My Lords, Amendment 5 stands in the name of my noble friend Lord Adonis who is unable to be present this afternoon for personal reasons. He will return for later stages of the Bill.
This is a probing amendment and it is one of a number of amendments in which we seek to engage the Committee in thoughts about how the public-facing aspects of the new bank can be best discharged, particularly in relation to Parliament. The aim of this amendment is to argue that, prior to designation, Parliament should have an appropriate opportunity to scrutinise the articles of association of the bank. It further makes the point that the scrutiny that needs to be done should be done by Parliament, and not simply by the Secretary of State, who is identified in the Bill as having responsibility. After all, we are talking about the document which sets out the various contentious issues in the management of the company, vis-à-vis the interests of the shareholders.
The main purpose of the clause that we seek to amend is to ensure that two key governance constraints are imposed on the bank in a way that is consistent with its status, which, as we know is that of a Companies Act 2006 company, albeit one whose shareholding is currently owned 100% by the Government. Once those two conditions have been met, the Secretary of State may designate the bank by order. Designation will
trigger the application of Clauses 3 to 6, including the power in Clause 4, for the Government to then fund the bank over the long term.
The first condition required for designation is that the Secretary of State should be satisfied that the bank’s statement of objects in its articles of association is drafted in terms that will ensure that the bank engages only in activities that contribute to the statutory green purposes that we examined when debating Clause 1. As is usually the case with a Companies Act company, the bank’s statement of objects frames the duties of the bank’s directors. The specific issue raised in this amendment is that as well as making a statement that the Secretary of State is content that the bank’s green objectives are being met in full, the articles themselves are laid so that Parliament can see them and discuss them.
I accept that the Companies Act structure is flexible and indeed it has allowed the Bank to be established even though the enabling legislation is far from complete. The chair, the noble Lord, Lord Smith, spoke about the bank and his role during the Second Reading debate in your Lordships’ House so we are aware that he is in place, and the bank was launched recently in Edinburgh.
So we have a rather complicated piece of constitutional positioning to get right. On the one hand, the operations of the bank have to be done under the Companies Act, and the institution will have a well understood operational framework to guide it. On the other hand, the body could not exist without government support and government funding, and with that surely comes accountability to Parliament. In effect, our amendment provides a constitutional limitation on the purposes and the range of the company’s activities, which allows Parliament its say, so that directors are directly aware of what the shareholders think. However, I have a few questions for the Minister on the implications that this amendment has for the rest of this clause.
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Subsection (2) requires that the Secretary of State, and we think Parliament, must be satisfied that the Green Investment Bank's articles of association will ensure that it engages only in activities that achieve one or more of the green purposes set out in Clause 1. Subsection (3) sets out the important second condition that the Secretary of State must give the Green Investment Bank an undertaking that it will operate independently—the so-called “operational independence undertaking”—to allow the directors to carry out work and make investments without interference from the Government. Subsection (4) states that such an order may not be made unless the Green Investment Bank is wholly owned by the Crown.
The Government's helpful document, Update on the Design of the Green Investment Bank, states:
“The Department for Business, Innovation and Skills, via the Shareholder Executive (ShEx) will be the GIB’s sole shareholder”.
On page 21, the Government state:
“The GIB will initially be owned by the Government and will operate as a separate institutional unit at arm’s length and with full operational independence”.
I want to focus on the word “initially”. In the context of that document, and given subsection (4), is it the Government's express intention to sell shares in the Green Investment Bank, at any time? Can the Minister give us an idea about the sort of circumstances under which Crown ownership of the bank could be diluted? How does Clause 2(4) reconcile with Clause 4(1)? It might be helpful to the Committee if I explain that this latter provision states:
“the Secretary of State may, with the consent of the Treasury, give the UK Green Investment Bank financial assistance at any time when the Crown’s shareholding in it is more than half of its issued share capital”.
In addition Clause 4(3)(d) states that financial assistance is possible for,
“the purchase of share capital of the Bank”.
Will the Minister, therefore, say a little more about that, and explain the circumstances under which the Government would want to purchase shares in a bank which, according to legislation, they already own?
It may well be that the Government have no plans to sell the Green Investment Bank, but as was accepted in the other place, this Government cannot tie the hands of future Governments or Parliaments. So, again, it would be helpful if the Minister would confirm that there are, as far as he is concerned, no circumstances in which the Government would envisage such a sale.
Finally, I wonder if we can just get some words of comfort from the Minister on the question of getting long-term private investment into the green sector. It was openly admitted in the other place that enabling private capital to acquire shareholdings of the company would be a measure of the success of the bank. I assume, therefore, that that is why the legislation contains powers to enable the opportunity for the injection of private capital directly into the bank. But how does that give the market the confidence that the UK Green Investment Bank, currently “wholly owned by the Crown” will be an enduring institution? It was clear that one of the main determinants of success in this area will be convincing people in the financial and environment markets about the sincerity of the Government’s intention that the Green Investment Bank is here for the long term.
In trying both to eliminate the possibility that private sector organisations could by taking a stake jeopardise the designation of the bank, while leaving themselves some wriggle room so that some time down the track part-ownership of the bank could be sold, the Government may inadvertently have given the impression that the bank is not there for the long term. It would be helpful if the Minister could reaffirm the position as he sees it. I beg to move.