affirmative procedure is emphatically not meaningful parliamentary scrutiny, and it is self-serving and disingenuous of the Government to pretend it is. Parliament almost never votes down affirmative SIs; it has done so four times in the last 50 years. It obviously cannot amend them. The plain fact is that the policy or policies embodied in the Bill can be changed by the two Henry VIII powers without constraint and without scrutiny by Parliament.

The Treasury’s delegated powers memorandum offers a kind of explanation for the inclusion of these powers, as it is obliged to do. The lead justification is:

“These powers will allow for the possibility that a future government may wish to change the emphasis of the Bank’s activities for policy reasons and may desire to alter the definitions to support this change”,


which is an unprecedentedly generous legislative text. The final justification for the inclusion of the powers is that it is “considered appropriate”—we heard “appropriate” used earlier in the debate—

“for the powers to take this form, as their whole purpose is to enable change to be made to the relevant aspects of the primary legislation for future policy reasons”.

That is exactly why these powers should not be in the Bill. Once again, they attempt to give the Executive power to make policy before they have decided what that policy is.

The memorandum makes it explicit that unspecified, unscrutinised and unscrutinisable changes to critical areas of policy can be made by the Executive. What is the point of discussing the bank’s activities and infrastructure if these can be changed without constraint and without any meaningful parliamentary scrutiny?

In three reports of the 2017-19 Session, the DPRRC considered the test of “appropriateness” for the use of Henry VIII powers. As I just said, the notion of “appropriateness” is the final justification given by the Treasury for the use of these powers. The Hansard Society, which I had the privilege of chairing for some years, summarised the relevant findings of the three DPRRC reports in its April 2022 Compendium of Legislative Standards for Delegating Powers in Primary Legislation. In paragraph 3.11 on page 18, it notes:

“Loosely drawn powers based on the subjective judgement of Ministers, such as the ‘appropriateness’ test, should be circumscribed in favour of a test based on ‘necessity’.”


There is no necessity here and the Government have advanced none.

In his contribution to the debate on the Queen’s Speech, the noble and learned Lord, Lord Judge, spoke forcefully about the need to address the balance of power between the legislature and the Executive, particularly in the use of Henry VIII powers. He concluded his speech by asking

“what is the point of us being here if, when we identify a serious constitutional problem, we never do anything about it except talk? We cannot keep doing that. I just want us to consider the possibility that the next time we have a Henry VIII clause in a Bill that has not been given careful explanation in advance, we chuck it out.”—[Official Report, 12/5/22; col. 130.]

The next line in Hansard reads: “Hear, hear!” This Bill is the next time. Our Amendment 28 would chuck out the Henry VIII powers.

Briefly, Amendments 33 and 34 are both probing amendments and deal with the statement of strategic priorities drawn up by the Treasury. It may be helpful if I deal first with Amendment 34, because this directly concerns whether the Treasury statement is meant to be permissive or directive. In Clause 3(5), the Bill says:

“The Bank must secure that its articles of association provide for the Bank”


to do two things: first,

“to publish and act in accordance with strategic plans which reflect the Treasury’s statement”,

and, secondly,

“to update those plans whenever the Treasury revises or replaces its statement.”

The force of the words “provide for” in the text was not immediately clear. Did it mean that the bank must amend its articles so as to allow the publication of strategic plans and to allow the bank to act in accordance with these plans if it so chose, or did “provide for” really mean “require”? In other words, was this provision enabling and permissive, or was it directive?

I discussed this question in a helpful meeting with the Minister yesterday, and she confirmed that “provide for” in this context was intended to mean “require”. This clarification makes the Treasury’s strategic statement extremely important. It imposes strategic choices on the bank. These strategic choices will determine what the bank actually does; for example, they could decide what weight is given to each of the bank’s two objectives and what weight to give to the bank’s four listed activities.

The Bill requires the Treasury’s strategic statement to be laid before Parliament, but that is the extent of Parliament’s involvement. Parliament will have no opportunity to contribute to the construction of the statement and no means of making productive comment on it. Given that the statement of strategic priorities will largely determine what the bank will actually do, this seems to be missing a trick by keeping Parliament at arm’s length.

It would be easy and, I believe, helpful to hear Parliament’s views on any strategic statement. Our Amendment 33 proposes a way of doing that by having the statement come before Parliament as an SI under the affirmative procedure. There may be other and better ways of involving Parliament that do not seem to trespass on the Treasury’s prerogatives and do not add complexity. The amendment aims simply to gauge the Government’s appetite for the closer involvement of Parliament in the strategic statement process. I beg to move Amendment 28.

[Lord Vaux of Harrowden (CB)]

My Lords, I will be very brief because the noble Lord, Lord Sharkey, has introduced these amendments eloquently, and I am not sure there is a huge amount to add.

This goes back to what we talked about in the previous group: too much power for the Treasury to change things at will. You cannot have meaningful operational independence if the mandate within which the bank works can be changed without scrutiny and safeguard. The noble Lord, Lord Sharkey, eloquently explained the limitations around the affirmative procedure; we all know about them. Something as fundamental as the basic objectives of the bank should be changed only following proper, full scrutiny using primary legislation. That should not be controversial; it should be fairly straightforward.

Amendment 33 adds an element of scrutiny that is currently missing to the statement of strategic priorities given by the Treasury to the bank. Those priorities are very important. I can understand that it is appropriate that there is some level of flexibility to those strategic priorities, but the idea that they can just be changed at will and filed with Parliament but with no scrutiny, discussion or review just seems wrong. Introducing the affirmative procedure for those makes sense to me.

[Lord Davies of Brixton (Lab)]

My Lords, I hope the Committee will bear with me; I have taken an interest in the Bill. My interest is narrow: what bearing the Bill has on pension funds. Members of the Committee may not be surprised.

I have raised the issue on a couple of occasions: at the useful meeting we had with the noble Lord the Minister and the noble Baroness, and at Second Reading. On neither occasion did I receive a reply. My question is: how does this organisation fit with the declared intention, expressed by the Prime Minister and the Chancellor of the Exchequer, to see pension funds investing more in infrastructure? Obviously, infrastructure is a good thing, and there is a tendency to feel that the Bill is about infrastructure so it must be a good thing—but in truth the Bill is an empty vessel. We do not know what is in it or where it is going. It is a structure whose purpose and objectives will be revealed in time.

