Clause 4 - The UK Green Investment Bank: financial assistance

Enterprise and Regulatory Reform Bill – in a Public Bill Committee at 4:45 pm on 26 June 2012.

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Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills) 4:45, 26 June 2012

I beg to move amendment 6, in clause 4, page 3, line 19, at end add—

‘(7) The Secretary of State shall provide the European Commission with notification in accordance with state aid procedures that it is the intention of the Secretary of State to allow the UK Green Investment Bank to borrow from the capital markets.

(8) The duty in subsection (7) must be fulfilled no later than 30 June 2013.

(9) It is the duty of HM Treasury to permit the UK Green Investment Bank to begin borrowing from the capital markets no later than 31 December 2013, or one month following state aid approval having been received, whichever is the earliest.’.

This is a very important amendment, Mr Bayley, so I hope that you will allow me a little time to set out the context in which we would like to see the UK Green investment bank have the power to borrow somewhat earlier than the Government currently anticipate.

My hon. Friends and I think—and we are not the only ones who think this—the ability to borrow is fundamental to allow the GIB to achieve the ambitions that I think we all share for it. Borrowing is essential for it to be able to leverage the necessary scale of finance from the private markets. It would be unreasonable to expect that the state and public money could solely provide the finance to help achieve all that we want to achieve in the transition to a new low-carbon economy.

I have just mentioned the word “scale”, and it is very clear that the scale of the economic challenge and the scale of the potential and opportunities are really immense, if not unprecedented. In giving evidence last week, Sarah Veale of the TUC said that it is estimated that we will require something in the region of £200 billion in the run-up to 2020, which is only eight years away, to ensure that we can meet the environmental and climate change targets set in current legislation and decarbonise the British economy. And crucially—given that we are discussing an enterprise Bill, which is supposed to be concentrated on enterprise and on improving Britain’s competitiveness and prospects for economic growth—that investment could help us to ensure that this country’s comparative advantage in some green industries is maintained, enhanced or developed.

Ernst and Young, in its October 2010 report “Capitalising the Green Investment Bank” states that the total funding required for the UK to implement its low-carbon agenda is estimated to be approximately £450 billion up to 2025. The report also states that “traditional sources of capital” are calculated to provide only £50 billion to £80 billion over the same period, meaning that there is a funding gap for decarbonising the economy of approximately £360 billion.

The scale of the resources that are needed is vast, but equally, the opportunities for the British economy and for British industry are also huge. The global low-carbon energy market could be worth an estimated $2.2 trillion by 2020.

Other countries have grasped the huge opportunities. China’s 12th five-year plan, approved last year, identifies seven so-called strategic emerging industries, of which at least three are concerned with energy, sustainability and the move to a green and low-carbon economy. Those three strategic emerging industries are: new energy, including nuclear, wind and solar; clean-energy vehicles; and energy conservation and environmental protection, which includes carbon-emission reduction targets. Beijing  has pledged to prioritise the emergence and development of those strategic emerging industries over the lifetime of the five-year plan through the aid of tax breaks and beneficial procurement policies, which sounds familiar.

China is pushing to increase the proportion of its energy needs provided by non-fossil fuels to 15% by 2020. Let us put that investment into perspective. As part of its 12th five-year plan, China expects to invest some 3 trillion yuan, which is equivalent, on today’s currency valuations, to £303 billion, in energy, environmental protection and clean energy protection in the next three years alone. Given that the Green investment bank might have £3 billion over the lifetime of this Parliament, which I will come on to in a moment, the Government are putting forward less than 1% of the money that the Chinese authorities are providing.

Photo of Julian Smith Julian Smith Conservative, Skipton and Ripon 5:00, 26 June 2012

The hon. Gentleman makes a strong argument, but from where does he plan to get that additional money? If, as he argued earlier, this is beyond the Government’s balance sheet, how will that affect the perilous and appalling financial position that we are in?

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I am keen to set out closely what I have been saying from the start. There are huge challenges to decarbonising the economy, and there are huge opportunities if we can ensure that British firms are at the forefront of this. If the hon. Gentleman can be slightly more patient, I will come on to the concerns that he has raised.

Last year, for the first time, India invested more in clean energy than the UK. Last week the Committee heard that KfW in Germany distributes some €25 billion each year to clean technology projects. KfW is able to do that by raising 90% of its funds from the capital markets, with the remaining 10% coming from the Federal Government. Crucially, the British Government are preventing the bank from borrowing, which would allow additional private sector money to be leveraged into investment in the green economy.

