Mary Creagh
Main Page: Mary Creagh (Labour - Coventry East)Enterprise Bill [Lords]
Mary Creagh Excerpts
Kevin Brennan
I believe that the proposals on privatisation that the Government quickly brought forward following the election were seriously undercooked, if I can put it that way. The Green Investment Bank has only just started to turn a profit. We are glad that it is doing that, but it is a very small amount. When the Government said that they intended to privatise the bank, they prayed in aid the statutory obligation to invest in green projects that they now wish to remove from statute, because of what the ONS said about public debt and the Green Investment Bank being on the books. That proposal has been in trouble all along, and the way that the Government are scrabbling around for a solution shows that the original proposal was undercooked.
Mary Creagh (Wakefield) (Lab)
I praise my hon. Friend for tabling this new clause, and for the way that he scrutinised the Bill in Committee. Does he agree that things have moved on substantially since we met in Committee, with the Government’s publication last Thursday of the prospectus and the announcement that the sale was to proceed and will be a two-stage auction? It certainly looks as though the bank will be fully privatised, so all the debate and discussion that we had in Committee about whether the Government would keep a minority share in the bank, as recommended by the Environmental Audit Committee, seems to have been pretty much for the birds. The Minister probably knew that in Committee.
Kevin Brennan
I congratulate my hon. Friend on her election to the Chair of the Environmental Audit Committee. I am sure she will be as assiduous in scrutinising this proposal and other areas of Government policy as she was in Committee and on the Back Benches, along with my other hon. Friends. She is right to say that the publication of the Government’s intentions last week was interesting, and I hope that the Minister will answer her point about the Government’s intentions, and clarify whether they intend to maintain a stake in the Green Investment Bank after privatisation. When we probed the Minister on that in Committee, answer came there none. From the way that the proposals have been published, it would appear that the Government intend to fully privatise the bank, even though—as we discussed in Committee—it must be the worst possible time, given the current state of the market, to consider privatising this important public asset, if part of the purpose is to get good value for the taxpayer.
Mary Creagh
I will develop this point in my speech, but in Committee two weeks ago I mentioned the bear market, the slide in value of all bank shares since Christmas, and the softening of growth in China. Only this morning, Mark Carney and the Bank of England revealed the large amounts of liquidity that they are preparing to inject into the UK banking economy in the event of an exit from the European Union after the referendum, to avoid a complete meltdown and financial crisis such as the one that took place in 2007-08.
Kevin Brennan
My hon. Friend is right to point that out, and, by implication, to point out that the privatisation would of course occur after the referendum in the summer. The implications of a leave vote on the attempt to privatise the UK Green Investment Bank would be highly significant, as she points out.
Mary Creagh
I wonder whether my hon. Friend has had the chance to look at annex C, which was presented to Parliament last Thursday, on the proposed disposal of shares in the bank. It states:
“As a key part of any sale discussions, potential investors will be asked to confirm their commitment to these values”—
that is, green values—
“and to set out how they propose to protect them. Bidders’ stated intentions will be taken into account in the overall assessment of bids.”
I wonder whether we will hear what percentage will be allocated to that in the bidding process. All bids will be marked against a schema. I, for one, would be curious to know what weight and relevance will be given to the protection of green purposes when the Government decide to sell.
Kevin Brennan
I think we would all be interested to know that. Perhaps the Minister will be as informative as she possibly can and tell the House about that in her response. We have a legislative opportunity here, because after privatisation anything could happen. What guarantee do we have that the bank will not simply be swallowed up by somebody else, and that all the guarantees given by the original investors will not evaporate?
Mary Creagh
Does my hon. Friend share my disappointment that, although the Government have bent over backwards with the ONS to create a special purpose vehicle—a special charity—with independently appointed people to protect the green purposes, they have refused to make any such moves on another matter we debated in Committee, which is the transparency of executive pay, on which the bank is a rare exemplar in the banking sector? I hope to speak about that shortly.
Kevin Brennan
I agree. My hon. Friend has been dogged in her pursuit of that both in Committee and in tabling her amendments on Report, and I look forward to her contribution on that subject.
