Enterprise and Regulatory Reform Bill: Legislative Consent Motion

Executive Committee Business – in the Northern Ireland Assembly at 11:45 am on 23rd October 2012.

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Photo of Arlene Foster Arlene Foster DUP 11:45 am, 23rd October 2012

I beg to move

That this Assembly agrees that the provisions in the Enterprise and Regulatory Reform Bill as amended in Committee in the House of Commons dealing with the UK Green Investment Bank and payments to directors of quoted companies should be considered by the United Kingdom Parliament.

We are here to consider two distinct issues arising from the Enterprise and Regulatory Reform Bill, which is currently making its way through Parliament.  The main purpose of that UK Bill is to encourage long-term growth and simplify regulation.  The consent of the Assembly has been sought for provisions relating to matters devolved to Northern Ireland.  The provisions under consideration relate to the UK Green Investment Bank and to payments to directors of quoted companies.

I turn, first, to the UK Green Investment Bank, which is a public company established by the Secretary of State for Business, Innovation and Skills under the Companies Act 2006.  Its purpose is to facilitate and develop investment in the green economy.  The provisions relating to the bank in the Enterprise and Regulatory Reform Bill have two main purposes, the first of which is to ensure that it engages only in activities that contribute to achieving green purposes.  The second is to require the Secretary of State to provide an undertaking to facilitate the bank's operational independence.  The legislation will also provide powers for the Secretary of State to fund the company.  Although banking is a reserved matter, the green purposes for which the bank has been set up bring it into the area of transferred policy.  A legislative consent motion is required to give the bank the statutory authority to operate in Northern Ireland.  Without the LCM, there is a risk that Northern Ireland would not see the benefits of the initiative and local companies would be excluded from the additional source of finance.

The second aspect of the motion concerns payment to directors of quoted companies.  This issue forms part of the UK Government's broader review of corporate governance.  The UK is widely considered a global leader in this area.  However, in recent years, there have been increasing concerns that the link between executives' pay and company performance has diminished.  Those concerns were among the views expressed in response to a UK-wide consultation on the issue carried out by the Department for Business, Innovation and Skills.  There has also been recent opposition from shareholders in a number of companies to the executive pay that does not reflect company performance.  I am sure that Members are aware of that.

Through the Enterprise and Regulatory Reform Bill, the UK Government intend to address the issue by giving shareholders more power to engage with their companies and greater influence on executive remuneration through enhanced voting rights.  Shareholders will be given a binding vote on directors' pay policy, and that will take place at least every three years.  It will encourage companies to adopt a longer-term approach to pay policy and will put in place effective and binding limits on directors' pay.  Shareholders will also have an advisory vote on how the improved policy has been implemented.  If the company fails to secure 75% of votes from that advisory vote, the entire pay policy must be put back to shareholders for reapproval by way of a binding vote.  The policy aim is to encourage better engagement between companies and shareholders at an early stage in the process of developing remuneration policy.  There will also be greater control of exit payments, and companies will not be in a position to pay more than shareholders have agreed.

Through the reforms, the UK Government are not proposing to dictate how much directors are paid.  The reforms are about giving businesses and shareholders the tools that they need to engage effectively.  The proposals on directors' pay will apply to UK quoted companies, which, in essence, are those listed on a major stock exchange.  There are around 1,000 such companies in the UK, with only two in Northern Ireland at present.  With so few local companies affected, the impact of the proposals on Northern Ireland businesses will, therefore, be very limited.  However, if the opportunity to avail ourselves of the provisions in the Enterprise and Regulatory Reform Bill is missed, the existing legal uniformity of the UK company regime could be affected and a legislative gap could be created that could expose local businesses to the inefficiencies that differing legal codes would create. 

So, maintaining legislative parity helps to ensure consistency and reduce uncertainty, and I believe that it is important for local businesses that the Assembly pass this legislative consent motion.  Northern Ireland businesses will benefit from access to a significant additional source of funding and from a continued single company law regime, and shareholders of local quoted companies will have a greater say in the running of their firm.

Photo of Patsy McGlone Patsy McGlone Social Democratic and Labour Party

Go raibh maith agat, a LeasCheann Comhairle, agus gabhaim buíochas leis an Aire chomh maith as ucht an rún a thabhairt os ár gcomhair inniu.  I thank the Minister for bringing the legislative consent motion before us today. 