In the United States, the green stimulus undertaken as part of the American Recovery and Reinvestment Act of 2009 resulted in additional jobs and innovation benefits. In the UK, the evidence suggests that the transition to a low-carbon economy could generate employment and economic benefits.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

Let me finish my point.

The Renewable Energy Association and Innovas estimate that there were some 110,000 jobs in the renewable sector last year, but that could rise to 400,000 jobs by 2020 with the right combination of economic stimulus and policy framework. There are huge opportunities. Does the hon. Member for North West Leicestershire agree that we need to embrace those opportunities as quickly as possible?

Photo of Andrew Bridgen Andrew Bridgen Conservative, North West Leicestershire

Does the shadow Minister not agree that the Green investment bank is a new entity? It is a new project and its board of directors has not yet been appointed. Would it not be prudent, in the words of one of his previous leaders, to see how this new entity performs before we throw huge amounts of extra money at it, or it is allowed to borrow more money?

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

If the hon. Gentleman looks at the specifics of the amendment and the timetable envisaged, he will notice that we thought long and hard about that. I shall come on to that in a moment.

The transition to a low-carbon economy is one of immense capital intensity. It demands high up-front costs, then the payment of dividends over perhaps a much longer term than has been seen in business models over the past century or so. That is a challenge for markets which focus on performance over shorter time frames, and to be fair to the Minister, he acknowledged this most eloquently in some of his considerations today. However, I am hugely concerned—let us get back to the very basics of an enterprise Bill— that the significant competitive advantage that the UK enjoys in the low-carbon economy will be lost due to the absence of available capital. Nick Mabey, in giving evidence to us last week, went even further, and he stated bluntly:

The UK is behind the curve…in terms of delivering the machinery to deliver investment, it is behind everywhere else we work—pretty much western Europe. That is where we are. This makes up for the fact that we do not have a development bank to help the process, unlike the Germans, the French and the Dutch”.––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 21 June 2012; c. 177, Q266.]

Mr Cherry from the Federation of Small Businesses told the Committee in quite explicit terms:

“The problem we have with this is, first, we have reservations about whether there is enough money to support the Green investment bank going forward, and we think that a lot more money probably needs to go into it to ensure that it works comprehensively”.––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 19 June 2012; c. 15, Q39.]

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

The hon. Gentleman is a proud supporter of manufacturing across the UK. He will agree with the concerns that have been raised by industry.

Photo of Neil Carmichael Neil Carmichael Conservative, Stroud

With that introduction, I have to stand up. Thank you, Mr Bayley, for allowing me to speak.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

No, the hon. Gentleman is allowed to intervene.

Photo of Neil Carmichael Neil Carmichael Conservative, Stroud

Yes, indeed. Is it not possible that someone wanting more money than the Green investment bank could give under the terms currently stipulated could go to the capital markets themselves for a top-up without giving the Green investment bank, at this point, the additional burden of debt, which the Government are anxious to avoid until we have cleared our deficit?

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

Absolutely, but it prompts the question, what on earth is the Green investment bank for? Presumably one thing is that it is trying to correct market failures. There are huge opportunities, but the capital markets, for a variety of reasons—not least, the business model I mentioned, high up-front capital costs, a low pay-back time in terms of many years—need policy certainty. That is the whole raison d’être of the Green investment bank, as far as I understand it, and we need that kick-start to ensure that we can get more money put in to what is a fantastic opportunity for the UK economy.   [ Interruption. ] The hon. Gentleman seems anxious to get back on his feet. Does he agree with me? Because if they can just go to the capital markets now, why are we debating this? What on earth is the point of the Green investment bank?

