Clause 6 - The UK Green Investment Bank: documents to be laid before Parliament
Enterprise and Regulatory Reform Bill
6:15 pm

I beg to move amendment 8, in clause 6, page 3, line 32, leave out from ‘(2)’ to end of line 33, and insert—

‘The Secretary of State must within 12 months of the coming into force of this Act, and afterwards annually, prepare and lay before both Houses of Parliament a report on the activities and investments of the UK Green Investment Bank.

(2A) The report under subsection (2) must, in particular, include or contain information about—

(a) the investments undertaken by the UK Green Investment Bank during this period,

(b) how the UK Green Investment Bank is achieving its green purposes as set out in section 1,

(d) the identification and management of risk in respect of UK Green Investment Bank objects and investments,

(e) how the UK Green Investment Bank is not duplicating investments made in the markets, and

(f) how the UK Green Investment Bank has applied the Main Principles as set out in the UK Corporate Governance Code.’.

Hugh Bayley (York Central, Labour)

With this it will be convenient to discuss amendment 20, in clause 6, page 4, line 4, at end add—

‘(5) The Secretary of State will be required to receive an independent expert review of the performance of the UK Green Investment Bank.

(6) The Secretary of State will be required to receive such a review no less than every five years.

(7) An interim review must be held no less frequently than every two and a half years.

(8) The independent expert review must, in particular, include information relating to—

(a) an assessment of the UK Green Investment Bank’s environmental performance in fulfilling the green purposes as set out in section 1,

(b) an analysis of the main trends and factors likely to affect the future development, performance and investments of the UK Green Investment Bank,

(c) Macroeconomic analysis, including assessments of demand in the UK economy and international factors likely to affect green investment and skills within the relevant industries,

(d) assessment of the competitiveness of the UK Green Investment Bank in securing competitive advantage for the UK in green and low carbon economies relative to other countries, and

(e) recommendations to improve the UK Green Investment Bank’s impact in fulfilling its green purposes in section 1.

(9) Prior to the commencement of a review under subsection (5), the Secretary of State must request the views of—

(a) the Secretary of State for Energy and Climate Change,

(b) the Secretary of State for Environment, Food and Rural Affairs,

(d) Ministers from the devolved administrations,

(e) investors and interested parties, and

(f) members of the public.

and provide a copy of the results of the consultations to the person or persons undertaking the independent review.

(10) The Secretary of State, in the capacity of shareholder, must provide such information as he considers reasonable to enable the person or body undertaking the review to fulfil the requirements of subsection (8).

(11) A review under subsection (5) must be published and laid before both Houses of Parliament.’.

Iain Wright (Hartlepool, Labour)

I have just mentioned that our view—and, I hope, the view of the entire Committee—is that the Green investment bank, the first public bank established in modern times, should have the highest possible standards of accountability and transparency. It should very much be public-facing, and it should assert its independence from Government as much as possible. We are firmly of the view that there should be better parliamentary scrutiny of the Bill if we are to help ensure that those objectives are realised, not least given what the Minister said a moment or two ago. There should also be greater public consultation and independent expert challenge provided for in the Bill. That is the simple rationale for these two amendments.

Amendment 8 changes clause 6 to strengthen the responsibilities on the Secretary of State in bringing forward a report to Parliament. It states that he must, within 12 months of the Act coming into force, bring forward a report on the activities and investments of the UK Green investment bank. It is important that the Bill specifies certain information that we think hon. Members individually, and the House collectively, would wish to see in any such annual report. That information includes the investments undertaken by the Green investment bank over the year; how the bank is achieving its green purposes as set out in clause 1; how it is ensuring that it achieves the best possible value for money, based on its objectives; and how it is identifying and managing risk in respect of the investments that it is making, not least because it will have a higher than average risk profile in the market. We think that is important, given the discussions we had this morning, especially as we had an important debate about whether the bank will invest in new, emerging, innovative and therefore potentially riskier technologies.

