Clause 2 - Designation of the UK Green Investment Bank
Enterprise and Regulatory Reform Bill
4:30 pm
Iain Wright (Hartlepool, Labour)
I was keen to catch your eye, Mr Bayley, because we are now moving on fast.
Iain Wright (Hartlepool, Labour)
The clause sets out the two conditions that must be met for the Secretary of State to be able to designate the Green investment bank. Subsection (2) gives the first condition, namely that the Secretary of State 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 overt interference from the Government. The Minister has so far been relatively clear on that. Subsection (4) states that such an order may not be made unless the Green investment bank is wholly owned by the Crown. I hope that you consider this an appropriate time to discuss the ownership of the bank, Mr Bayley; I shall do that in a moment.
The Government’s helpful document, “Update on the Design of the Green Investment Bank”, which I think was published in May 2011, states:
“The Department for Business, Innovation and Skills, via the Shareholder Executive…will be the GIB’s sole shareholder.”
That is straightforward but earlier, 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 intention to sell shares in the Green investment bank, at any time? In what circumstances would Crown ownership of the bank be diluted? I do not want us to get ahead of ourselves, although we have quickened the pace dramatically this afternoon, but how does clause 2(4) reconcile with clause 4(1)? The latter provision states that
“the Secretary of State may, with the consent of the Treasury, give the UK Green Investment Bank financial assistance at any time when”
—this is the key point—
“the Crown’s shareholding in it is more than half of its issued share capital.”
In addition—I do not wish you to rule me out of order, Mr Bayley; I think that this point is relevant here—clause 4(3)(d) states that financial assistance is possible for
“the purchase of share capital of the Bank”.
Will the Minister, therefore, in his summing-up, say a bit more about that, and explain the circumstances in which shares in the Green investment bank will be sold?
Can the Minister explain the rationale behind clause 2(5)? It states:
“An order under this section may not be amended or revoked.”
Presumably, such a prescriptive provision is included to provide greater assurance that the Secretary of State, or indeed Parliament, would not interfere or tinker with the operational running of the Green investment bank, but is the subsection wholly necessary, given what the Minister has said? Does the provision need to be in the Bill, given that clause 3(1) covers the process for the alteration of the bank’s objects?
The Opposition have not tabled an amendment to subsection (6), which is on the power in subsection (1) being subject to a negative resolution of Parliament, largely because we wish to progress as fast as we can, on what we consider to be a large, disparate and rag-tag Bill. However, in the interests of ensuring the best possible parliamentary scrutiny, we would prefer that the power were subject to the affirmative procedure. If necessary, we will ensure that such an amendment is tabled on Report, but I sincerely hope that it will not come to that.
On that basis, will the Minister state why subsection (6) makes the power subject to the negative procedure, and whether he would be willing, during the passage of the Bill, to change that, to ensure that the provision could be subject to affirmative resolution? That would also apply some consistency with clause 3(4), which warrants—welcome news that this is—the use of the affirmative procedure.
Fiona O'Donnell (East Lothian, Labour)
I apologise to my hon. Friend for taking him so far back in his contribution, but on share ownership, does he agree that the Minister should make it clear whether shareholders could be foreign investors or individuals, or whether they would have to be either individuals resident in this country or companies registered here?
Iain Wright (Hartlepool, Labour)
That is an interesting and important point, and I hope that the Minister is able to address it.
I said in my opening remarks that I would be interested in the latest statement on and status of the treatment of the Green investment bank in the national accounts. I recall the terror that I held as a former—that word again—Housing Minister, when the Office for National Statistics was contemplating changing the status of registered social landlords. That is the only time I had a sleepless night as a Minister. I vividly recall that the amount of Government control is the key test that the ONS employs, and the same applies with the Green investment bank.
The ONS will consider such factors as the appointment of directors, who determines the organisation’s strategic direction, the independence of the board, and sources of funding, and on all those criteria it seems fairly clear that the Green investment bank is a public sector institution. Can the Minister confirm that that is the case for the purpose of the national accounts? The fact, for example, that the directors’ ability to manage the company is somewhat more restricted than in other companies, through the shareholder relationship framework document, is, I think, confirmation. We will come on to this under clause 4, but does that not really restrict the ability of the Green investment bank to grow? Does it not show the Treasury’s control, and its unwillingness to cede that control? The bank’s balance sheet would always remain small, and the bank would not have the transformational effect that we need.