Photo of Neil Carmichael Neil Carmichael Conservative, Stroud

I think that we heard evidence earlier in this process which proves that very point—the Green investment bank will be able to take on some of the bigger risks—and that is right, because we heard from one or two experts that that is what they thought the Green investment bank would and should do. It will be a catalyst for the kind of investment that we need to see, but it cannot necessarily spend the whole £200 billion which the hon. Gentleman set out in his earlier remarks. That is simply not possible, even if it could leverage in money before he wants it to. The Government are right, I am sure he will agree, to be cautious—since we have already agreed that they are essentially the owners of the bank—about putting themselves at greater risk than necessary until we sort out the deficit.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

Well, let’s not call it a bank, then. Let’s call it what it actually is at present: a fund. A bank has the ability to borrow. This will not have the ability to borrow, so it is not a bank. I am more than happy to call it the Green investment fund, and I welcome the £3 billion that will be available over the lifetime of this Parliament, but we will miss a huge opportunity for the British economy. If we think about the sectors in which Britain could lead the world in 2020, 2030 or 2050, the low-carbon economy is one of them. At the moment, we have a huge competitive advantage, but as a result of the undercapitalisation of the fund, we are missing a trick. That is the point that the amendment is trying to address.

The hon. Gentleman rightly said, “If somebody’s got a good idea for a somewhat risky innovative product, why doesn’t it just go to the capital market?” It is true. Pension funds have hundreds of billions of pounds that can be invested. They are currently invested more or less in gilts, which provide a low return or even, with high inflation and low interest rates, negative returns. In those circumstances, green or low-carbon investment could offer an attractive alternative, but what it needs is policy certainty and a kick-start from Government.

I suggest that the private sector is seeing record low levels of business investment, and it is forecast to stay low. I also suggest to the Minister that the Government’s macro-economic policy is making matters much worse by removing demand from the economy with an emphasis on deficit reduction and austerity. Businesses are postponing investment, banks are restricting credit and households are cutting spending. The economic policy pursued by the Government is threatening to prolong the recession. I know that you ruled me slightly out of order this morning, Mr Bayley, but the publication today of the fact that the Government borrowed £17.9 billion in May compared with £15.2 billion the previous year shows the failures of the current economic policy.

In normal circumstances, if the economy were operating at capacity, there would be a risk that green jobs could replace other jobs and green investment might crowd out other investment, but in the current phase of the economic cycle, when resources throughout the economy—  households, business investment, consumer spending—are underemployed, any investment in green technologies could provide additional help to correct the balance. There is no danger in those circumstances of crowding out alternative investment or displacing jobs elsewhere in the economy.

Photo of Fiona O'Donnell Fiona O'Donnell Shadow Minister (Environment, Food and Rural Affairs)

Does my hon. Friend think that part of the issue is that at least one half of the coalition Government is averse to intervening in the markets? We have seen proof in the Government’s incentivisation of the film industry. They took a long time to change their mind about the computer games industry, but if we want growth, Government—the state—must intervene in the markets.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

My hon. Friend makes an incredibly pertinent point. Good, effective, successful modern economies such as Switzerland, Singapore or Sweden have active Governments who work side by side with productive businesses. In many ways, Government can help set the markets by incentivising or kick-starting them. There is an opportunity to do so here, but we seem to be missing a trick.

It is a matter of urgency. As I said, there are huge opportunities, but if we delay, it will be much more expensive in the long run. The International Energy Agency has stated that every $1 not invested today will cost an additional $4.30 after 2020. It will cost the economy a huge amount if we do not grasp the opportunity now. I have read the coalition agreement—and kept awake—which states that

“the Government expects green growth to be a major future driver” of a rebalanced economy. We agree. Green investment is part of the solution to economic recovery, not part of the problem. We need to get it up and running as soon as possible.

Nick Mabey said to the Committee last week:

The Green investment bank is sized well below its potential”.

That will reduce its ability to innovate in the markets and in the creation of new products. David Powell from Friends of the Earth summed it up best when he said in his evidence to us last Thursday:

“The bank could and should be the engine of the green economic recovery. It could and should be a conduit for the investment that is looking for a home to find the green investment in the billions that we need. The way it is currently envisaged, there is too much risk that it will not be the engine that it needs to be, and we are very concerned about that.” ––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 21 June 2012; c. 112-113, Q254.]

There is a huge opportunity for the Green investment bank to act as an effective bridge between traditional capital and what is required for funding innovative products. The Minister included that point in his remarks. However, I am not certain that the current capital arrangements allow it to be such a bridge. The Green investment bank has a budget of £3 billion, I think, although I will question the Minister on that in a clause stand part debate, if I can, and although that is welcome, the Government must acknowledge that the bank is not a big player. As a result, when it comes to getting a place in the global low-carbon economy, Britain will underachieve. Our competitive advantage is  in danger of being undermined unless we act now, boldly. There is a need to leverage extra resources from the capital markets.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

Before I go on to the Liberal Democrat manifesto, I am more than happy to give way.