As I think has been mentioned on a number of occasions, it is important that the bank is a game-changer, adding value by not doing something that the markets already have the capacity to do. I think it was the hon. Member for Stroud who asked, “Why can’t somebody just go to the markets and get investment as things stand?” We would like the report to Parliament to ensure that the bank is a game-changer and does not duplicate what is already happening. As I say, we touched on that this morning. My hon. Friend the Member for Edinburgh South was particularly strong on the point that the bank needs to be innovative and embrace risk to allow technologies to come to market.

The Under-Secretary will know, not least from the Statutory Instrument Committee that we both attended yesterday on the statutory functions of auditors, that I take risk management and corporate governance extremely seriously. I am keen to ensure—we talked about this yesterday in that Committee—that the UK remains the best in class when it comes to corporate governance. The fact that we have the best corporate governance regime in the world can be a source of inward investment. The Green investment bank needs to be an exemplar in the field. That is why I was particularly keen to include proposed new paragraph (f) in amendment 8, and—if the Minister accepts the amendment—the Bill. Paragraph (f) would ensure that in its annual report to Parliament, the bank demonstrated how it had

“applied the Main Principles as set out in the UK Corporate Governance Code.”

Amendment 20 is also important, as it sets out the notion of an independent expert review of the bank’s operations. It would ensure that the bank’s operations are subject to a professional but impartial and independent expert review every five years, with an interim review held every two and a half years. Such a review would be informed and we suggest that it would be improved by stakeholder engagement and public consultation.

There are a number of factors that we believe such a review would have to consider. In order to ensure that the bank is future-proofed—I use that phrase again, although I dislike it—and making decisions based upon the long term, we believe that the review should consider, as we set out in proposed subsection (8)(a):

“an assessment of the UK Green Investment Bank’s environmental performance in fulfilling the green purposes as set out in section 1”.

It should also look at the broad trends in economic, environmental and social aspects, and events in policy making, which could have an impact upon the development, performance and investments of the bank. One of the things that I am particularly keen to emphasise—I hope that this came out during the Committee’s deliberations this morning and earlier this afternoon—is the need for the review to consider how the bank has helped, or hindered, the competitiveness of the UK in the global low-carbon economy.

I want such a process—such an independent expert review—to be as inclusive as possible. The amendment suggests that the relevant Secretary of State consults and requests the view of several relevant Cabinet colleagues, and that of the Committee on Energy and Climate Change. The Committee will be able to provide some real empirical evidence and not just anecdote-based evidence. I know that the Conservative members of the Committee are really keen on doing that, rather than just going down the pub and listening to some bloke who is talking about things, which I think is how Conservative policy is made at the moment.

We also think it is important that Ministers seek the view of their counterparts in the devolved Administrations, not least because the bank will initially be located in Scotland—although I think there are plans to move it to Hartlepool in the near future— and not least because my hon. Friend the Member for Vale of Clwyd is also a member of this Committee. It is important that different parts of the United Kingdom take this issue into account. We also think that members of the public and investors who will be working closely with the bank should be consulted.

I do not think that these amendments are particularly contentious. I hope the Minister will agree. As I have already mentioned in our debates on a number of earlier clauses, we need to have within the Green investment bank the highest levels of transparency and accountability, and linked in with those functions—as well as the important scrutiny function—there should be external challenge. These amendments would allow that to be achieved and on that basis I hope the Minister will be amenable to accepting them.

6:30 pm

Mark Prisk (Minister of State (Business and Enterprise), Business, Innovation and Skills; Hertford and Stortford, Conservative)

The Government entirely agree that the UK Green investment bank has to be both accountable and fully transparent, but we want to achieve those things within the parliamentary and corporate law frameworks. Let me explain what that means in relation to both amendments 8 and 20; I appreciate that they extend quite widely across the clause in that sense.

Parliament will have a number of key roles in ensuring the accountability of the bank. First, it has a role in ensuring that the bank remains green. Both Houses of Parliament need to agree to the company’s statement of objects, both on designation and subsequently—if the company wishes to make changes to that statement—to ensure that the company’s objects are consistent with statutory purposes. We also expect that, for as long as the Government are the sole or majority shareholder, the Secretary of State will report to Parliament when agreeing with the directors new strategic priorities for the bank.