How does this relate to pension funds and the Government’s apparent intention—we are still waiting for them to make clear what they are proposing—to coerce or cajole pension funds to invest in infrastructure? As I say, I raised this at the meeting with the Ministers and at Second Reading. On neither occasion was there any response from the Minister. It just so happens that the day after Second Reading, the chief executive officer of this bank stood up at a meeting of the Pensions and Lifetime Savings Association and expressed what an important initiative this was for pension funds. All I want is a straight answer: what plans do the Government have for the relationship between this bank and their objective to see pension funds investing more in infrastructure? Personally, I am not interested in taking investment advice from the Prime Minister or the Chancellor of the Exchequer, but I think we should be told.

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[Baroness Kramer (LD)]

My Lords, just before we took a break, I tried to give a quick summary of where we were on the relationship between the shareholder—the Treasury and the Government—the UK Infrastructure Bank as a company and Parliament. I will not repeat that sequence, but I think Ministers will have picked up my concern that, at every level, there seems very little role, if any, for Parliament and very little accountability in any form.

For that reason, I drafted Amendment 30. It is not my language; it is language I took from the Green Investment Bank, so we know that it works in law and has a precedent. It might be helpful if I read it into Hansard:

“The Treasury must lay before Parliament a copy of an undertaking (the “operational independence undertaking”) provided by the Treasury to the Bank for the purpose of facilitating the Bank’s ability to act as its directors consider appropriate in the light of the objects in its articles of association.”


I did not include it in my amendment, which I slightly regret, but the relevant Act also says about the Green Investment Bank:

“An order under this section may not be amended or revoked.”


Operational independence is captured in a very emphatic and direct way in that Act. That led to my question, which the Minister will remember from an early meeting: why is operational independence not in the Bill? If I understood the reply—she can correct me if I am wrong —it is because the legal advice was that the other clauses in the Bill would not permit it to be validly included as they contradict it. That is the reading of the summary I gave before the break.

Without operational independence, it will be very hard for the bank to thrive and to have credibility among private investors. I also consider it an underlying principle. As the Government so often make a declaratory statement about operational independence, I do not understand why that is not made much more substantive. Perhaps the Minister could explain why a mere declaration with nothing in place to support it is considered adequate.

At the beginning of Committee today, I also referred to the framework document. I think we have all accepted now that the framework document not only has no standing in law but can be changed at any point by the Government with nothing more than an agreement between the shareholder, in the form of the Treasury and the Government, and the company—that is, the bank. That has to be in writing and agreed between the parties, but there is not even a requirement to publish that change in the framework document.

I also referred to the resolution of disputes between the company and the shareholder. That brings me to the other amendments in my name in this group, which refer to Clause 4, “Directions”, and various consequences related to it. The clause states:

“The Treasury may give a specific or general direction to the Bank about how it is to deliver its objectives. The Bank must comply with a direction. The Treasury must—consult the Bank’s directors before giving a direction, and publish a direction.”


The framework document is quite helpful in taking us down to a more detailed level. When it does that, it talks about the capacity of the board, if it objects to the direction that it has been given, to send a reservation notice in response to instructions from the shareholder that would—and these are the circumstances in which a reservation notice could be given—

“infringe the requirements of propriety or regularity … not represent good value for money for the Exchequer as a whole … be of questionable feasibility or is unethical … be contrary to the Strategic Objectives … result in the directors of the Company being in breach of their legal duties; and/or … not be in the best interests of the Company for any other material and demonstrable reason.”

Some of these are quite eye-opening, such as

“the requirements of propriety or regularity”

and something being of “questionable feasibility or … unethical”, resulting in the directors being

“in breach of their legal duties”.

It also makes it very clear, however, that this could apply to an individual project that the bank sought to fund but on which the shareholder—the Treasury or the Government—decided no. Or it could be the opposite: the bank could decide that it should not fund a project, but the Treasury or the Government decide yes. It is very clear that it applies at that level.

It is hard for me to see how that leads to operational independence in any way, which is why Amendment 30 is crucial. I am not proud, and if there are other ways in which we can achieve it, I would be very happy—but at least it is language that has survived a previous legislative process and supported a bank that was in place for quite a number of years.

I told the Minister at the time that I would use this occasion to try to follow up what looks to me almost like a direction for concealment. As I said, if the bank receives an instruction, it can object with a reservation notice; the shareholder can then override that reservation notice and instruct the bank to go ahead, but it can

“inform the Board who shall undertake the Instructed Matter, without delay”

and

“if asked, explain the Shareholder’s course of action; and … arrange for the existence of the Written Direction or any Oral Direction confirmed in writing to be published (unless the Shareholder has directed in writing to the Company that the matter must be kept confidential).”

That is the clause that particularly troubles me; it is a gagging clause, if ever I saw one.

I also asked the Minister: which executives and non-execs, which members of the board, have signed or are expected to sign non-disclosure agreements—we always get trapped by the name “confidentiality agreements”—or any other kind of agreement that would mean they cannot then go to the media? We have already established that there is no regulator so, without one, if they have signed confidentiality agreements, they have no mechanism and no one to whom they can go to disclose. I am exceedingly troubled by the idea that we have a bank that may be asked to do something that its senior members view as unethical or without propriety—or in fact illegal—under the terms of their duties, but they cannot even speak about it, report it or act in any way. I hope we get some fairly full answers from the Minister on that question, but it is frankly extraordinary.

When you put this whole package together, I cannot see that the current legislation in any way provides for operational independence. It may use the phrase “operational independence”, but that is merely window dressing. I think I have pretty much covered the issues, but I hope other noble Lords will have comments to make in this area. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, we have had various discussions around operational independence so far, most of which, until now, have addressed the ability of the Treasury to change the mandate within which the bank operates. Clause 4 goes directly to the heart of the Treasury being able to directly meddle in the activities of the bank. It gives the Treasury the right to

“give a specific or general direction to the Bank”,

at any time, and which the board must follow, with the only safeguard being a requirement to discuss it with the board first. As we have heard, it can be pushed through, and any statements of reservation from the board can be hidden. On the face of it, it completely undermines the operational independence of the bank if the Treasury can actually tell it what to do.