The Committee for Enterprise, Trade and Investment welcomes the legislative consent motion on the Enterprise and Regulatory Reform Bill.  On 6 September, the Minister wrote to inform the Committee of the Department’s intention to seek an LCM to enable the Department for Business, Innovation and Skills, first, to ensure that the Green Investment Bank engages only in activities that contribute to achieving green purposes and remains operationally independent, as well as to ensure that the provisions extend to the North; and, secondly, to give shareholders in quoted companies greater control over the remuneration of directors.  The Department informed the Committee that that approach would preclude the development of a legislative gap and the administrative and regulatory difficulties that could ensue.  The Committee received oral evidence from departmental officials on 27 September.

In recent years, executive pay in Britain’s largest companies has quadrupled with no correlation to an increase in performance or shareholder returns.  The Enterprise and Regulatory Reform Bill is intended to enhance shareholder voting rights.  Currently, no company is bound by a shareholder vote on directors’ pay, which is purely advisory.  The Bill will provide for binding voting rights for shareholders on annual pay, performance and exit payments to directors.  The legislation applies only to quoted companies that are listed on the stock exchange, and there are only two quoted companies in Northern Ireland.  The Department has assured the Committee that industry as a whole is supportive of the provisions for voting rights.

The purpose of including provisions for the Green Investment Bank in the Bill is to ensure that it adheres to its green purpose and maintains its operational independence and that the Westminster Government can continue to provide funding.  The Department reported that the bank is being established as part of the UK Government’s initiative to pursue the green economic agenda.

The Committee was informed that the novel and long-term nature of green investment infrastructure can often deter private sector investors.  The Green Investment Bank is intended to provide financing for green investment that can produce commercial returns in due course.

The Committee questioned officials in detail on the types of business that might be eligible.  Any business from any sector will be eligible to apply for funding from the initial £3 billion pot, providing it fulfils one of the purposes for which the bank is established.  There are five purposes for which funding can be provided:  greenhouse gas emission reduction; advancement in efficiency in the use of natural resources; protection or enhancement of the natural environment; protection or enhancement of biodiversity; and promotion of environmental sustainability.

The Committee particularly welcomes assurances from officials that businesses from the agrifood sector will be eligible to apply, especially given the establishment of the Agri-Food Strategy Board and the current difficulties faced by agrifood-based businesses in securing finance along the criteria outlined.

The Committee looks forward to any state aid issues being resolved so that the bank can be operational on schedule by the end of this year.  The Committee will, in due course, take evidence from the Green Investment Bank to ensure that matters of specific concern to businesses are fully considered and taken into account by the bank.

Having considered the evidence, the Committee agreed to support DETI in seeking the Assembly’s agreement to the Westminster Parliament considering provisions of the Enterprise and Regulatory Reform Bill dealing with the devolved matters of the Green Investment Bank and payments to directors of quoted companies.

Photo of Robin Newton Robin Newton DUP 12:00 pm, 23rd October 2012

I support the legislative consent motion, and I thank the Minister for bringing it to the House.  There is no doubt that, over this past number of years, executive pay that does not match performance has been a bone of contention for those who have invested in companies, whether they are individuals or organisations investing, perhaps, through a pension fund.  Where shareholders are investing, there have been grievances when the annual general meetings of companies treat shareholders with a large degree of disrespect and, indeed, in many cases award large sums to chief executives who underperform.

I know that this is restricted to companies on the stock exchange, and, as both the Chairman and the Minister said, there are only two such companies in Northern Ireland.  However, this is something that has a UK-wide perspective, and Northern Ireland has to play its part.

It is of concern when such large payments are made to chief executives who have been underperforming.  It is good that, through this legislative consent motion, shareholders will be awarded a greater role and, in many ways, greater security for the performance of their company as a whole.  So I welcome the legislation.

Photo of Sandra Overend Sandra Overend UUP

I will make just a few brief remarks about this legislative consent motion, as the Enterprise, Trade and Investment Committee and the Executive have already received the relevant briefings, and I understand that they are both happy to proceed.