Secondly, Parliament has a role in overseeing the Secretary of State as shareholder, particularly in respect of the operational independence undertaking. That is why we have required the Secretary of State of the day to report to Parliament if they make a material alteration to the undertaking, or in fact revoke it. But Parliament will also want to look carefully at the way that the Secretary of State acts as shareholder, including—as we alluded to in previous debates—the way that they act in respect of issues such as board appointments and pay.

Thirdly, Parliament—especially this House—will wish to look very carefully at the Government’s decision on funding for the bank, and to scrutinise any further Government funding for the bank.

Finally, Parliament will have general oversight of the company’s performance and activities. Clause 6 states:

“The Secretary of State must, as soon as is practicable after the meeting, lay a copy of the annual accounts and reports before Parliament.”

That is to ensure that Parliament has proper and prompt access to updated information about the company.

We need to be clear that the bank is a Companies Act 2006 company and, as such, the directors owe duties to the company rather than to Parliament or the public generally. That is why I cannot support amendment 20. While Parliament has a proper interest in the company, as a result of the legislative provisions we are debating today, and in Government funding, I do not think it appropriate to set up a further independent system of oversight.

The proposed expert review will report on the performance of a commercial company acting at arm’s length from Government. It is unclear what the directors of the company will be expected to do with their report. They are required under company law to act in good faith, in the way they believe is most likely to deliver the company’s objectives, as set by the shareholder. If the directors did not agree with aspects of the report, they would be acting in breach of duty to the company if they were to follow the report’s recommendations.

That does not mean that there will be no independent expert scrutiny or inquiry into the bank. I have no doubt that, quite rightly and understandably, there will be further Select Committee inquiries relating to the bank, following the important report from the Environmental Audit Committee last year. They will want to take evidence from independent experts, as is perfectly right and proper.

We should not ignore the fact that accountability within the board itself is important. The bank will have a unitary board like most other UK companies, but that does not mean that executive decisions will go unchallenged. The bank is required to comply or explain in accordance with the UK corporate governance code, which states:

“As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy.”

The Government, as shareholder, will ensure that the board has the right balance of skills, experience and knowledge to examine the company’s strategy decisions carefully, and will do that to ensure that we secure the long-term success that I know everyone in the House wishes to see.

The Government’s shareholder relationship with the bank will be managed through the shareholder executive—part of my Department—which has a strong track record in effective engagement and stewardship with companies in its portfolio,

The hon. Member for Hartlepool referred in amendment 8 to the issue of reporting, which is very important. Again, we want to apply the higher standards. We want to work within the company law framework. The directors have a responsibility under the Companies Act 2006 to produce accounts and reports, both to inform the shareholder and to ensure wider public transparency. I do not think it makes sense for the shareholder to have overlapping responsibility to report on the management of the company’s affairs. It is the directors, not the shareholders, who are responsible for the management of the company’s affairs, and the directors should therefore be required to report on the company. That is why a reporting requirement for the Secretary of State would go against the grain of both company law and the undertaking of operational independence.

Andrew Bridgen (North West Leicestershire, Conservative)

Does my hon. Friend agree that under company law the chairman’s report would cover many, if not all, of the concerns raised by the shadow Minister in the annual statutory accounts?

Mark Prisk (Minister of State (Business and Enterprise), Business, Innovation and Skills; Hertford and Stortford, Conservative)

Absolutely. That is why we need to ensure that we have transparency and accountability, but that we do not have layer upon layer. There is a danger that the two could conflict if they are dealt with from different primary statutes.

We strongly agree about the need for full transparency about the bank’s affairs. That is why, alluding to my hon. Friend’s point, we have provided that the company shall be treated for accounting, recording and audit purposes under the Companies Act as if it were a quoted company. It is an unquoted company. We have also provided that the Secretary of State be required to lay a copy of the annual report and accounts before Parliament and that the company should be required to explain in the annual report any non-compliance with the UK corporate governance code as it applies to small quoted companies.