The Minister has previously assured us that the Government would only use this ability to direct in rare circumstances, and she has said that there is a precedent for this type of direction clause. However, the Bill does not put any such restrictions on the use of direction—none at all—beyond the fact that it must be within the objectives of the bank. Therefore, those directions could be about whether or not to make a particular investment, or even the terms on which those investments could be made. It would allow the Treasury to insist on the bank financing vanity projects—I used the example of the bridge to Northern Ireland at Second Reading—or even to indulge in pork-barrel politics by directing investment into particular locations for reasons that may not be totally unpolitical.

The bank should not be put into those kinds of positions, and this Bill should not allow that to happen. Frankly, on the precedent argument, I always recoil when I hear, “We did it before”; those precedents were for different organisations and in different circumstances. It is not impossible that we might have actually got it wrong at the time. Just because we have done it before does not mean that we should do it again.

I have given notice of the intention to oppose Clause 4 standing part. I think that the clause is inappropriate, but I can concede that there might be occasions when it might be necessary for the Treasury to be able to direct the bank—I cannot actually think of any specific examples, but I can see that it could be possible. If the Minister can provide good reasons or examples for this right to direct being needed, then I could get comfortable with allowing direction in those clearly defined, limited and restricted circumstances. However, it cannot be right that direction can be given on the current unrestricted and unscrutinised basis. As I have said, that is not operational independence; it is hard to imagine how anything could be less operationally independent.

So please can the Minister explain, quite specifically, why the Government feel that they need this right to direct, and under what real and specific circumstances they can conceive of using it? If so, we can then work around this and try putting some restrictions and safeguards into the Bill to achieve that.

I have also added my name to the four amendments in the name of the noble Baroness, Lady Kramer, which attack the same problem from a different angle: to allow the Treasury to make recommendations to which the bank must have regard, rather than to comply with directions. I would prefer to remove all unnecessary meddling by the Treasury, as it were, but this might be a reasonable compromise. Similarly, the noble Baroness’s Amendment 30 is another important way of trying to get this operational independence well imbedded in the Bill.

[Baroness Noakes (Con)]

My Lords, as noble Lords know, I criticised the concept of the UK Infrastructure Bank at Second Reading on the basis that it was the Treasury’s plaything and it had the Treasury’s fingerprints all over it. That was against the background of my not really liking public bodies being created to do things that I do not think there is any good reason for. I believe that once we have a public body set up—we accept that there is a reason to create a public body with access to privileged sources of financing—we have an obligation, as government, to put a proper control framework around it to ensure that public money is protected and that we have powers available to us to meet whatever circumstances might arise. So I part company with the two previous noble Lords who have spoken, because I think it is extremely important to have backdrop powers to be used when necessary.

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[Baroness Penn (Con)]

I think the Bill sets out that the Treasury does have the power to issue direction, and it will be published if it is ever used. We have heard about the precedents. Although I know Members of the Committee have different views on the value of that, I thought my noble friend expressed that very well.

To return to the purpose of the Bill, the Government are not simply able to change the objectives or sell the institution without further legislation. The Bill also makes provision for transparency to Parliament and the public around any circumstances in which the Treasury issues directions or statements of strategic priorities to the bank.

Section 172 of the Companies Act also confirms the bank’s independence: it states that the duty of the directors of the bank is to act in the way that is

“most likely to promote the success of the company”

and it requires them to have regard to factors such as the desirability of maintaining a good reputation for the bank, the bank’s impact on the community, the environment, and the need to foster business relationships. A clause setting out that the bank is operationally independent would therefore be unnecessary as that is already the legal default position and has been reflected in the bank’s independence over the first year of its existence, and the process by which it has entered into its initial investments.

Amendment 30 would require the Government to give an operational independence undertaking for the bank. It is, as the noble Baroness noted, a copy of the provision in the Enterprise and Regulatory Reform Act 2013 for the Green Investment Bank. As I have noted, we do not think this is necessary since it is a matter of company law that the bank is already operationally independent, and the Government have been consistent in their statements on this matter.

To respond to the noble Baroness’s point, we believe that the bank’s operational independence is substantive, not a kind of declaratory position, however—

[Lord Vaux of Harrowden (CB)]

I am just trying to understand more about why the statutory basis of the bank gives it this level of operational independence. I do not think there is anything in the articles which provides that, so where does this come from—I think these were the words the Minister used—as a matter of law?

[Baroness Penn (Con)]

I think there are two elements to it: the bank is established under the Companies Act 2006, and as a matter of company law is operationally independent, and then, in terms of what this Bill does, the bank—

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[Lord Vaux of Harrowden (CB)]

My Lords, I speak to my Amendment 56, which again relates to the crowding out discussions we had earlier. Amendment 55, in the name of the noble Baroness, Lady Noakes—I am pleased we are back on the same side again on this discussion—is aimed similarly, as is the amendment in the name of the noble Lord, Lord Holmes of Richmond, although his is for a one-off report rather than ongoing reporting.

We have already discussed crowding out and crowding in, in some detail. As I have said, if the bank simply ends up becoming a cheaper form of subsidised finance in situations where private finance is already available, we will have failed. The investments it has made so far, including in solar farms, are not terribly encouraging in this respect. Solar farms are easily financed. They are a nice, solid, predictable revenue stream—the perfect thing for private finance—so it is hard to see what benefit the bank brings in such a situation.

To see how effective the bank has been, it is essential that we measure and report on how successful it has been in its fundamental role of being a catalyst to crowd in private sector finance. How much has it crowded in? The amendment from the noble Baroness, Lady Noakes, tries to do this by looking at whether the bank’s activities have been confined to situations where there is an undersupply of private finance. My amendment takes a slightly different approach, requiring an actual assessment or measurement of the amount of private sector finance that the bank has crowded in, and an assessment of the extent to which it has replaced private sector finance that would otherwise have been available.

Looking again at the wording of my amendment, I regret saying that the assessment should be by the Treasury. It would be better if the Treasury did not mark its own homework, but I know we are coming to that later. I am sure the Minister could quibble with the wording, and that it could be worded more elegantly. However we do it, this is a fundamental measure of how successful the bank has been, how effective it is and whether it is a good use of taxpayers’ money. Somehow, within Clause 9, we need to include some measurement of crowding in and crowding out.

