Lord Sharkey:

Moved by Lord Sharkey

2: Clause 2, page 1, line 13, leave out “and”Member’s explanatory statementThis amendment seeks to probe whether the Bank would need to meet both objectives in the exercise of its activities.

My Lords, Amendment 2 is a probing amendment so I can be very brief. Its purpose is to seek clarity on how the objectives of the bank will work together and to allow the Minister to put that clarification on the record.

We have discussed this informally with the Minister and her officials, and I am grateful for the time they gave us. Our questions were about whether the two basic objectives—tackling climate change and supporting regional and local economic growth—both needed to be met in any project. Is that what “and” means here in the Bill? In her letter to us of last Tuesday, the Minister responded:

“I can confirm that the Bill’s drafting does not mean that a project must meet both those objectives. The Bank can invest in projects which meet only one of these objectives, so long as supporting a project to deliver regional and local economic growth does not do any significant harm against the Bank’s climate objective.”

As far as it goes, that is clear and helpful; I look forward to the Minister putting it on the record in a moment.

However, it raises a couple of other issues. For example, does it work the other way round? Is it permissible to invest in a project to support the bank’s climate objectives as long as it does no significant harm against the bank’s regional and local economic growth objective? I assume that this is the case—I would be grateful for confirmation that it is. What does “significant” mean in these contexts? What criteria will be used to provide a threshold test for significance? Will each project carry an assessment of the harm that pursuing only one objective may cause to the other? Will any such assessments be published along with other details of the project? I look forward to the Minister’s reply and the arrival of complete clarity.

My Lords, Amendment 5 is in my name. I declare my interest as a project director working for Atkins and note that I am co-chair of the Midlands Engine APPG. First, I thank my supporters on this amendment; I thank the right reverend Prelate the Bishop of St Albans for all his help in crafting it, and the noble Lord, Lord Tunnicliffe, for his support. My remarks are equally applicable to Amendment 12 in the name of the noble Lord, Lord Tunnicliffe, to which I have added my name.

To briefly reiterate the issue, the current levelling-up objective of the bank, set out in Clause 2, is not clear enough to articulate the levelling-up purpose of the bank in the Bill. Indeed, I would question what the words

“support local and regional economic growth” really add to the Bill. Almost any conceivable infrastructure investment will meet this objective for the area in which it sits.

As the Minister has previously stated, we have the strategic steer in the form of a letter from the Chancellor, which clearly sets out levelling-up objectives. However, levelling up is a long-term, generational project—as is this bank—and the strategic steer will not bind it in the long term. Ultimately, if nothing is done because of the lack of clarity in the Bill, the bank and the Government may drift away from the levelling-up purpose expressed in the strategic steer and may not undertake the vital work of helping disadvantaged areas in the long term.

This is particularly the case because the effects of agglomeration work against infrastructure spend outside the metropolis. The economic return is simply much better in areas that already perform well, so those projects have a much better chance of proceeding. Inequality becomes entrenched and self-fulfilling. That is why it is so important that, for an infrastructure bank still focused on making a return, levelling-up objectives are clear in the Bill. This can be solved via the simple amendment we have set out. It takes on board feedback from the Minister in Committee to avoid any complicated definitions of disadvantaged areas. It does this by using similar comparative wording to a recent government amendment to the Subsidy Control Act. The amendment would mean that Clause 2(3)(b) read:

“to support regional and local economic growth, with an emphasis on reducing social or economic disadvantages within the United Kingdom.”

I am very grateful to the Minister and her team for meeting me and for their efforts in investigating this issue. I know that the Minister is concerned about legal challenge and whether the wording would cause the bank to be too cautious in its approach, but this wording captures the very fundamentals of levelling up. Given the guidance for the bank in the strategic steer, all its investments should be compliant with the wording in any case, so I do not believe that this would limit the bank in any way.

Amendment 12 provides the same clarity in a slightly different way, by ensuring that the first mission in the levelling-up White Paper—the key mission of relevance for the bank—is written into the bank’s objectives. Ultimately, both amendments address the same issue: we want to be confident that there is some permanence to the bank’s objectives on levelling up and focusing on disadvantaged areas. The strategic steer and a letter to the bank do not offer this permanence, so I hope the Government will agree that something needs to be done to ensure that the bank will deliver in the long term for disadvantaged areas, deliver for the levelling-up agenda and fulfil its potential to make a real difference to the lives of people in those left behind communities all across the country.

My Lords, it is a pleasure to follow the noble Lord, Lord Ravensdale. It was particularly useful that he spoke before me because I have taken some of the words that he and his supporters put down in their amendment but made an additional change, taking out the words “economic growth”. But I agree entirely with everything the noble Lord just said about the need to focus on reducing disparities and tackling economic and social disadvantages. As he said, that takes the wording from the Government’s own approach in another place and it would be very hard for the Government to argue against that.