Will the Minister guarantee that privatisation will not dilute the bank’s green purposes, or must we just keep our fingers crossed? The Government still need to adequately answer questions that were not answered properly in Committee. Am I right that the legislative lock on the green purposes is being repealed purely to get the bank off the Government’s books? If that is the principal reason, is it a good enough reason to give up the statutory guarantee, given what I said about the technical nature of the accounting issue that the ONS raised?
Will the Minister indicate the Government’s view of the stake they expect to retain in the bank, if any, following privatisation? I understand that it is a market transaction, but we need an idea of the kind of return they expect from the sale. As was mentioned earlier, market conditions are so poor that the Chancellor had to abandon the sell-off of Lloyds shares, but we need to know whether they really expect a significant return from the privatisation, given all the pain associated with the process and the record of poor value for money for the taxpayer in previous privatisations. I do not expect her to be able to be precise, but she will want to avoid the criticism the Government encountered over the lack of value achieved previously, so will she gives us an idea of what she expects the Government to get from privatisation?
Is the Minister concerned that these matters will provide further uncertainty for low-carbon investors, at a time of real concern about the Government’s retreat from investment in wind power? We have learned over many years that making policy in haste is not wise—it is certainly not wise to privatise in haste—and we might well repent at leisure if this innovative and effective piece of public policy is lost as a result of a lack of care and a rush to privatise. That is no way to make sustainable policy, particularly in an area where we are trying to create a sustainable future for the country, which is why we have tabled new clause 4.
Caroline Lucas
Unfortunately, the special share has no legal underpinning, so we cannot have reassurance about that. In addition, the Government’s overestimation of the ease with which they will sell the bank is a real problem, as I am demonstrating. They have massively overestimated the speed at which they can sell, which I fear will lead to a temptation to asset-strip. My new clause is a simple way of ensuring that that does not happen. I suggest we ensure that anyone buying the bank commits to the full five-year life of round one.
Mary Creagh
The hon. Lady is a credit to our Committee, and I am grateful for the many points she is making on this issue. Does she share my concern that the proposed special share might not be carried forward in any future sale of assets? Will she join me in asking the Minister to clarify that in her response? The bank may be sold once, but the danger is that the next time it is sold, it may well be a case of, “We want to get rid of all this stuff about the green part of what the bank does.”
Caroline Lucas
I am grateful to the hon. Lady for her intervention and kind words, and I congratulate her on her chairmanship of the Environmental Audit Committee. I do indeed share her concern that we have no real legal guarantee that this special share mechanism will be safe over time. We need a guarantee that it will protect not just the bank’s green purposes but the focus on complex and novel investments that a public green investment bank is uniquely fitted to be able to fulfil.
I fear that this privatisation is being done in haste. It has not been properly thought through, and the guarantees that we are being offered are not watertight. I therefore commend my simple new clause 8, which would provide at least some reassurance that the Green Investment Bank will be maintained as a single functioning institution that can continue to invest in the UK’s low-carbon economy at the same level as was planned prior to privatisation. If the Government are so sure that that is possible, I hope they will accept the new clause.
Mary Creagh
I shall speak to amendment 17, which stands in my name and that of my right hon. Friend the Member for Don Valley (Caroline Flint). Before I come on to the substance, I would like to congratulate previous speakers in the debate. The fact that the Government have moved substantially on some of these issues is a testament to the scrutiny provided by the Environmental Audit Committee and the Labour party as the Bill has passed through the House. I put on record my anxiety about the fact that this asset sale was rushed out last Thursday, before the Bill had had a chance to pass through the House, which suggests that we are moving on the basis of a timetable not dictated by the Minister or the market conditions that would achieve the best possible value for a Government asset of this kind, but driven by the Chancellor, who is going to have to make some difficult announcements in his Budget on 16 March.
To meet the climate change targets that were agreed at Paris, we will need billions of pounds of green investment to upgrade the energy and transport infrastructure of the UK. So far, the Green Investment Bank has done a really sterling job in attracting capital to low-carbon infrastructure projects in the UK that might otherwise have struggled to find funding. The Bill allows the Government to sell off the bank. I stress that I am pretty certain that this bank is going to be sold in one piece at one time, with the risk that it will not achieve best value for the taxpayer. I am not opposed to privatisation, if it can be shown that it is the right policy tool to get the job done, but this decision seems to have been rushed through just to get the bank off the Government’s balance sheet.