[The Lord Bishop of St Albans]

I declare my interest as president of the Rural Coalition and shall speak to my Amendment 57; I can be fairly brief. This amendment would require the Treasury to rural-proof the bank’s activities as part of its review every seven years. I shall not go over what I said on my earlier amendment as I have already referred to some of the case for rural-proofing. It is very important. It already exists as a tool to ensure that policymakers and analysts assess the effectiveness of their policies across rural areas. All government departments are subject to it, with the aim of embedding the principle that rural communities must be adequately considered when developing policy. The UK Infrastructure Bank ought not to be exempt from this as it is wholly owned by the Treasury.

Even then, the precise nature of the rural-proofing contained in this amendment is far weaker than the guidance to which most government departments are subject. Rather than require rural communities to be suitably considered in investment decisions, this amendment simply places a duty to review any disparate or adverse impacts or discrimination towards rural areas with respect to the bank’s activities. This would offer a framework for the Treasury to judge UKIB’s activities so that rural communities are adequately accounted for as part of its review. If rural-proofing requirements are good enough for the Treasury, they are more than apt to cover UKIB. This amendment would help to reassure rural communities that their concerns will be considered by UKIB and that at a minimum they will not be negatively impacted and will, we hope, be supported by the bank. When the Minister responds, I hope she will be able to offer some reassurance that the activities of the UK Infrastructure Bank are already covered by the current rural-proofing guidance to which the Treasury is subject. If they are not, how will the Government ensure that the bank will be properly rural-proofed in a similar manner to all other government departments?

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[Baroness Kramer (LD)]

My Lords, I recognise that the Clock is moving rapidly, so I will be quite speedy. These amendments are reasonably self-evident. With the amendments that stand in my name here, I have tried to set what seem obvious principles for the way in which a board of directors is set up. That is, as covered by Amendments 43 and 44, to make sure that the total number of board members is an odd number, not an even number. With a board of directors, it is surely appropriate to be as certain as possible that the chair’s casting vote will be used as rarely as possible. Hopefully, decisions will not be so contentious that the board is completely split, but where that happens it is far healthier to have a resolution provided by an odd number of members than to have to look again and again to the chair’s casting vote. It is quite curious that 14 is the proposed number of directors. Now and again, we would find ourselves looking to the chair, and I think that would be genuinely unfortunate. It is not the most important issue in the world, but it seems to me that some decent housekeeping would not hurt here.

I also want to be sure, in Amendment 45, that the majority of board members must be non-executive directors. It does not speak to that in any way and, given that the board can be as small as five, you could easily see a situation in which three of the members were executives and only two were non-execs. It seems a simple principle.

Probably my most significant amendment in this group, on an issue that has been addressed by others, is Amendment 49. We have talked before about the importance of having the right range of skills on the board—people of independence, and people with expertise and knowledge. Amendment 49 simply asks the bank’s chair to keep under review such characteristics and, if he feels that there are gaps, to take steps to address or mitigate those shortcomings.

It is important to put that responsibility on the chair and not just to say, “Well, Treasury will take care of that. The Chancellor of the Exchequer appoints everybody and therefore he will decide what kind of skills are necessary”. We have talked about the operational independence of the bank. Frankly, if the chair cannot even guide what kind of skills he needs to be on his board, we are once again underscoring that there is no operational independence. It seems to me a standard and normal responsibility for a chair, and I simply ask that there be an opportunity for that to happen here.

[Lord Vaux of Harrowden (CB)]

My Lords, I will be very brief in speaking to my Amendment 46, but first, let me say that I support the amendments in the name of the noble Baroness, Lady Kramer. Frankly, they seem like normal, good practice and it is almost surprising that they are not already in the Bill.

Amendment 46 is very simple. The bank’s activities will cover the whole of the UK, including the devolved nations. I welcome that—it is a really good thing—but while allowing the bank to operate in the devolved nations, the Bill gives absolutely no right at all to the devolved Governments to have any say in how it operates. I would be completely opposed to giving veto rights or anything of that nature, but I do think it would be appropriate to allow them at least some input into the bank’s direction. As someone who lives in Scotland, I am not the world’s greatest fan of the Scottish Government, but devolution is a fact and we have to live with it and work with it. The devolved Governments have perfectly reasonable interests in how investment is directed in their countries.

It seems to me that the easiest way to achieve this is just to allow the devolved Governments to be represented on the board of the bank. Amendment 46 would simply allow the devolved Governments each to appoint a director to the board. That way, they would have the ability to represent their legitimate interests without introducing any veto rights or anything of that nature, which, obviously, we should avoid.

If we want to keep this union together, we need to recognise that the devolved Governments have legitimate interests, and we need to try to work together.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Lord, Lord Vaux, and to find myself in broad agreement with him on a number of areas of this Bill, if not always on the details—as with our views on the Scottish Government, which, of course, has Green Ministers among its members.

My amendment is rather similar to his, although perhaps not quite so expansive on the devolved Administrations. It says that

“a director must be appointed”

jointly by

“the governments of Scotland, Wales, and Northern Ireland”.

It specifies two other directors, one of which would be appointed by the Climate Change Committee. I am a little disappointed that the noble Lord, Lord Deben, is not in his place, as I would be interested in his view on that. The third director—there is a deep irony here, and I should point out that I tabled this amendment some 10 days ago—would jointly represent Natural England, Nature Scotland and Natural Resources Wales.

In a sense, this is another way of getting at the issue I was trying to get at earlier. The Treasury does not really have expertise on environmental and social issues and devolution, and the same can be said, often, of bankers. This is an attempt to ensure that the directors really do have that expertise.

However, events have forced me to reflect at this point on the fact that a lot of our earlier discussions were about the operational independence of the bank. It is rather telling that Natural England was, of course, an independent body, and over the last decade it has gradually lost its independence under the hold of Defra. It was deprived of its independent online presence and its own press office in 2012, and in 2018 its former chair, Andrew Sells, confirmed that the body is no longer independent.

It has emerged in the last week—buried deep in a consultative proposal that campaigners have only just uncovered—that the Government are consulting on dismantling Natural England. That has caused a great deal of concern but it is a real demonstration of so many points that noble Lords have been making about how Governments can have structures that are supposed to hold them to account and somehow, through a process over a decade or so, effectively dissolve those structures.