There are two major issues in the Bill.  The first is the Green Investment Bank.  The purpose of the bank is to facilitate and develop investment in the green economy.  It was established by the Companies Act 2006, and the outworkings of this Bill for the bank are threefold.  First, the Bill will ensure that the bank engages only in activities that contribute to achieving one or more of the statutory green purposes.  There are five green purposes: reduction of greenhouse gas emissions; advancement of efficiency in the use of natural resources; protection or enhancement of the natural environment; protection or enhancement of biodiversity; and promotion of environmental sustainability.  I believe that all of us in the Assembly can agree that those five purposes are positive and it is right that the Green Investment Bank should be solely focused on them.  Secondly, the Bill ensures that the bank maintains its operational independence.  In order to do that, there is a requirement on the Secretary of State to provide an undertaking to the UK Green Investment Bank plc.  Thirdly, the Bill ensures that the UK Government can continue to provide funding to the bank, and that is, of course, a requirement for it to have a meaningful impact in the longer term.

The Committee has been made aware that the bank will receive initial funding of £3 billion from the UK Government and will be given borrowing powers.  Any business will then be eligible to apply for funding within the five purposes.  It is, therefore, important that we sufficiently advertise that option for businesses so that they are fully aware of this source of finance for green investment, which can then produce commercial returns in due course.  I seek an assurance from the Minister that the work of promoting the Green Investment Bank among the business community is ongoing. 

As time progresses, it will be interesting to find out how Northern Ireland benefits from this.  I would also point out that it is important for the Minister to monitor the workings of the Green Investment Bank, given that banking is a reserved matter.  We know well that it is difficult to gauge the level of lending from banks to Northern Ireland businesses on the whole, and we must have a better knowledge as this project progresses.

I also support the provisions in the Bill that give binding voting rights for shareholders on annual pay and performance and exit payments to directors.  It is not a massive change for Northern Ireland, as the legislation applies only to the two companies that are listed on the stock exchange here.  However, it will lead to a more accountable and fairer legal framework regarding company directors' remuneration.  We support the continuance of regulative uniformity across the UK and support the motion.

Photo of Stewart Dickson Stewart Dickson Alliance

I support the legislative consent motion.  I note from Hansard that no objections were raised in Committee on 27 September. 

Many countries now have to face up to the consequences of unsustainable development, which has resulted in the exploitation of resources, increased pollution and climate change.  If current trends continue, damage to our environment will undoubtedly accelerate.  By pursuing the green economic agenda, we can help our economy and our environment.

In Part 1, we support the provisions relating to the Green Investment Bank, particularly those aimed at ensuring engagement in activities solely dedicated to achieving one or more of the statutory green purposes.  Those purposes are wide-ranging and have an initial budget of £3 billion.  The bank certainly has the potential to advance our green economy.  The market can bring about much innovation and change, but there is merit in intervention and assistance to drive that innovation and change forward.  However, my party has raised concerns with the UK Government over their definition of green investment and whether this could be used to invest in high-carbon infrastructure and technologies, rather than fulfilling the purpose that the Government have set out, namely to support a low-carbon investment where the returns are too long-term or too risky for the market.  For example, we could have a case where projects receive funding for reducing greenhouse gas emissions or improving efficiency in the use of natural resources but could still be relatively high-carbon.  We wanted more consideration to be given in that regard, but, failing that, we hope that those judging the applications will make the right decisions on the basis of the Government's stated aims.

We note that there are no quotas for the allocation of funding to different regions of the UK.  We are told that decisions will be based solely on the quality of the applications received from businesses.  Therefore, it is important that they receive all the appropriate advice and support from the Department in advance of the scheme and during the application process.  I know that some of the operational details of the bank are still being worked out, but it is our hope that the Department will provide all the information and support that it can to local businesses when those plans become clearer.

Finally on this point, we have expressed concern that the bank will be unable to borrow from capital markets from day one, whereas leverage in private investment could provide it with the extra impetus and mandate that it needs to help build a clean, green economy.  I will be interested to hear the Minister's assessment of this point and whether her Department has made any representations to the UK Government on the bank's borrowing arrangements.

I move on to directors' pay, which is an issue that many feel very strongly about.  Executive pay seems to keep going up and up while the public and shareholders see little correlation to an increase in performance and returns respectively.  That is simply not right.  Although executive pay is primarily an issue for the boards and shareholders of companies, we, as legislators, must use our powers to set the corporate governance framework and put in place fairer arrangements.  We support the efforts to empower shareholders, and we support those provisions. 

Ideally, we want to formulate and implement legislation for ourselves, but enacting the provisions will ensure that the law is updated here in Northern Ireland at the same time as it is in the rest of the United Kingdom, thus avoiding the development of a legislative gap and the administrative and regulatory difficulties that could follow.