The Environmental Audit Committee, on which the hon. Member for Brighton, Pavilion (Caroline Lucas) and I both sit, produced a report before Christmas that concluded that the Government took
“the decision to privatise GIB without due transparency …consultation, or proper consideration of alternatives.”
Ministers have simply not yet proven to Parliament that the bank will achieve its aims better in the private sector. The Government have relied heavily on assurances from potential shareholders and executives who stand to benefit personally from the sale.
Amendment 17 would ensure that, if the sale goes ahead, the Green Investment Bank would remain accountable to Parliament and taxpayers by reporting annually on the pay of its top team. The Environmental Audit Committee recommended that the Government undertake proper consultation and evidence gathering before any sale and that protecting the GIB’s green identity should be paramount. While I welcome the Secretary of State’s pledge to protect the bank’s green status with a special share, as the Committee recommended, I am concerned that without locking that in legislation, it may not be secure. I am concerned that the special share will not be worth the paper it is written on in any future sale of the bank and that it will be forgotten because, of course, the bank’s onward sale value is depressed if we are limiting the nature of the activities in which it can invest.
When the bank was established, it was intended by the Government to be an exemplar of transparency in the financial services sector in reporting executive pay. That particularly important point was accepted on a cross-party basis, given the recent banking scandal and the low levels of public trust in bankers and their bonus culture, which rewarded recklessness and persists to this day. It is therefore disappointing that that welcome clarity will not continue under the Minister’s proposals to privatise the bank. Ministers are happy for the bank and its executives to revert to the status of any other bank or fund with minimal reporting of remuneration that is limited to the highest paid member of staff and the chairman of the board. My amendment would commit the Government to providing full disclosure to Parliament of the remuneration of the Green Investment Bank’s senior management and board after privatisation.
This point was hotly disputed and argued by the Minister in Committee, but it is fair to say that the Committee saw a certain irony in her stout defence of allowing Green Investment Bank executives to have the freedoms to increase their pay under the Bill and privatisation, although the Bill simultaneously caps the pay of people working in private sector companies such as Magnox with salaries of around £25,000. That stands in sharp contrast to the salaries of the executive team at the Green Investment Bank, which range—we know this because of the transparency—from £125,000 to £325,000, plus bonuses and benefits.
The bank began in 2012 to invest in green infrastructure projects. It has invested in 58 projects with a total value of more than £10 billion. Last June, as my hon. Friend the Member for Cardiff West (Kevin Brennan) said, the Government announced their decision to privatise the Green Investment Bank. The Bill provides the means to do so by reclassifying it as a private sector organisation so that its finance will not contribute to public sector net debt, and by removing reference to the GIB’s green purposes and identity from the Enterprise and Regulatory Reform Act 2013.
Bob Stewart
It seems to me that the Green Investment Bank has been a success since it was set up by the coalition Government. One reason why it should go into the private sector is to liberate more investment and increase the possibilities.
Mary Creagh
That has indeed been the argument from Ministers. We want the bank to be able to fund more projects, and the hon. Gentleman might say that the Government have called this privatisation a “natural next step”. However, who else supports the move? The Green Investment Bank certainly supports it, and the Government have drawn on that support as a primary motivation for their plans to proceed, but we have not had the same transparency and consultation that accompanied the bank’s establishment.
The Environmental Audit Committee heard in evidence to our inquiry that the Government’s decision was taken
“without due transparency, publication of relevant evidence, consultation, and proper consideration of alternatives.”
The hon. Gentleman will be aware that there are many different ways to raise money. When the GIB was established in 2013, the idea of privatisation so soon after its creation was not discussed. Our Committee also heard that the Government have not presented enough evidence for privatisation, or considered a wide enough range of alternatives to a sell-off.