This is an attempt to deal with the issues that the noble Lord, Lord Vaux, has already covered well. I also point to the Second Reading speech from the noble Lord, Lord Wigley. I will not go through it in detail but what he said there was that the bank needs to work with the grain of devolved Governments, regional and local government. Looking at this amendment now, I wonder if I should not also have put “a representative of local government” in it, but that is something to think about for Report.

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[Lord Vaux of Harrowden (CB)]

Given that this consultation has been happening with the devolved nations, can the Minister give us some flavour of how that has gone and what the reaction from the devolved nations has been?

[Baroness Penn (Con)]

My understanding is that it has been very constructive, but perhaps I can write to noble Lords setting out further detail on that.

Amendment 49 in the name of the noble Baroness, Lady Kramer, would ensure that the bank’s chair must keep the board under review to ensure that it continues to perform adequately. I think it goes without saying that I agree with the policy of this, but again believe that it is set out sufficiently within the framework document which largely reflects the requirements of the corporate governance code, against which the bank, as I said before, will publicly report compliance each year. It covers most of these points adequately, particularly in paragraphs 5.5.2 and 5.9.5.

I have committed to write on a number of aspects and know that noble Lords have given notice that they may wish to return to this at Report. With that, I hope that the noble Baroness will be able to withdraw her amendment for now.

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[Lord Vaux of Harrowden (CB)]

My Lords, like I think almost every noble Lord who spoke at Second Reading, I agree that the reporting schedule set out in the Bill is completely unacceptable. In fact, I think it was possibly the only point in the entire Bill on which there was absolute unanimity. Ten years before the first report and then only every seven years thereafter is just too long. I wonder if even the Minister was surprised at the times when she saw the Bill.

I have added my name to Amendment 59, in the name of the noble Baroness, Lady Noakes, which suggests four years before the first report. I understand her point about having three years plus time to get that first report out, and it therefore makes sense that the first one has a bit longer. Others have suggested three years. I cannot too excited about it, to be honest. Ten years and seven years are too long. We need to bring that down.

As I and the noble Baroness mentioned earlier, it is quite inappropriate that the Treasury should be marking its own homework in this respect, so I support her amendments ensuring that the effectiveness reporting is independent.

[Baroness Kramer (LD)]

My Lords, I will speak very briefly. A couple of the amendments are in my name and I have signed others. I absolutely join the noble Baroness, Lady Noakes, and the noble Lord, Lord Vaux, on whether it is three years or four years. It seems to me that the proposal of the noble Baroness is rather sensible, as three years will have gone by, as she pointed out, before the first report. What are completely unacceptable are the 10-year and seven-year benchmarks. The Minister has heard the arguments over and over. I know she will say that there are many other ways in which we will know what is going on. We will partially, but not in a coherent or holistic way. That is why it is so important that these kinds of holistic reviews should be done properly, appropriately and in a timely fashion.

I stress my support for the points made by the noble Baroness, Lady Noakes, and my noble friend Lord Teverson on their somewhat different proposals for an independent reviewer. Otherwise, the Treasury will be marking its own homework. We have established throughout every part of today’s debate that it can change the objectives through secondary legislation and it sets the strategic priorities. It can provide detailed direction and appoints every member of the board. It is very hard to see any way in which the Treasury’s hand will not have imprinted every aspect of what this bank does.

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[Baroness Penn (Con)]

My notes say that it will be a Cabinet Office-led review, but as part of that process we—which I would take to mean the Treasury—will conduct the review. If that is incorrect, I will clarify that.

Taken together, this means that the bank will have been subject to four reviews by the time of our first statutory review. The review in statute is designed to encompass all the elements of the previous reviews and has been chosen to be 10 years after Royal Assent because it allows for a fuller analysis—

[Lord Vaux of Harrowden (CB)]

Will these Treasury reviews be published?

[Baroness Penn (Con)]

I will be happy to go away and check on that point. I think that the intention is that they would be, but I will double-check.

The period of 10 years has been chosen to allow for a fuller analysis of the infrastructure funding that the bank has undertaken and to see the real impact of its investment in the context of delivering against the missions set out in the levelling-up White Paper and the progress towards the Government’s net-zero target.

I will note one further point. As I confirmed at Second Reading to my noble friend Lady Noakes, UKIB will be subject to external audit by the National Audit Office, including on an annual basis as part of the statutory powers of the Comptroller and Auditor-General.

Amendment 63, in the name of the noble Lord, Lord Teverson, seeks to mirror the arrangements of the Green Investment Bank by having a company shadow the bank to ensure that it is meeting its objectives. He is clearly knowledgeable on this subject as he sits on the board of the Green Purposes Company. However, he will note that the Green Investment Bank did not need this function when it was part of government because there were already other routes of accountability, including directly to Parliament in relation to the bank’s use of public money.

This legislation sets out quite clearly the objectives of the bank so, if there is any deviation from that, the Government can compel it to change its course or there will be a challenge in the courts. Further to this, Ministers are accountable to Parliament on the performance of the bank, so I dare say the noble Lord would provide adequate challenge should he think that the bank was not performing against its objectives.

To tidy things up, my noble friend Lady Noakes asked a question on the bank appearing before Lords committees. There is no barrier to that. Indeed, the CEO and the chair of the bank were before the Economic Affairs Committee on 17 May as part of an energy supply session.

I hope that, in laying out those reasonings from the Government at this stage, my noble friend will feel able to withdraw her amendment and that other noble Lords will not move theirs when they are reached.

UK Infrastructure Bank Bill [HL]

Lord Vaux of Harrowden Excerpts

Report stage
Monday 4th July 2022 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I have Amendment 24 in this group, which is an amendment to the Minister’s Amendment 23. It is always rather strange speaking to an amendment to an amendment when the amendment itself has not been spoken to—but I will do my best.

First, I congratulate my noble friend Lord Holmes of Richmond on his Amendment 6. It is well drafted and encompasses what we understand by additionality in the context of the operations of the UKIB. In Committee, it was widely agreed that additionality was so important that it should be in the Bill. I think it was also agreed that the boundary between what is in this Bill and is in other documents outside the Bill, including the framework document which is not even referred to in the Bill, has been set in the wrong place. When I say that the Committee agreed these things, I do not suggest that the Government agreed, but the vast majority of the Committee was aligned on these matters.