I argued extensively in Committee about why economic growth as a target in its own right has failed and, indeed, is undeliverable, because you cannot have infinite growth on a finite planet. I will not go over those arguments again now, but I think it is very clear from the fact that we are back here again, after an extensive debate in Committee from all sides of your Lordships’ House, simply saying that the bank will work for regional and local growth. As was said in Committee, that could be regional and local growth in Chelsea and the wealthiest 10 wards in the whole country, which is surely not the purpose, and it therefore needs to be clarified in the Bill. As was said in our earlier debate when we were talking about the environment, we have seen acknowledgement of the need to change the Bill already. This is surely another crucial change.

I was pleased to attach my name to Amendment 12 in the name of the noble Lord, Lord Tunnicliffe, and backed by the noble Lord, Lord Ravensdale, and the noble Baroness, Lady Kramer. This is again putting levelling up in the Bill. It is what the Government say the Bill is for. Surely, it has to be specified in it.

My Lords, I am going to be exceedingly brief because so much has been said which I support. I want to make a couple of comments on Amendment 12 in the name of the noble Lord, Lord Tunnicliffe, and others, that I have been pleased to sign. I want to make a point that I think has not been hit on. It is really important because it signals to those who put together projects and then turn to the investment bank and look for resources and funding that they are going to have to meet tests such as improving productivity and making sure that they are delivering well-paid jobs.

Putting that in the Bill would take it away from being a passive measure by which the bank looks at and decides whether to support projects and moves it into the active category. Those who are going out and investing will look closely at whether they are delivering against those various tests. There is so much that is good in the various amendments within this group—I very much support my colleague on Amendment 2—but I particularly wanted to underscore the message-signalling that is deeply inherent in Amendment 12.

My Lords, I am grateful to all noble Lords who have spoken in this important debate. I am particularly grateful to the noble Baroness, Lady Bennett, the noble Lord, Lord Ravensdale, and the right reverend Prelate—who is not present—for their support in tabling Amendments 4 and 5. Those texts are similar in intent to my Amendment 12, and those colleagues made a powerful case for tightening up the bank’s second objective.

I thank the noble Baroness, Lady Kramer, who joined the noble Lord, Lord Ravensdale and the noble Baroness, Lady Bennett, in signing Amendment 12, which I shall turn to now. The Government say their absolute priority is to deliver their levelling-up agenda. Ministers say they will use every tool available to them to ensure left-behind communities can catch up economically, compared to London and the south-east. However, anybody reading the Bill would be hard-pressed to identify that intent. Yes, the bank should be operationally independent from government, but that does not mean it cannot support the levelling-up agenda in its day-to-day work.

Amendment 12 would, in essence, place the first mission from the Government’s recent Levelling Up White Paper in the Bill. The amendment would not prevent the bank from acting in a manner that deviates from that mission. It will be free to invest in climate-related schemes or projects in wealthier parts of the UK; that would remain the bank’s prerogative. However, the amendment would introduce a general requirement for the bank to have regard to the public interest in targeting funds in a manner that will improve productivity, jobs, pay and living standards.

The Government say they want to create good jobs, lift people’s pay and improve life chances. However, at the same time, Ministers are slashing the size of the Civil Service and washing their hands of responsibility for pay negotiations in sectors where the Government have a direct interest. We still await an employment Bill that has been promised for many years. That Bill was not deemed a big enough priority to be included in the Queen’s Speech, meaning many workers will lack important statutory rights.

The aforementioned White Paper mentions that by 2030, the Government want to see the gap between the best and worst performing regions of the UK narrowing. We want to see that gap close, too, but let us be realistic: it will require concerted action, not just warm words.

The year 2030 is not very far away. Let us consider the current economic context: the economy is on the brink of recession and is forecast to flatline in 2023. The cost of living crisis is squeezing household incomes to an extent not seen for decades. There is not a huge amount of time to turn this picture around. If we are to do so, we need urgent action to create secure, well-paid jobs, and the bank can help only if it is explicitly encouraged to do so.

Amendments to the framework document or strategic steer are not enough to target the bank’s mind or provide comfort that the Treasury is sufficiently invested in following through with its stated ambitions. It is regrettable that the Government have not brought forward their own amendment at this stage in proceedings. We have pushed for this in meetings with the Minister but have not succeeded.

We will listen carefully to the Minister’s response today but feel that this is an important issue which deserves to be in the Bill. Unless the noble Baroness is able to commit to an amendment at Third Reading, I am minded to test the opinion of the House when Amendment 12 is called.

My Lords, I will first take Amendment 2 from the noble Lord, Lord Sharkey, which, as he explained, seeks to probe our use of “and” in the activities of the bank to see whether it must meet both objectives or just one. As we discussed previously, the bank’s two objectives—to help tackle climate change and to support regional and local economic growth—are both stand-alone but complementary objectives. I can confirm that the Bill’s drafting does not mean that a project must meet both of those objectives but rather that over the breadth of its activities the bank must meet both.