In their response to the EAC report, the Government claimed that they had undertaken unpublished market testing over the course of two years. In Committee, I asked the Minister for Small Business, Industry and Enterprise whether she would be willing to publish that market testing. She declined, and said that she would not publish the impact assessment either, because there were no regulatory or significant cost impacts of the GIB sale or changes to its pre-existing policy goals. Our Committee disputes that because of the risk to the green purposes of the bank.
What concerns us is that a bank that was set up to invest in green projects is being privatised without consultation or transparency, and that, although it might have more money, it may not retain its laser focus on green purposes following any future sale. We know that when assets are sold—transport assets, for instance—they tend to be sold on by the pension fund or the other establishment that ends up holding them, hence my question to the Minister.
Bob Stewart
I hope that the hon. Lady will forgive me for intervening, given that I was not a member of the Committee. It seems to me that the special purpose of the Green Investment Bank will be maintained through the special share and the special share ownership. Any change to the bank’s original purposes will have to come back to Parliament one way or another.
Mary Creagh
The Minister has said that a report will be presented to Parliament before the bank is finally sold. In Committee, I asked her how the report would be considered by Parliament. I asked if it would be considered on the Committee corridor as part of statutory instrument proceedings and if it would be subject to the affirmative or negative procedure. Will we have a chance to vote on this issue again? The Minister is nodding, so I am sure that she will clarify the position when she responds to the debate.
The Committee had a series of concerns, and I still worry that the bank might be sold on at some future stage as the Bank of America Merrill Lynch Investment Bank. Investment banks are going through a very tricky time, and things are not at all well in their sector. Any purchaser of the GIB will be looking for maximum freedoms so that potential future sale capital receipts can be maximised.
The only robust consultation that the Government can point to, given that they will not publish the market testing and have not carried out an impact assessment, is consultation with the bank itself. They relied heavily on the bank and its executives in evidence and their response in Committee and, of course, those executives stand to benefit from the sale.
Amendment 17 invites the Government to commit themselves to providing Parliament with information on the remuneration of the bank’s senior management and board after privatisation. That information is currently provided in the bank’s annual report. For instance, how much will the executive team who are in charge of the bank stand to gain personally from the privatisation? How objective can their views be if they are to gain personally from the bank’s privatisation?
Steve Brine (Winchester) (Con)
Are not private sector companies and their directors already under disclosure obligations in relation to executive compensation for directors? What would be the rationale for going further and making the requirements of the Green Investment Bank over and above those of any other company in the economy?
Mary Creagh
This company has been financed by more than £3 billion of taxpayers’ money at a time when my constituents have had the third lowest pay increase in any part of the country since the financial crisis of 2008. The pay of my constituents and those of the hon. Gentleman has been eroded and depressed over the past year as a direct result of the actions of reckless bankers. Given that, and given the journey on which we have travelled in the past 10 years, it would be negligent of us to privatise a fully owned state bank without introducing protections to prevent the huge increase in remuneration that tends to take place when state assets are privatised.
Steve Brine
The hon. Lady’s arguments are, of course, very persuasive while the bank is in public ownership and in receipt of public finance, which justifies the current disclosure regime, but surely, once the bank is in private hands and financed principally—75% or more, I believe—by private money, they will no longer apply.
Mary Creagh
The bank will not be financed principally by private money. We do not know how much it will be sold for, but at present it is financed 100% by public money. I do not know whether whoever takes it over will put in the £3 billion match funding that the Government have put in, but they will certainly not be putting in that money on day one.
This bank was set up to be an exemplar to the banking and financial industry. It was not set up to be just another bank; it was set up to do something special, and to be something special. The Minister has reassured us—we hope it is the case—that the special share will protect the specialness of its green purposes, although I think there is a question mark over how long that will last. What I want to know, given that the bank was also set up to be an exemplar in respect of executive pay, is why that part of it should be lost.
Mary Creagh
May I develop my arguments? I shall be happy to take further questions a little later.