The Minister has been generous with her time with noble Lords, and I thank her for the meetings she arranged and for her letter of last week. She gets a gold star for effort, but I am afraid that that is not matched for content. On additionality, my noble friend claimed that the absence of an agreed definition in the Bill could stop it developing over time. That is nonsense. Additionality, as a basic concept, has barely shifted in the many years that I have been involved in public sector matters. The essence of it is about, and always has been about, something that should occur that would not otherwise have occurred but for the particular intervention or action. It is a universal principle that can be adapted to a number of circumstances.

I then suggested to my noble friend the Minister that, rather than try to produce a specific definition, she could put a high-level definition in the Bill and take a Treasury power to issue guidance to UKIB. That too was brushed aside. The Treasury likes to keep stuff in documents, such as the framework document, which it alone controls. I remind noble Lords that, as my noble friend the Minister informed us in Committee, the framework document is not even legally binding.

Nevertheless, I recognised that the Treasury is something of an immovable object on this issue, so I decided that it would be better to pursue the Minister’s offer of a way forward and include additionality issues in the periodic reports which are required by Clause 9. I thought that half a loaf would be better than no loaf, but I have to say that Amendment 23, which my noble friend has tabled, is a serious disappointment. It represents no more than a quarter of a loaf.

Amendment 23 adds an additional reporting requirement to Clause 9 but it is a lop-sided approach to additionality. Its focus is on the extent to which UKIB’s investments in projects have encouraged additional investments in those projects. It therefore will cover the extent to which projects have enabled crowding in, but it does not explicitly cover crowding out, which has always been my biggest concern, because a bank with a high capital ratio and a low cost of capital can easily outcompete private sector financing. I do not believe that if UKIB were to finance the whole of a transaction to the complete exclusion of the private sector in circumstances where 100% private finance could have been obtained, it would be captured by my noble friend’s amendment—it would not come close to being captured by my noble friend’s amendment. Such a transaction would not have encouraged or discouraged private sector finance; it would have bypassed it completely. That is why my Amendment 24 refers to investments having been made by UKIB

“despite an adequate supply of private sector financing”.

My noble friend the Minister will doubtless say that it is not in UKIB’s strategic plan to do transactions without private sector financing. It was never in the strategic plans of the European Investment Bank to crowd out private sector financing, but it did it anyway, in collusion with private sector borrowers, who were quite happy to take soft loans from public sector lenders who were much easier to deal with than hard-nosed real bankers in real banks.

My noble friend the Minister has also referred in correspondence to the impact of the Subsidy Control Act, which became law earlier this year. I have to say that the Act, which refers to subsidy decisions, sits rather uneasily with the practice of doing investment deals in the context of a bank. I accept that at a high level it would apply to UKIB. I just think that the language is very difficult to interpret in the context of what UKIB would do. My main concern is that there would never be an enforcement action against UKIB because the crowded-out private sector financiers are exactly the same people who want to be invited to any crowding-in party. It simply will not be in their interest to try to get the Act enforced against UKIB.

For all these reasons, I am very disappointed that this Bill, which I have never regarded as a shining example of Conservative economic values in any event, is going to ignore the concept of crowding out, which ought to be something dear to any Conservative Government’s heart. I shall not move my amendment when we reach it in the Marshalled List, but I live in hope that there are still some Conservatives in the Treasury who might have a change of heart before this Bill reaches the other place.

[Lord Vaux of Harrowden (CB)]

My Lords, I rise to speak to Amendment 24 in the name of the noble Baroness, Lady Noakes, to which I have added my name. The noble Baroness has already eloquently explained the rationale for this amendment, so I will try to keep my speech reasonably short.

Like the noble Baroness, I was strongly drawn to Amendment 6 in the name of the noble Lord, Lord Holmes, which would insert the critical additionality principle into the principles of the Bill. That would be the preferable approach, but, like the noble Baroness, Lady Noakes, I have been persuaded, reluctantly, to go along with the Government’s approach of making this something the bank reports on.

That leads me to amendments in the final group about the timing of those reports, which are, at the moment, seven years apart. If this is to be the way we deal with additionality, the report timings need to be shorter.

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[Lord Vaux of Harrowden (CB)]

My Lords, I have added my name to all the amendments in this group, which cover four separate topics, and I will touch on each of them briefly. First, Amendment 13, which the noble Lord, Lord Sharkey, eloquently explained, aims to introduce a greater level of scrutiny to the use of the Henry VIII power that is included in the Bill. The activities and, in particular, the definition of infrastructure are fundamental to what the bank can do and how it will be measured. It must be right that changes to this are subject to a meaningful level of parliamentary scrutiny and, as the noble Lord clearly explained, the affirmative procedure has sadly become a bit of a sham. Amendment 13 seeks to find an interesting balance between the rubber-stamping of a statutory instrument and full use of primary legislation. I urge the Government to support this, and I would be quite supportive generally of seeing more of this process in Bills more often: we have seen far too many of these Henry VIII clauses, as we have just heard.

Amendments 14, 15, 16 and 17 in the name of the noble and learned Lord, Lord Thomas of Cwmgiedd, to which I have also added my name, are aimed at trying to resolve issues around the framework document that we discussed at length in Committee. As we heard, the framework document is a slightly peculiar animal: it seems to have no real legal status, but it is an important document in how the bank will behave. The consensus around the Chamber in Committee was, I think, that the balance within that is too far towards including elements of principle rather than the day-to-day running of the bank. These amendments do not really address that. All they ask is for the framework document to be updated, and that it should be consistent with the statement of strategic priorities. That seems pretty straightforward and simple.

There are a number of areas where the more recent statement of strategic priorities is inconsistent with the framework document. One example—it is relevant to the discussion we had on the previous group about additionality—is that the strategic priorities expressly do not require local authority investments to achieve additionality, but the framework document does. Perhaps the Minister could explain why. I doubt that she will accept the amendments, but could she at least confirm that the framework document will be updated and that it will be brought into line with the statement of strategic priorities?

Amendment 18 in the name of the noble Lord, Lord Sharkey, addresses the extremely important point raised in Committee, I think by the noble Baroness, Lady Kramer, that as drafted the Bill—in conjunction with all these other governing documents, including the framework document—would require directions given by the Treasury to be published, but would not require situations where the board disagrees with that direction to be published or explained. Indeed, it effectively applies a gagging order, and that cannot be right. This important amendment brings in some essential transparency to that and I wholeheartedly support it.