The Environmental Audit Committee recommended that the Government actively seek advice from the ONS on choosing the best model. What dialogue has there been between the Minister, his departmental officials and the ONS in relation to the Green investment bank?
I hope that the Minister will be able to answer those questions satisfactorily. This is an important clause and I look forward to hearing his response.
Mark Prisk (Minister of State (Business and Enterprise), Business, Innovation and Skills; Hertford and Stortford, Conservative)
This is, indeed, an important clause, which, in a way, helps to unlock some of the later clauses. I will explain the clause in detail and respond to the points raised by the hon. Gentleman.
The purpose of the clause is, as the hon. Gentleman has suggested, to ensure that the two key governance constraints are imposed on the bank in a way that is consistent with its status, which, as we have already learned, is that of a Companies Act company. 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, which I am sure we will get to at some stage, 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 carefully 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 second condition is that the Secretary of State has laid a copy before Parliament of his operational independence undertaking to the bank. Once the Secretary of State has made the designation, the order can be amended or revoked. The hon. Gentleman raised reasonable questions about that and I will address them specifically later.
I will address individual subsections of the clause, because the hon. Gentleman has raised specific points. Subsection (1) is designed to ensure that the proposed legislation introduces constraints on the governance of the bank. The bank was formed as a company because of its status as a Companies Act company with an independent board—that is an important point to bear in mind. That will ensure that the bank can operate commercially in the market at arm’s length from Government. That is a balance that we need to strike.
It is important that the institution should be viewed as market-based and commercial, in order to command the credibility of the markets in which it operates. Furthermore, the Companies Act structure is appropriate for the institution because its objective is by means of a demonstration effect to galvanise and, in some cases, to unlock private sector investment in the green economy.
In addition, the Companies Act structure is flexible and allows us to move more quickly to establish the bank. The recently appointed directors—the chair, Lord Smith, and the deputy chair, Sir Adrian Montague—are, therefore, already able to begin considerable work in building the bank’s operational capability in readiness for state aid approval. It is imperative that the legislative proposals for the bank do not depart widely from or, for that matter, conflict with its status as a Companies Act company. The effect of subsection (1) is that the bank’s directors, as well as the investors in the wider public, will have full clarity with respect to the bank’s legal framework, governance and obligations. Despite additional constraints imposed by the proposed legislation, the bank’s constitutional documents and company law will provide the reference point against which its powers and duties can be defined.
I will come in a moment to the question of the sale of shares and ownership—those two things go together—but first I will touch briefly on subsection (2), which will lead me to the point that I want to make. The subsection requires that the Secretary of State is satisfied that the Bank’s statement of objects is drafted in terms that will ensure that it engages only in activities that contribute to achieving one or more of the purposes in clause 1. I referred earlier to the bank’s statement of objects, which we have discussed. The statement of objects echoes the language of the green purposes and provides a constitutional limitation on the purpose and the range of the company’s activities, which its directors are obliged to respect.
Subsection (2) should be read—I think that the hon. Gentleman made this point—alongside clause 3 to appreciate the full effect. Clause 3 prevents the bank from changing the statement of objects. Changes to the objects are only possible either when they are ordered by a court or when approved by the Secretary of State by means of an order—in this case, one that is adopted via an affirmative resolution of Parliament. Any changes to the bank’s statement of objects approved by the Secretary of State must remain consistent with one or more of the green purposes. The fact that the approval of the Secretary of State will be achieved via an affirmative resolution of Parliament will set a much higher level of scrutiny in relation to any proposed changes.
Clauses 2 and 3 ensure that the bank will remain permanently bound to its green mission. That is the governance element, and in some ways it would have been helpful if we had debated that before we got to the green purposes. However, people can now see the green purposes and the Government’s arrangements.
The question of ownership is important. The hon. Gentleman asked in what circumstances we would envisage the sale of shares. We have no plans to sell the Green investment bank—neither under this Government nor during this Parliament. Clearly, we cannot tie the hands of future Governments or Parliaments, but in answer to the hon. Gentleman’s question about the circumstances in which we would envisage such a sale, as the current Government, we do not envisage such circumstances.
We need to establish the bank to leverage private investment into the green sector—enabling private capital in the shareholding of the company would be the ultimate success in this mission. In the longer term, therefore, the legislation is designed to enable the opportunity for the injection of private capital. People will recognise that that possibility is important.