Photo of David Mowat David Mowat Conservative, Warrington South

The hon. Gentleman is a better man than I am. I was interested in his comments on underachievement and our leadership position. In 2010, we were 25th of 27 countries in the EU, in terms of take-up of renewable energy. The only two who came lower down were Malta and Cyprus. We need the Green investment bank to get us further up that league table. However, it is wrong to pretend that we are in a massively brilliant position thanks to how we were left in 2010. I repeat that we were 25th out of the 27 countries in the EU. That is not a great legacy.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I will defer the delights of the Liberal Democrat manifesto 2010 for a moment. I will respond to the hon. Gentleman’s intervention, which was correct and appropriate. We are slipping down the league tables and have done so quite alarmingly over the past two years. According to the Pew Environment Group, when Labour left office in 2010, the UK was ranked third in the world for investment in clean technologies. Where are we now? We are seventh. In addition, in 2011 the UK did not make the top 10 lists for annual clean energy capacity installations or five-year growth in renewable energy.

The Pew report warns that the Government must end the mixed messages on clean energy:

“To maintain growth, the UK must provide consistent, long-term market signals that provide certainty to investors.”

We agree with that; does the hon. Gentleman?

Photo of David Mowat David Mowat Conservative, Warrington South

I do. My point was that, if we were going through the catalogue of achievement, in 2010 we were 25th out of 27, notwithstanding the points that have been made. All I am saying is that the Green investment bank as designed is part of a project to catch up on that position. The hon. Gentleman talks about slipping down the league table; we have only Cyprus and Malta to go. Let us be clear about where we are starting from.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

The point I am trying to make is that we do have a competitive advantage in a number of sectors in the green economy. We need to take advantage of that. Other nations realise that the green economy is a driver for economic growth. There needs to be a greater sense of urgency. I want to work closely with the Minister on this. There is a window of opportunity that is closing faster than the Committee is considering the clauses of the Bill. We need to act fast and boldly, because our successors will think about the subject, debate it in the House in 2020 or 2030, and say, as we did in the 1980s in relation to onshore wind technology, “We were market leaders in this, but lack of Government support meant that we slipped behind other nations, and the likes of Germany and Denmark are taking our place.” That should not be allowed to happen. We should ensure that we are at the forefront of the global green industrial revolution.

Photo of Chris Ruane Chris Ruane Opposition Whip (Commons)

Why and how is it that the Government claim to be the greenest Government ever? Does my hon. Friend agree that if we believed that, we would be the greenest Opposition ever?

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

That is a good point. I do not think that we are as naive as that. The Minister will correct me if I am wrong, and I do not want to mislead the Committee, but it is interesting that, in the two years or so that the Prime Minister has been in office, he has not made a single speech about the environment. I think that that is correct. I know that the Committee is anxious to hear about the Lib Dem manifesto. Is the Minister keen to talk about it? If so, I am more than happy to give way.

Photo of Neil Carmichael Neil Carmichael Conservative, Stroud

I am not the Minister, and that is not a document that I know as well as others do, but does the shadow Minister agree that the fact that we are introducing the Green investment bank is a signal of our commitment to being green? What about the green deal, which is another huge step in the right direction of greening the environment? Various other measures that we have taken include the Energy Act 2011. Does he agree that they are joined-up, consistent and emblematic of a green Government?

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I like the hon. Gentleman, who almost said that with a straight face, but he knows that there is a lack of joined-up thinking on the matter. Energy policy and the links with business have been an absolute mess. I cite as an example the feed-in tariffs decision, with no consultation with industry. The Government provided no certainty and no ability for industry to adapt to the changes. It means that that capacity has been lost, in some cases for ever. We need to move away from that, and provide long-term certainty now. He mentioned the Green investment bank. We have made it clear that we support the principle. We want the bank to work, and to ensure that it is in the markets, intervening for the British economy, but the policy needs to go a little further, a little faster, so that that can happen.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

Order. Before we proceed, I remind colleagues that we are discussing the Green investment bank. It is relevant to discuss intentions in any of the parties’ manifestos to promote green investment, but doing so as widely as we have done in the past few minutes goes a wee bit too wide.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I take your guidance as gospel, Mr Bayley.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

I think that we are getting to the nub of the initial clauses. The Queen’s Speech was supposed to herald a new era of growth in this country, and this was meant to be the pinnacle Bill. If the Government had said from the outset that the Green investment bank would be a proper bank, able to borrow, would not that have showed commitment to an era of growth?