I agree with the noble and learned Lord, Lord Thomas of Cwmgiedd, that the final amendment in the group is the most important. It introduces a simple requirement to consult the devolved Governments in various situations, and in preparing or changing the statement of strategic priorities. The bank’s activities will cover the whole UK, which I think is a good thing. The Minister has indicated, as does the statement of strategic priorities, that the bank is establishing a good relationship with the devolved Governments, and with the bank’s counterparts in the devolved nations. However, the Bill does not mention this. As someone who lives in Scotland and is a passionate unionist, I am consistently surprised by the fact that legislation that covers the whole UK rarely includes proper consultation requirements. That seems really counterproductive—even dangerous—as not taking proper account of the reasonable views and concerns of the devolved nations further undermines the strength of our union.

It gives ammunition to the nationalists that the Government do not take the devolved Governments seriously. We are heading rapidly towards a break-up of the union if we behave like this. This amendment does not create any veto powers or anything of that nature, which I would strongly disagree with that as you cannot work something if one party has a veto. It just requires consultation and that the reasonable views of the devolved nations be taken into account when setting the strategy or appointing directors.

I urge the Government to accept this. More widely, I urge them to start to be more consultative and include clauses of this nature more generally in Bills that cover the whole of the UK. That will strengthen, not weaken, the union and will ensure that the bank takes actions genuinely in the interests of all parts of the UK. If the noble and learned Lord decides to divide the House on this matter, I certainly will support him.

[Baroness Kramer (LD)]

My Lords, I have added my name to all the amendments in this group but I will try to be brief. I want to pick up on the point just made by the noble Lord, Lord Vaux. Amendment 21 in the name of the noble and learned Lord, Lord Thomas, deals with consulting devolved Administrations. It ought to be a matter of course that in every Bill where consultation is important, it is in the Bill. It then underscores the constitutional relationship between central government and the devolved Governments. The expectation that it is to be dealt with either in other documents or just off the cuff is, I suspect, one of the reasons we see so much stress and pressure on the union today. It embodies a lack of respect, to be quite frank, and it ought to be a matter of course that we see these arrangements in a Bill.

I will look at the other amendments tabled and so well drafted by the noble and learned Lord, Lord Thomas. On updating the framework document, we have heard of nothing but the importance of that document. On almost every issue we raise, we are told that it does not need to be in the Bill because it is in this absolutely critical document—the framework document—which is actually a document agreed between the Treasury and the bank; it is not even necessarily in the public arena. Yet we can see that it is inconsistent with the Bill as it stands, never mind with the issues that have surfaced in the course of this very complex debate. It is a document that desperately needs to be updated. I know there is a plan to update it by the end of this year but that is completely out of touch with making sure that we have proper, consistent and meaningful arrangements in place for a bank that is already functioning as we stand here today. I very much support those amendments.

I now look at the two amendments from the noble Lord, Lord Sharkey. Amendment 13, so eloquently supported by the noble and right reverend Lord, Lord Sentamu, addresses another fundamental problem that we see in one piece of legislation after another: the wide use of Henry VIII powers to allow secondary legislation—which cannot be amended and, in effect, cannot be rejected—to change primary legislation fundamentally. It almost makes a joke of primary legislation. I know the Government would say that they would not exercise the power widely and it is just a marginal change here or there, but the Bill is already written to allow for marginal changes. The only time when that clause would be relevant would be if fundamental changes were to be made. I would argue that those should come back to Parliament, at least for the level of engagement of a super-affirmative.

I want to speak most to Amendment 18 because I am truly exercised on the issue of transparency. As others have said, the Bill requires the publication of a direction when the Treasury basically decides it is going to tell the bank what it can do. It can give it instructions that are either general or specific. It could say, “Make this loan and do it this way.” That is entirely allowed and there has to be a publication. But what is not that established is that when the bank says no and then is overridden, that information comes into the public arena. When it says no, it says so in a letter of reservation and the kind of issues it can raise are fundamental, such as issues of propriety, issues of ethical behaviour and issues of departing from the fundamental purpose of the bank.

I think we must have an absolute assurance that those will be published so that they are in the public arena. Let me give an example. The Minister has often drawn parallels between this bank and the British Business Bank, which allows me to draw a parallel with the British Business Bank’s decision to accredit Greensill to provide a Covid-related loan. We know, because it is now in the public arena, that when Greensill applied to the British Business Bank for accreditation, various parts of the Government fairly bombarded the British Business Bank with emails. They did not say “accredit it” but kept saying how important it was that they knew the result, asking whether it was done yet and saying that this would be fundamental to the future of steel in the UK and so on. Anyway, as we all know, the British Business Bank did accredit Greensill and, I suspect, regrets the very moment that it did so.

If a direction from the Treasury had been published on that issue, I am sure it would have said: “This direction is intended to make sure that our very important steel industry survives. It is to support jobs. It is to support communities related to the steel industry.” The reservation would have said something very different. I suspect it would have said: “We do not believe that the entity, Greensill, meets our ethical standards. We believe that it is basically an organisation that has got itself into some very unfortunate and potentially unethical arrangements and is on the verge of bankruptcy.” That is why it is important that the reservation notice is published and the conversation does not exist only in the context of the direction. That is why I say to the Minister that we cannot have an arrangement where the bank could, if it wished, publish its reservation notice; it is crucial that it publishes its reservation notice. I argue that on the grounds of the propriety that should surely lie at the heart of all the legislation that we provide in this House.

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[Lord Thomas of Cwmgiedd (CB)]

My Lords, I will speak briefly to Amendment 20. I traversed the reasons for this amendment at Second Reading. I traversed them again in Committee. I need not weary your Lordships by traversing them a third time. The points are obvious.

Enlightened departments have now agreed to put into Bills qualifications for the boards of important institutions. One sees that in the Climate Change Act and the Environment Act. It is a great pity that the Treasury is not an enlightened department. It should have a little more humility and appreciate that if you are to run something as important and, ideally, successful as an infrastructure bank, you ought to tick off the qualifications of the board as a whole. I have listed what they should be; they are drawn very carefully from the Climate Change Act and the Environment Act and adapted to ensure what I spoke about earlier; namely, that you have people who come from the devolved nations or who have a knowledge of the devolved nations. This is another way of dealing with the point.