Photo of Steven Agnew Steven Agnew Green

I support the legislative consent motion; it is very much to be welcomed.  In recent weeks, we have seen the growth of the green economy and the benefits it can bring to Northern Ireland.  The launch of the offshore wind projects and tidal projects off the north coast in the past week or so have demonstrated the great benefits that renewable energy can bring to our economy.  Yesterday, the Minister outlined that £52 million of sales have already been realised by 250 Northern Ireland companies in relation to offshore renewal energy projects.  Indeed, we could see private investment of around £1·8 billion in one offshore wind project.  Those are the Minister's figures.  That shows that green policies can go hand in hand with a prosperous economy.  It also shows how regulation and targets in relation to a reduction in carbon emissions can drive innovation and the investment in the economy that we need.

I welcome the UK Government's establishment of the Green Investment Bank, and I am happy to support the legislative consent motion to ensure that Northern Ireland can receive the benefits of that.  It is also worth mentioning the five areas in which the Green Investment Bank will invest, as was highlighted.  I agree with Mr Dickson that we need to ensure that they are truly green projects.  However, it shows that economics can be about more than profit.  It is not about being opposed to profit, but it goes beyond that and shows how investment in particular areas can benefit social and environmental objectives, not just economic objectives.

I welcome the legislative consent motion and the work that the UK Government have done on this, if not on other issues.  As a member of the Enterprise, Trade and Investment Committee, I have also asked that the Committee looks into how we can maximise potential job creation benefits in Northern Ireland from the growth in the green economy.  I hope that the work of the Committee will supplement that of the Minister, her Department and Invest NI in ensuring that Northern Ireland benefits from green growth.

Photo of Arlene Foster Arlene Foster DUP

I thank the Members who have supported the motion today and contributed to the debate.  I must also thank my colleagues in the Executive and the ETI Committee for considering the matter in a manner that has allowed the motion to be debated today.

I want to respond to a few issues that have been raised.  It is my understanding that the European Commission approved the UK Government's proposals to establish the bank on 17 October, so the state aid clearance is now in place.  That is good news, because it means that we can proceed.

Obviously, making companies aware of what is happening in Northern Ireland very much fits in with our access to finance strategy and what Invest Northern Ireland is rolling out for its companies.  We will work with the Department in Westminster to ensure that Northern Ireland is included in any promotional material or events.  We will add the Green Investment Bank to our business table, which is maintained on our business website and, of course, draw it to the attention of companies.  I think it was Mr Dickson who referred to the fact that there are no quotas allocated to each of the regions of the UK.  That is absolutely right, so we need to be proactive with our companies to ensure that they put forward the best proposals possible to ensure that they benefit from the Green Investment Bank.  It is an innovative way of dealing with the deficit in the access to finance piece.

Mrs Overend said that there was £3 billion to start with.  That is absolutely right.  All of it is government funding, at present.  I think, in answer to Mr Dickson's point, that the rationale behind that — obviously it is a matter for the Westminster Government — was to allow the bank to build up a credible track record in making those commercial green investments, to mobilise the private sector and to bring forward capital later on in the piece.  Therefore, it really is a government initiative, an incentive to point individual private sector companies in the right direction. 

It gives me great pleasure to tell the House that a chief executive officer has been appointed.  He is Shaun Kingsbury, who is originally from Northern Ireland and is a graduate of the University of Ulster.  I am very pleased that that is the case and that a man from Northern Ireland who should know everything there is to know about our economy here will be in charge.

The investment bank and the other company law reforms will assist our businesses and provide encouragement, I hope, to operate in an environmentally friendly way.  That is what we want to see happening so that they can deal with all the issues that are before them.  We know that multinational companies are looking at their supply chain and assessing how environmentally friendly they are, so this will assist companies in that. 

I thank Members for their contributions.  By passing this motion, we will secure the benefits that I have outlined.  As well as that, we will demonstrate how much the Assembly is committed to helping local businesses here.  I commend the motion to the Assembly and thank Members for their support.

Question put and agreed to.

Resolved:

That this Assembly agrees that the provisions in the Enterprise and Regulatory Reform Bill as amended in Committee in the House of Commons dealing with the UK Green Investment Bank and payments to directors of quoted companies should be considered by the United Kingdom Parliament.