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

Absolutely. I fully agree with my hon. Friend.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

Yes. Hon. Members seem to want to put off my comments on the Lib Dem manifesto. I thought that the hon. Gentleman might be particularly keen to  hear them, given that the Lib Dems and his party are close partners in government. However, I am more than happy to take an intervention.

Photo of Julian Smith Julian Smith Conservative, Skipton and Ripon

I am just checking at what point in his speech the hon. Gentleman intends to deal with the questions that I asked at the start. The amendment proposes more borrowing for our country, and we cannot afford it. Will he address that? If so, at what point in his speech?

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

As I mentioned in the context of some of the investments that the Green investment bank needs to make, the hon. Gentleman must be a little more patient before he receives payback. I am more than happy to give way to him again if he will condemn the Chancellor for ensuring that we had additional borrowing last month as a result of the Government’s failed economic policies. He does not seem to want to intervene.

We now come to the Lib Dem election manifesto. [Hon. Members: “Hear, hear!”] That must be first time that it has ever been cheered. However, this is a serious point. The party pledged to set up a United Kingdom infrastructure bank to use public money to attract up-front private investment. The manifesto states:

“Start with government seed funding which it”— the proposed UK infrastructure bank—

“can use as a capital base to borrow against.”

There is scope to adopt the same principle with the Green investment bank now. We are keen to help the Liberal Democrats achieve their ambition. We could be supportive of the Lib Dems—that is not a statement I make every day. I hope that the Minister will say how he is helping to ensure that his close partners in government realise their election manifesto.

I want to talk about certainty, and the deferral of decisions due to policy uncertainty. I have huge concerns that senior industrialists are holding off on investing in the UK due to the Government’s dithering and delay, and the lack of certainty. GE Energy’s managing director stated:

“Our investment is on hold until we have certainty and clarity regarding the policy environment that we are in…One of the most important things for us is political certainty, so we can justify the business and investment case for a facility in the UK. But we think there are some [political] headwinds which do not help, especially in terms of the subsidies discussion.”

Similarly, in my closing speech on Second Reading, I quoted the chief executive officer of Vestas, the world’s largest wind turbine maker. He said:

“The most important issue that our customers have is a long-term policy framework that is required to put in these investments, which are huge”, but

“we have not had reassurance from the government”.

Only on Friday, we heard that Vestas has scrapped its plans to manufacture wind turbines at a new plant on the Isle of Sheppey, meaning that the area has lost the chance to create 2,000 good, well skilled jobs, rebalanced into the manufacturing sector and very important for the area. That announcement was not a bolt from the blue. The company had made it very clear, as far back as August, that without subsidies or assistance from the Government, it would not invest in the UK.

The hon. Member for South Thanet (Laura Sandys) is very knowledgeable about such areas. She worked in the energy industry before coming to the House, she serves on the Select Committee on Energy and Climate Change, and she is a Kent MP. Following the announcement, she said:

“Vestas’ decision will have been a commercial one but it also suggests a lack of confidence within the industry over the government’s commitment to the green economy and crucially offshore wind. The market needs certainty from government if it is to deliver the thousands of jobs and billions…of investment that could secure our economic recovery.”

I agree with every word that she said. That enormous potential, which requires huge resources and the need to lever in private money on the back of Government support, and the sense of urgency and certainty required to attract investors into a growth area for the British economy, is the context behind amendment 6.

The amendment would provide clarity and compel the Government to notify the European Commission by 30 June 2013 at the latest, as required, of their intention to allow the Green investment bank to borrow from the capital markets. Following such notification, the amendment would compel the Treasury to permit the Green investment bank to begin borrowing from the capital markets no later than 31 December 2013, or one month after state aid approval has been received, whichever is earliest.

On state aid, I appreciate that the Government submitted a draft notification to the Commission on 30 November 2011, and, from all accounts, matters seem to be progressing well. From the letter that the Government provided to Committee members last Thursday, I understand that Ministers intend to respond to the Commission’s points as quickly as possible, with a view formally to submitting a revised application in July. Some people seem a bit concerned, given that we will be in July on Sunday—I know that because that is the day I am going to see the Stone Roses at Heaton park in Manchester. [Interruption.] They are a popular beat combo, m’lud. I hope that I am not ruled out of order, but one of the Stone Roses’s songs is “She Bangs the Drums”. The lyric is:

“The past was yours

But the future’s mine.