However, having made those arguments, which are obvious and ought to be accepted, I fear that the Treasury is obdurate on this point. I just hope that in due course there will be a more humble and less entrenched view than its omniscient view about its capacity to do everything without some statutory guidance.

[Lord Vaux of Harrowden (CB)]

My Lords, briefly, I support Amendment 20 in the name of the noble and learned Lord, Lord Thomas. It is self-evident that the bank’s board should have the experience and skills that the noble and learned Lord proposes in his amendment, rather than just being Treasury placemen. The success or failure of the bank in achieving its objectives will depend entirely on the experience of the people running it, so I urge the Minister to accept this very common-sense amendment.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I offer Green group support for Amendment 20, to which we would have attached our name had there been space.

In Committee, I suggested that the bank should not be in the hands of the Treasury at all. I got some expressions of interest but not enough support to bring it back on Report. However, it is clear that we need systems thinking, as I often say in your Lordships’ House. We need an approach that looks beyond the narrow growth in GDP to something broader and more holistic. This amendment is a step towards achieving that.

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[Baroness Penn (Con)]

My Lords, I turn to Clause 9 of the Bill, on the statutory review. We had an extensive debate on this in Committee and, reflecting on that debate, the Government have tabled several amendments to this clause.

On the timing of the review, in Committee I set out the rationale for the first statutory review of the bank taking place after 10 years. This was for two reasons: first, to ensure that we could accurately measure the effect of the bank’s long-term investments and, secondly, to ensure that we do not overburden the bank with constant reviews. As I have previously noted, the Treasury is currently undertaking a review of the bank’s framework document and will undertake a review by spring 2024 of the bank’s capitalisation. The bank will also be subject to frequent Cabinet Office-sponsored arm’s-length body reviews, which should be conducted by an independent person.

However, I understand the strength of feeling in the House and, for this reason, I tabled an amendment to shorten the timescale for the first statutory review. Bringing forward the initial review to take place no later than seven years after Royal Assent will mean that the first statutory review will be conducted in 2029. This fits neatly with the timing of the levelling-up missions, which the bank’s work will support, that are due to be achieved by 2030.

I turn to my other amendments to Clause 9. I heard concerns in Committee that the Treasury would, in these reviews, be marking its own homework. That was not the intention, and so I have brought forward an amendment to clarify that the Treasury will appoint an independent reviewer to conduct the review. Noble Lords will, I hope, be further reassured that the Cabinet Office-sponsored reviews, as I have just noted, will have a recommendation that they be conducted by an independent reviewer too. I hope noble Lords are content with these amendments. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I rise to speak to my Amendments 30 and 32. I am grateful to the noble Baronesses, Lady Noakes, Lady Kramer and Lady Bennett of Manor Castle, for their support. In fact, I think I may have achieved a world first in getting the noble Baronesses, Lady Noakes and Lady Bennett, to sign the same amendments. I hope, therefore that the Minister might take note of this extraordinary event and take the amendments seriously.

First, I thank the Minister for her amendments in this group, and for listening to and acting on the concerns that were raised by noble Lords as the Bill has proceeded. Her amendments are very welcome, especially those that deal with the issue that was previously raised about the Treasury marking its own homework. Having an independent person carry out the review is an important step. I also welcome the reduction of the period before the first review from 10 years to seven years. I think everyone agreed that 10 years was way too long, but even after that change, there will still be a review only every seven years, which I still think is too long. Amendments 30 and 32 would reduce this to every five years.

The argument in favour of the longer period seems to be that infrastructure investment is long-term, which it is, and therefore it will take a longer period before the success of the bank can be evaluated. I think this rather misses the point. Although it is true that the success of a particular investment may take more than seven years—indeed, it might be 20 or 30—to become clear, the review should be covering how effectively the bank has performed in making investments. Is it making enough investments, are they appropriate, are they in the appropriate parts of the country and, importantly, do they meet the additionality principle and, as we discussed earlier, the crowding-out problem? We do not need to wait until the investments themselves reach maturity to be able to see how well or badly the bank is performing in making investments.

UK Infrastructure Bank Bill [HL]

Lord Vaux of Harrowden Excerpts

Consideration of Commons amendments
Tuesday 14th March 2023 Lords Chamber

[Baroness Bennett of Manor Castle (GP)]

My Lords, I join in the congratulations to the noble Baroness, Lady Hayman, who is both a force for nature and a force of nature in your Lordships’ House. I thank everyone else who has joined in getting this progress on nature-based solutions, although we should not look at those solutions as an alternative to cutting our carbon emissions. Both those things have to be done.

I was not going to speak but, given something the Minister said in her introduction, I feel forced to ask her a question. In justifying the exclusion of “circular economy” in the Commons amendment, she said that it was “not a precise term”. Does the Treasury understand the term “circular economy” and its essential nature in delivering the sustainable society we need? If the Minister wants a source for this, I point to a government paper entitled, Circular Economy Package policy statement, from 30 July 2020, which was put out jointly with Wales, Scotland and Northern Ireland and which defined “circular economy” as

“keeping resources in use as long as possible, extracting maximum value from them, minimizing waste and promoting resource efficiency”.

Will the Minister confirm that the Treasury recognises that the circular economy is an acknowledged term and is urgently needed?

[Lord Vaux of Harrowden (CB)]

My Lords, I wanted to thank the Government and to associate myself with the words of the noble Baroness, Lady Hayman. I thank them for their constructive engagement, which has allowed us to reach a satisfactory conclusion.

However, I thank the Government for listening in relation to a couple of other places. First, during the progress of the Bill through this House we had a lot of discussions about the position of the devolved Administrations and how they should be involved. While they have not gone as far as I should have liked, I welcome the amendments that have now been included and the constructive engagement that has obviously taken place with the devolved Administrations. That is a nice change from some of the things that we have seen with other legislation in the past.

Secondly, Amendment 8 is identical to an amendment that I tabled on Report, which shortens the reporting cycle to five years. My amendment was not accepted by the Government at that time. When I tabled it, it led to what I think was a unique achievement of being co-signed by both the noble Baroness, Lady Noakes, and the noble Baroness, Lady Bennett of Manor Castle. That has not been achieved before or since. I said at the time that such a unique and powerful alliance should make the Government take that amendment seriously, so I am delighted and grateful that they have done so.