Following a discussion with my colleagues in the Environmental Audit Committee last week, I wrote to Lord Smith of Kelvin, the chair of the Green Investment Bank, asking for clarification of the proposed remuneration for the bank’s senior executives. Our shareholders—taxpayers—could potentially remain as minority shareholders in the enterprise. I think that as long as the UK taxpayer has even a 1% shareholding in the bank, that should be carried forward. Taxpayers have committed £3.8 billion to the bank, and rather than talking about what a future owner will put into it, let us wait until we see the colour of that future owner’s money.
In that letter, I made it clear that the Environmental Audit Committee could see no reason for increasing remuneration as a result of a change in the bank’s status. We were particularly interested to know the proposed structure both of the management fee that the privatised bank would charge investors, and of any form of profit share or participation rights for management proposed in the offering to new shareholders. We wanted to know the board’s view regarding the quantum and structure of executive profit share incentives. We also sought an assurance from the board and management of their commitment to maintaining the staffing levels that the public purse has funded, to ensure that the bank continues fully and effectively to serve the UK’s needs for investment in green infrastructure.
Lord Smith’s reply to me reassured the Committee that the proposed business plan
“will require the current staff complement with possibly a small number of additions.”
That was reassuring, but less welcome was his response that the information memorandum for investors, which includes projected revenues and costs, including staff costs—this therefore has already been decided and written at board level, and had probably been decided and written when the Minister was in Committee with us—is commercially confidential and cannot be shared.
Richard Fuller
The hon. Lady has special knowledge in this regard, so may I tease out some information from her? She mentioned the £3.8 billion of public money that had been invested at a time of public expenditure reductions in certain areas. What consideration did her Committee give to what valuation would be appropriate when the Government sold the bank? She rightly said that it had constituted an inspiring start by the coalition Government, and that she wanted it to be an exemplar. Do the Government not have a special responsibility to ensure that they let it go into the private sector at the right time?
Mary Creagh
The Committee’s remit was not to second-guess what the Government could or could not get for the bank. I am sure that there are people in the City who are much better able to do that than I am, and I am sure that some Members, certainly Conservative Members, could make a good stab at it.
When I worked with small businesses, it was possible to get multiples of income, but that depends on what is being bought. In this case, what is being bought is an asset book with, it is to be hoped, future revenues from the investments that have been made—as well as what might be described as senior bank management intellectual capital—but what is also being bought is £3.8 billion of Government investment in green projects from which the purchaser will hope to gain revenue and capital streams as, at some point, they are sold off. The situation will also depend on what the purchaser will put into capital projects.
Richard Fuller
The hon. Lady rightly says that there has been a series of investments in the bank, but it would be possible to calculate the net present value of those assets, given certain assumptions. Has her Committee attempted to do that? Such a calculation could provide an evidential base that would enable us to understand whether, if the bank is sold in future, it has been sold on a fair basis.
Mary Creagh
We have not calculated the net present value, but I am sure that it would be quite a simple process and that there will be a number of attempts to calculate it as the sale proceeds. No doubt the Government will wish to let us know whether they think that that has been achieved.
James Berry
May I make a point about the issue of longevity? There is plainly a public interest in the bank’s remaining a green investment bank because of the amount of public money that has already been invested, and because of public interest in the development of green fuels and energy. That, together with the work that the Committee will do in scrutinising the bank’s future, surely provides enough protection to ensure that it will indeed remain a green investment bank.
Mary Creagh
Once the bank is sold, my Committee will have no locus in scrutinising what it does. We could look into it only as a matter of interest. This is the final legislative opportunity that we have collectively as parliamentarians to say what we want to happen to the bank. We might have a chance to discuss it further if the matter is debated upstairs in Committee, but the process is now at its penultimate stage. The starting gun has been fired; the first round of the bidding process has already started. If the Government decide that they want to sell 100% of the bank by, say, September or Christmas, the Environmental Audit Committee could look into whether best value had been achieved, but only as a matter of interest. However, we want to test the proposals on the special share today to ensure that the public interest is protected, as the hon. Gentleman says, and that the green vehicle can continue to move forward. The Green Investment Bank is a really important financial institution for enabling us to meet our climate change targets.