You’re all out of time”.

That is very fitting for the Government.

Moving away from the Stone Roses for one moment, when the Minister responds, will he outline for the Committee when such a formal application will be submitted and, prior to that, what the Commission’s main areas of contention are that could hold up approval? We thought long and hard about the timetable in the amendment. The Opposition are concerned that the timetable envisaged by the Government does not have the sense of urgency required.

Photo of Fiona O'Donnell Fiona O'Donnell Shadow Minister (Environment, Food and Rural Affairs) 5:30, 26 June 2012

I am very grateful to my hon. Friend, although I am tempted to call him “Sweet Child o’ Mine”. Does he not think that there has never been a more important time for the Government to show that they know what they are doing in one area at least? They did not know what they were doing with pasties, static caravans, fuel duty or skips, but when it comes to green investment, they could finally send the right message.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I agree wholeheartedly with my hon. Friend, with one exception: the lyric that she cited is by Guns N’ Roses, not the Stone Roses.

A statement on the Department for Business, Innovation and Skills website sums the current situation up well:

The Green Investment Bank is being funded to the extent that it will not need to borrow before 2015. After that it will be given borrowing powers if the targets for reduction in national debt are being met.”

Every word of that paragraph drips with a curious blend of complacency and ambiguity. It is clear that the bank is not being funded sufficiently to deal with the opportunities and the challenges, as I hope I have demonstrated in my remarks. Witnesses last week certainly seemed to make that point very directly. Moreover, as I suggested, given the Government’s failed economic policies, which have pushed the country back into recession, it is by no means clear that borrowing for the bank will be permitted by 2015 or 2016, according to the Government’s rules.

I have mentioned today’s publication of the borrowing figures, which is relevant. We face a decade of stagnation in economic activity, caused by austerity, and resulting in falling tax receipts. That will not allow the Government to pay off the debt and deficit as they originally planned. The Government and Chancellor have had to borrow £150 billion more than anticipated, and today’s month-on-month figures show additional borrowing, so the prospects for the bank being able to borrow according to the Government’s rules by 2015 or 2016 do not seem high.

Photo of Julian Smith Julian Smith Conservative, Skipton and Ripon

Can the shadow Minister confirm to the Committee whether he would borrow more now for the Green investment bank? This Saturday, he may hear a tune by the Stone Roses called “Tightrope”, which was one of their hits from 1994. Is that his way of achieving the difficult balance between financial management and green investment?

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I have huge regard for the hon. Gentleman on the back of that comment, particularly as “Tightrope” is on “Second Coming” rather than the debut album. I like the fact that he seems to know his stuff.

All I would say to the hon. Gentleman is that he should read our amendment. We thought about the timetable for it clearly. We are saying, “Not now”—although that could be a preferred option—“but let’s go through the correct processes and think about an appropriate time, subject to all the challenges that need to be faced.” If possible, that would be 31 December 2013, providing a middle ground that we think would be appropriate, in terms of the tightrope that would need to be walked.

The Office for Budget Responsibility said in its “Economic and fiscal outlook” of March 2012 that there was only a greater than 50% chance that public sector net debt would fall as a proportion of gross domestic product by 2015 or 2016. That does not sound particularly reassuring for the bank’s ability to borrow, and I assert to the Minister that the probability is less now than it was in March.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

I am not a Stone Roses fan, so I will not even attempt a lyric. However, the point I want to make, and seek my hon. Friend’s comments on, is that the  Environmental Audit Committee’s documented report that was unanimously approved on the Green investment bank back in March 2011 stated clearly that it desperately needed to have borrowing powers if it was to be a game-changer in the green economy. That was unanimously agreed by many people on the Environmental Audit Committee who also sit on this Committee, including the hon. Member for Stroud. Does my hon. Friend the Member for Hartlepool have any comments on that, given that some members of the Committee agree with the points that he is espousing? Will those Members support us on the amendment?