Ian Murray (Edinburgh South, Labour)

The Minister sets out a strong case on the overall reporting of the business under existing legislation. However, it is quite clear that the rate of return, which has been included in the Minister’s letter to us as part of the Bill papers, says that the Green investment bank should plan to deliver a minimum 3.5% annual normal return on total investments. If it is not able to achieve that, who has the ultimate sanction in the board? Is it the chairman, the board or the Secretary of State?

Mark Prisk (Minister of State (Business and Enterprise), Business, Innovation and Skills; Hertford and Stortford, Conservative)

Ultimately, if the directors are failing they will be challenged by the chairman of the board. If the board is failing, it will be the responsibility of the shareholder, and the shareholder is the Secretary of State. The final oversight is with the shareholder and the shareholder is the Secretary of State.

Iain Wright (Hartlepool, Labour)

Bearing in mind the long period of payback for the innovative and risky investments under discussion, to what extent does the Minister expect the Secretary of State to be relaxed about the bank’s performance? He might be relaxed if it failed to provide the 3.5% return in one year, but would he be as relaxed if it failed to do so over two, three, five or 10 years?

Mark Prisk (Minister of State (Business and Enterprise), Business, Innovation and Skills; Hertford and Stortford, Conservative)

I do not think that the hon. Gentleman would find this or any other Secretary of State relaxed in such circumstances. We will be robust on the performance of the bank and I am sure that any future Government would want to be robust, too. We should not forget that this is not simply about subjective judgments by shareholders; the directors also have to fulfil clear duties. There are two issues, so I do not think that the situation could be described as relaxed in any way.

It is also worth bearing in mind the fact that the requirement under clause 5 to treat the bank as if it were a quoted company is a significant step. We have not drawn that out in debate as much as we might have done. It has three consequences for the bank. First, it has to produce the directors’ remuneration report, which we have already touched on. Secondly, it has to publish its annual accounts and reports on a website. Finally, it is required to produce an enhanced business review—which is why we have argued that the amendment duplicates what we already want to do—under which the directors must report on matters such as the main trends and factors likely to affect the company’s business. I understand the principle of accountability and transparency but, given all of the points that I have raised, I urge the hon. Gentleman to withdraw his amendment.

Iain Wright (Hartlepool, Labour)

I shall not detain the Committee for long. The Minister began the day with an iron fist in a velvet glove and it appears that he wishes to conclude our proceedings in the same vein. The amendments would help us to meet the principles of the highest possible standards of transparency, accountability and parliamentary scrutiny. I want the Committee to send out a powerful message that we want this important new institution to embrace the highest possible standards.

Andrew Bridgen (North West Leicestershire, Conservative)

Does the hon. Gentleman concede that directors’ reports in commercial companies often hold back information for commercially sensitive reasons? Given its investment profile, the Green investment bank will not have commercial competition as such, so it is highly likely that its directors’ reports will be far more candid than those of a normal commercial company and will contain all the information that the hon. Gentleman is concerned about.

Iain Wright (Hartlepool, Labour)

No, I do not agree because, as we have heard, the bank will be acting commercially. It will try to provide a rate of return of 3.5% a year, and will make investments of a sensitive commercial nature. It is naive to believe that its directors’ reports will be candid and say, “We have invested in this wind turbine manufacturer, but it’s a load of rubbish and we have made a mistake.” On that basis, I want to press both amendments to a vote.

Question put, That the amendment be made.

The Committee divided: Ayes 8, Noes 11.

Division number 5 - 8 yes, 11 no

Voting yes: David Anderson, John Cryer, Simon Danczuk, Ian Murray, Fiona O'Donnell, Chi Onwurah, Chris Ruane, Iain Wright

Voting no: Andrew Bingham, Andrew Bridgen, Lorely Burt, Neil Carmichael, Graham Evans, Jo Johnson, Norman Lamb, David Mowat, Eric Ollerenshaw, Mark Prisk, Julian Smith

Question accordingly negatived.

Amendment proposed: 20, in clause 6, page 4, line 4, at end add—