The hon. Gentleman asked an important question about subsection (4). I will save the Committee the joy of subsection (3) in detail, but subsection (4) states that an order can only be made under it if
“the UK Green Investment Bank is wholly owned by the Crown.”
That effectively precludes private sector entities from contending that they qualify for designation. This clause is principally about where we are now, and how we initially designate the bank. In that context, it is not about future designations; it is about managing the establishment of the institution. Subsection (4) guards against suddenly confronting the danger of a private entity seeking that designation.
On subsection (5), I was asked specifically about an order not being able to be amended or revoked. We believe that permitting revoke of the designation would be inconsistent with our stated aim of creating an enduring institution. It was quite clear from different discussions with many people in the financial and environment markets that the ability to revoke—effectively to shut the operation—would leave a large question mark in people’s minds about the long term of the institution. We felt that it was right to make the clear statement that the intention of the legislation, of the Government and, I assume, the Labour party—certainly given its public statements—is that the UK Green investment bank should be an enduring institution. That is the thinking behind the subsection.
On subsection (6), the hon. Gentleman asked about scrutiny. The subsection determines that the Secretary of State’s ability to designate the bank by order should be subject to negative resolution of Parliament. Today we are debating this particular designation, and rightly so, and that will be the case when the Bill goes to the other place, and throughout its passage. Because the clause is currently being scrutinised, we felt that the idea that we should then have an additional and affirmative resolution for an order that we have already discussed in detail was unnecessary. If it were the view of both Houses that that was not the case, I would be quite willing to reflect upon that. I am not going to make a commitment at this stage, but how does the hon. Gentleman think that an additional affirmative discussion—a further Committee—in both Houses would add to the scrutiny that we can achieve today?
Iain Wright (Hartlepool, Labour)
My general principle, and I think that the Minister would share my thoughts on this, is that any way in which Parliament can actively and positively scrutinise proposed changes from the Executive is a good thing. As I said about clause 3, a degree of consistency would be helpful. I just wonder whether, in his helpful remarks, the Minister would reflect on the possibility of introducing measures to improve the scrutiny exercised by this place and the other place, and the consistency in the clauses.
Mark Prisk (Minister of State (Business and Enterprise), Business, Innovation and Skills; Hertford and Stortford, Conservative)
I certainly will reflect upon that. I need to consult my colleagues and discuss that. My instinct at the moment and from what has been said is that our procedure in the Bill is correct, and the hon. Gentleman has not tabled an amendment, but I will reflect on the matter. The steel hand is still in the velvet glove, but we may take that glove off. We may decide that it is a glove in its own right but, to use the hon. Gentleman’s metaphor, I will have a reflection. I take the point, and I will reflect on whether it is necessary. I certainly want to ensure that Parliament’s ability to scrutinise what we are doing is thorough, but I want to make sure that I have not misunderstood, or failed to take into account any practical issues around ensuring that we get the bank up and running. That is my priority. I will definitely consider the point.
Clause 2 ensures that legislation applies to the bank in a way that is consistent with its status as a Companies Act company. We believe that the flexibility of the commercial structure, as set out in the clause and to a degree in clauses 3 and 4, will help to create the market confidence and, in conjunction with the statutory green purpose and the undertaking of operational independence, will enable the Green investment bank to fulfil its role as an enduring financial institution.
Iain Wright (Hartlepool, Labour)
May I press the Minister on the point about discussions with the ONS? Given my advancing years, I may have missed it, and I apologise for that. I want to know about the status of the Green investment bank within the national accounts, and whether discussions have taken place between officials in his Department and the ONS. As I said in my opening remarks, it seems that in respect of the appointment of directors, setting up the strategic direction, and the provision of capital, this is very much a public sector institution. Will the Minister elaborate on that?
Mark Prisk (Minister of State (Business and Enterprise), Business, Innovation and Skills; Hertford and Stortford, Conservative)
I am happy to elaborate on that point. We were getting so excited by the negative and affirmative resolutions that I may have slipped past the point, so I am grateful to the hon. Gentleman for the opportunity to put the position on the record.
The current position is that the bank is a Government–owned body, and is likely to be designated a non-departmental public body, but the future position is that the ONS is prepared to consider, and we are discussing, whether it might classify the bank as a public financial corporation if it is able to raise finance commercially. We wanted to get the thing up and running, and then to discuss this. I certainly take the hon. Gentleman’s point. That is the current position, and the future position is still being discussed.