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I absolutely agree with what my hon. Friend said, but I lament the fact that he is not a Stone Roses fan. The point I am trying to make is that the matter is urgent. There is a narrow window of opportunity, which is closing rapidly, and the Vestas decision has shown that all too clearly in the past few days. The Opposition are keen to work with the Government to provide a clear timetable for investors that would not mean a loss of competitive capacity from the country, and we want to work with the Government to ensure that the Bill encourages enterprise in the leading sectors of the future. On that basis, I hope that, in the interests of the British and low-carbon economies, the Minister will look favourably on the amendment.

Photo of Mark Prisk Mark Prisk The Minister of State, Department for Business, Innovation and Skills

Gosh. I was reminded by my wife that as a middle-aged man I should never talk about my pop music choices. I cannot work out whether the hon. Gentleman is still the former Minister or the veteran Minister. I dread to think what he will be wearing when he goes to this event, but I wish him well. I always think it is one of those things that young people look upon with a degree of horror. At least we were saved from the singing; that is possibly the one consolation in that discussion.

Photo of Mark Prisk Mark Prisk The Minister of State, Department for Business, Innovation and Skills

The only chance is that his singing might have been more harmonious than the economic analysis we were given. I did not notice at any point a mention of the enormous—indeed record—debt that we inherited. To be lectured by a party that left the worst Government debt in my lifetime on the prospects of one month—

Photo of Mark Prisk Mark Prisk The Minister of State, Department for Business, Innovation and Skills

50 years is a long time. When I listened to that, I thought, “It is all very well to say that we should be borrowing more and doing this, but it is a shame.” It is a particular shame because there is an important issue here that people outside this room are concerned about: how the financial powers will work. It is a shame that there was a pitiful attempt to pretend that there were no borrowing issues, and that tomorrow we could simply borrow because it the money was available. It is a real shame, because there is an important issue at the heart of this.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

Is the Minister aware that at the time of the last election, both the deficit and unemployment were falling? They are now both rising. The Office for Budget Responsibility,  the body set up by the Government, predicts that the deficit will be £180 billion larger at the end of this Parliament than was predicted at the time of the last election.

Photo of Mark Prisk Mark Prisk The Minister of State, Department for Business, Innovation and Skills

With respect to the hon. Gentleman, the other thing that we did not hear from the Labour party was mention of the eurozone. According to Labour Members, the only reason businesses are lacking in confidence is entirely to do with the UK’s economic policies: there is nothing going on across the channel, it is all calm, they are enjoying their summer holidays and everything is entirely relaxed. When I deal with businesses on a weekly basis, seeking to encourage them to invest in green projects and elsewhere, they constantly refer to the international financial climate, particularly the eurozone, as the reason for hesitating over investing. I had hoped we would have a balanced debate on this issue, but let us address the amendment before us, because that is what matters.

On that basis, it will not come as a surprise to the hon. Gentleman that I intend to resist this amendment for two main reasons. First, the Government’s approach to the bank’s future borrowing is the right one. Secondly, legislation is not the right mechanism to govern the bank’s borrowing. There are important issues which those wanting to look at the commitment of financial support for this institution are looking to hear about. Before I address these arguments in turn, let me restate that the coalition Government are committed to the UK Green Investment Bank growing into a successful, enduring green financial institution.

The hon. Gentleman was right to flag up the scale of the challenge. He mentioned £200 billion. I think £220 billion is the number that many people talk about to move the UK into a sustainable green economy. The challenge is made all the more difficult by the innovative and long-term nature of green infrastructure, as we have discussed before in this Committee. Sometimes it is investment that can deter private sector investors. That is why the Green investment bank is one of many projects that we as a Government have established. My hon. Friend the Member for Stroud mentioned the green deal—absolutely; the £700 million from the Technology Strategy Board going into low-carbon innovation; the £150 million going through the Energy Technologies Institute; the £1 billion coming back to carbon capture and storage; and of course the £150 million going through the Narec technology and innovation centre on offshore renewables. All these are very important and all part of a wider picture. It is also why we need the bank to develop into a permanent part of the UK’s financial system, to complement all the other measures that the coalition Government are using to make sure that we achieve our targets.

I think that we agree throughout the House on the importance of the bank’s success, the question is really how we get there. In last year’s Budget, the Government committed to fund the bank with £3 billion to 2015, which will provide it with a strong injection of initial capital to make its first investments as a new institution. I mentioned earlier that already in this financial year £775 million has been identified, and £180 million already announced and committed through UK Green Investment,  and that will grow—next year £1 billion, the year after £1.25 billion—so the total of £3 billion is there and ready to be invested.