The bank can invest in projects which meet only one of these objectives, so long as supporting a project to deliver regional and local economic growth does not do any significant harm against the bank’s climate objective. The bank wrote to noble Lords with further detail on the “do no significant harm” policy on Friday.

To address the noble Lord’s two specific questions, there is no reverse or equivalent “do no significant harm” policy for climate change investments with regard to local and regional economic growth. However, in reality we do not consider the bank likely to invest in something harmful to economic growth given the need to crowd in private capital and be additional, in line with its investment principles. The bank will create its own framework for assessing what “do no significant harm” means, drawing on best practice from around the world.

Amendments 4 and 5 from the noble Baroness, Lady Bennett, and the noble Lord, Lord Ravensdale, attempt to define levelling up within the local and economic growth objective of the bank. I reiterate why we have taken the approach that we have. The Bill sets the foundation on which the bank will operate. The specificity of how the bank’s objectives will be achieved will be contained in the framework document and in the strategic steer and strategic plan. This is the appropriate use of primary legislation, which can be a blunt and inflexible tool. Specificity in the Bill must be backed up with detailed and precise drafting, and a number of the aspects which we will discuss today are not easily defined. Failure to do this unnecessarily increases the risk of legal challenges which the bank will face, and that increased risk could result in the bank having a decreased risk appetite for investment.

That is why we have taken the approach we have done with the objectives. We have kept the high-level principles in legislation and supplemented those with additional information in the strategic steer and the framework document. The definition of local and regional economic growth is addressed in the first strategic steer, issued by the Chancellor in March, which stated that a focus on geographic inequality must be a priority for the bank. It also pointed to the Levelling Up White Paper to set out the missions with which the bank should align itself when considering investments. We could not do something like that in the Bill.

Future Governments and the bank are likely to want flexibility in determining areas of focus, and increased specificity in the Bill will reduce this flexibility. The objectives cannot be amended by secondary legislation. That is a deliberate choice, but it also means that we must be careful about what we put into something which cannot be changed easily.

On the amendment tabled by the noble Lord, Lord Ravensdale, although similar wording is used in the Subsidy Control Act, the contexts are very different. In that legislation, the use of the phrase is related to an exemption to a prohibition in a specific context where tight parameters are needed. However, here it is operating as a limit on the long-term and overarching functions of the bank and will impact on every project that it enters into. As a result, the risks that we have previously discussed, and which relate to the bank being excessively cautious in considering investments for fear of legal challenge given the subjective nature of the suggested drafting, are much higher.

Amendment 12, tabled by the noble Lord, Lord Tunnicliffe, focuses on improving productivity, pay, jobs, and living standards, and reducing geographical inequality. The effect of this amendment would be that every investment would need to have regard to these two areas. He has included the wording “have regard to”, but this will still have significant impacts on the bank. On improving jobs specifically, we understand the intention of the amendment and do not disagree with it. However, we are concerned that there may be consequences. It could again lead to the bank being overly cautious for fear of legal challenge. For example, it might be nervous to invest in a new technology because that would cause job losses regarding an older or outdated technology. By extending the range of objectives, we increase the risk of tension between those objectives and, therefore, the risk of legal challenges to the bank’s operations.

I assure the noble Lord that the bank’s early deals are already creating jobs across the UK. For example, a deal with the West Midlands Combined Authority, which invested in a project that will increase connectivity between residential and employment areas by setting up a green bus route, is projected to unlock nearly 4,000 jobs. The strategic steer is also the right place to provide specificity about jobs or employment to meet the current needs of the country. Here, government can be more specific about quality, location and types of role.

Similar to the amendments tabled by the noble Lord, Lord Ravensdale, and the noble Baroness, Lady Bennett, a requirement on reducing regional inequality would mean that the bank has increased risk across a number of its investments. However, this amendment has the added risk of applying to its functions generally, not just to the regional and local economic growth objective. For example, what would happen if a future Labour Government wanted to use the strategic steer to allow the bank to focus on green jobs? What if the green jobs did not offer significant productivity increases in the same way as another investment, or if those green jobs were focused in a poor area of the south-east of England? There is a risk that, under the drafting of the amendment tabled by the noble Lord, Lord Tunnicliffe, the bank would be unable to focus on green jobs—or would at least be cautious about focusing on green jobs—given the read-across from the legislation. However, I understand the points being made in the debate today and commit to updating the framework document to ensure that there is wording which is consistent with the strategic steer and levelling-up White Paper. The wording here is:

“Addressing the deep spatial disparities across and within UK regions”,

which I hope that noble Lords agree captures what we are trying to achieve.

I hope that this goes some way towards addressing the concerns of noble Lords, although it does not seek to make changes to the Bill. I hope that the noble Lord, Lord Sharkey, can withdraw his amendment and that other noble Lords do not move theirs.

My Lords, I thank the Minister for clarifying and putting on the record how the bank’s two objectives will work together. I beg leave to withdraw my amendment.

Amendment 2 withdrawn.

Amendments 3 to 5 not moved.