My Lords, we have just heard an interesting discussion about what the overall financing arrangements for the bank will be. I was struck by the comments made by the noble Lord, Lord Skidelsky, who is not in his place, that effectively the leverage on acquiring some form of loan finance will be about six times and the subsequent leverage by bringing in third-party investment would be a further five times. We are talking about a gap between the funds available within the bank of £3 billion, which is a huge sum, and we are grateful to the Government for finding that cash, but at a cost of £90 billion in terms of growth, jobs and SME support, which one has to bear in mind. So the amendment focuses on what seems to be the only possible way that we will fund support for the bank in terms of its investment by getting co-investment from third parties who might wish to join the bank, having signalled that these were investments that they wished to make.
Our attention was drawn to comments that were made when the bank was opened in Edinburgh the other day, which has also been referred to by other speakers in this debate. Speaking at the opening of the bank’s headquarters in Edinburgh, the Business Secretary said that the Green Investment Bank,
“will leverage private sector capital to fund projects in priority sectors from offshore wind to waste and non domestic energy efficiency, helping to deliver our commitment to create jobs and growth right across the UK”.
The Secretary of State for Energy and Climate Change, Edward Davey said that:
“The Green Investment Bank will help attract the capital required to allow the green economy to blossom, encouraging investors to market and kick-starting low-carbon and energy efficiency projects”.
So the aspirations are certainly there for this to be a very successful operation.
In the wake of the global financial crisis, it is obviously right that any financial institution now has the highest possible levels of transparency, accountability, scrutiny and banking ethics, so this amendment also aims to encourage the bank to publish a strategy in this area and hence to encourage others to add their investments with the bank.
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I shall draw on a recently issued report by the IPPR on the Green Investment Bank, Do It Now, Make It Big. The authors argue:
“We are leaving a period of market fundamentalism during which it was assumed that markets would always work to allocate resources in the best way possible. There was no case for collective action … unless a specific market failure could be identified. Such failures were supposed to be exceptional … Even if a market failure was identified, it was best handled by attempting minimal interventions to regulate prices. Government failure was assumed to be more pervasive and deadly than market failure, so setting-up state institutions was”,
a definite no-no. However, we are where we are and clearly the Government see no problem in setting up an independent institution in this case, which must mean that they believe that the Green Investment Bank can achieve more than the Government themselves could do.
The case for green investment rests on the assumption that unless there is a collective decision to reduce national dependence on imported and increasingly expensive energy sources and to develop alternatives that emit less carbon, it is more than probable that investment on the requisite scale will simply not occur. Certainly, it is not occurring at present. Yet forecasting technologies and prices far into the future is extremely hazardous and so, in the current climate, private companies will hesitate unless there is clear policy leadership that is backed up by the commitment of state funds.
Policies that are not supported by cash and contracts are all too susceptible to change, leaving investors high and dry, so there is a bit of a quandary. It may well be true that there is no better time to undertake such investment than at a time of idle manpower when companies want to invest rather than to produce, because demand is so low, and when the cost of borrowing is very low by historic standards. Yet without government taking the lead, where is the policy certainty and the risk reduction that can come from such direct action? These are the points that I think my noble friend Lady Ford was alluding to.
On the plus side, the green bank is at arm’s length from the Government, which is essential if the bank is to take technical and commercial risks, something that is hard for the Civil Service to do. It can foster a necessary degree of pluralism in tackling the issues, as it can be agnostic on whether there is a right approach and it can support any well thought-out and prepared subproject that meets its investment criteria. It can thereby catalyse and harness the variety and ingenuity of the private sector. Yet on the negative side, the UK Government are committing only a small proportion of the estimated £200 billion needed in this sector— I think that is the largest figure I have heard—and
have said that the bank cannot borrow for several years because they are giving top priority to reducing the deficit. As it affects co-investors, the risk reduction strategy cannot then be effective so will the private sector come in to fill the gap? If it does not, what is the Government’s plan B for this bank?
Clearly, the question of who will invest with the bank and how much is crucial. In the absence of government permission to borrow, this form of private sector investment in projects will be the only source of leveraged funding for the green bank going forward, so it is absolutely vital to know what is happening. Hence the need for the bank to,
“set out as part of its investment strategy a target for the leveraging of additional private sector investment by 31 March 2015 and annually thereafter”.
I beg to move.