The Chancellor said in January that the sale of shares in Lloyds would be postponed because of market turbulence. The sell-off was scheduled for the spring, but he has now said that it will come after Easter. We shall wait and see when that happens. Since the start of the year, we have seen a bear market, great turbulence in the financial markets, panic selling of crude oil, and oil prices at a 13-year low. These are worrying times for the global economy and the market is hugely volatile. All bank shares are currently falling in price, whether they are UK bank shares, European bank shares or US bank shares. Just this morning, we have heard that the Bank of England has announced it will give commercial banks three exceptional opportunities just before and after the EU referendum to borrow as much as they like to offset any threat of a run on banks and to prevent a repeat of the chaos of the financial crisis in 2007 and 2008. In the light of that bleak, turbulent and choppy financial picture, we have to ask whether the Government’s decision to launch the sale of the bank last Thursday was the right one. Whatever one’s views on privatisation, this hardly seems to be the most auspicious time to sell off a state asset, let alone a state-owned bank.
Barry Gardiner
I congratulate my hon. Friend the Member for Wakefield (Mary Creagh), who chairs the Environmental Audit Committee, on her speech. I wholly agree with what she has said. I also congratulate her and her Committee on all the work that they have done to tease out the details of this sale.
In 2012, the Green Investment Bank was set up for a purpose. It was stated quite clearly that its purpose was to address specific market failures and investment barriers in a way that would achieve emission reductions at the lowest cost to taxpayers and consumers. It was going to achieve that by working within the framework of the Climate Change Act 2008 and by risk-sharing between the public and private sectors, identifying and addressing market failures and limiting private investment in low carbon infrastructure, thereby accelerating and delivering green investment on a large scale and with significantly lower capital costs. That was the whole point. The bank was set up precisely because there was a market failure. The private sector was not able to achieve this. It is not just me, an Opposition Member of Parliament, who is saying that. Labour supported the bank. Indeed, it was our idea in the first place when we were in government, and we were delighted when the coalition put it into place.
The coalition Government also set up the Green Investment Bank commission. It was an independent, non-partisan advisory group brought together by the Chancellor himself. It took three years and two official rounds of rigorous market testing and evidence gathering to establish that a green investment bank was needed. The commission collected evidence to inform the bank’s aims, its design and the operating model under which it would function. Let us compare the three years and two official rounds of market testing it took to set the bank up with the sudden shock decision to sell it off, which was taken with a complete lack of consultation.
Anna Soubry
I am very grateful to my hon. Friend for reading from the letter. Obviously, I am not going to read it out. You will be pleased to hear that, Madam Deputy Speaker, as we would be here for half the afternoon if I did so. I have, however, placed a copy of it in the Library, as it best explains why this new clause is no longer required and why it is so incredibly important that we get the right device to ensure we keep the green principles of the bank.
Mary Creagh
Lord Smith of Kelvin may or may not be the chairman of the bank when this sale proceeds, so I therefore ask the Minister to answer the question I asked in the debate: will this special share apply if the bank is sold by any future owner, yes or no?
Anna Soubry
This is a short answer—yes. The hon. Lady will have seen this letter and I hope she will have read it—upside down, inside out, backwards and everything else. It is well over two pages long and it could not be clearer as to the way the special share is going to be set up. I shall rely on the fact that it talks about the special shareholder and how difficult it would be to undo this device. That could be done only with the permission, in effect, of the special shareholder. This House can therefore be sure that this is the right way to achieve what we all want to achieve.
That is why it is important to pay tribute—some may say that this is a first, and indeed it may not be the last—to the Scottish Government and to the Scottish National party. I have seen the letter John Swinney has written on behalf of the Scottish Government, quite properly as he is the Deputy First Minister and has responsibility in Scotland for finance, the constitution and the economy. He, too, rightly and understandably, has raised his concerns about how we best protect the green credentials of the GIB. As a result, he, too, has contacted Lord Smith, and letters have been sent back and forth. In short, to the credit of the SNP, it takes the view—I will be corrected if I am wrong—that this device, which is up and running, with the work already having been started by the GIB to secure this special shareholding, means that everybody can be confident that this is the way to secure what we all want, but without the need for legislation, which could completely scupper this privatisation and selling off of the GIB.