The Government also committed that the bank will borrow from April 2015—subject, yes, to the public sector net debt falling as a percentage of GDP. Its borrowing could take a number of forms, including from the capital markets. Let me take the chance to stress to the Committee and to those who follow such matters that the commitment is firm. For the bank to be an enduring green financial institution, its future borrowing is vital. I strongly believe that this deferred ability to borrow will not affect the success of the UK Green investment bank. The bank needs to focus first on consolidating its expertise, building up its credible track record and indeed building its balance sheet.

The hon. Member for Hartlepool referred to a number of stakeholders who gave evidence to us. In particular, I was interested in what Mr Paul Lee of Hermes said in answer to the hon. Gentleman’s own question about whether borrowing should occur before 2016:

“I actually think that there is enough funding available before that date for the bank to do anything that would realistically be needed, so that probably is not an issue.”––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 19 June 2012; c. 48, Q95.]

As the bank develops its expertise, we expect it to expand its investment activities considerably, through its future borrowing powers as well by recycling the returns from commercial green investments. The issue of timing is important. I note—as the hon. Gentleman mentioned—that European development banks are investing billions of pounds in green technologies. I think he referred to a figure of €25 billion for KfW, and the European Investment Bank is looking to make investments of around £18 billion. What was not mentioned, however, was that unlike the Green investment bank they are not new institutions: KfW was set up 60 years ago under the Marshall plan of 1948 and the European Investment Bank was set up in 1958. What they have done, wisely—it would have been great had this country done it earlier—is to build up considerable expertise, so that they are now at the stage at which they have those power houses that we seek to emulate. If we get this right and do not rush it, the UK Green investment bank, too, will be of that scale in due course, but is important that we do not try to run before we can walk. Without carefully building the expertise and securing credibility in the commercial markets, the long-term impact of the bank could be undermined. That is why I do not agree with the Opposition amendment that would require the bank to borrow from capital markets no later than 31 December 2013.

Let me address why the bank borrowing from 2015 is subject to a test of public sector net debt fall. It is right and proper that the bank’s ability to borrow is subject to the test of our public finances. Given the financial crisis and the size of the debt, it would be irresponsible for the Government to do otherwise, especially given the uncertainty in the eurozone. If we were to vote for the amendment, we would effectively put into primary legislation something that we could not change at just the moment when we do not know our financial outcomes or those in the financial markets more broadly. We would lock ourselves in and that would be foolish.

Photo of Simon Danczuk Simon Danczuk Labour, Rochdale

The country is calling out for some ambition and for active government—manufacturing wants investment and there is a requirement for capital. Over the past two years the Treasury has introduced a range of policies that has pushed the country back into recession—a double-dip recession—and that means, as my hon. Friend the Member for Hartlepool pointed out, that the Government have to borrow an additional £150 billion to £180 billion. Why is the Department for Business, Innovation and Skills so cautious and so careful in countering the Treasury? Why is BIS not fighting the Treasury to say that we want more money and more investment for manufacturing and for this Green investment bank?

Photo of Mark Prisk Mark Prisk The Minister of State, Department for Business, Innovation and Skills 5:45, 26 June 2012

With respect, we are supporting industry and manufacturing. Indeed, the success of encouraging the investment of £4 billion in the automotive industry in the last two years, despite one of the most difficult financial environments, is something of which I am proud. We are battling, and we are ensuring that we secure that investment. We will only achieve a long-term economic improvement, if I can stray slightly from the Bill to answer the hon. Gentleman’s question, if we make sure that we get our finances right. The poor souls who live in some of the eurozone countries now find that no matter what they do their interest rate bill continues to rise because they are not regarded as creditworthy. That means that they will be on the back foot for a decade or more. That is the balance.

Returning to the specific point on the amendment, the hon. Member for Hartlepool does not seem to recognise that the nature of the UK’s public accounting rules means that the borrowing of a bank in public ownership appears on the Government’s balance sheet. That matter seemed to be tucked away; I did not see any recognition of that from the Opposition. The most accurate way to account for the bank’s impact on the national finances is to put the figures on the balance sheet. We saw a lot of off-balance sheet activity under the previous Government, and that is not the right way to do things. It is important to ensure that the system is sound.

It is on that basis that the Government will seek state aid approval from the European Commission in respect of the bank’s borrowing before the end of this Parliament. That is our intention, it underlies the amendment and it is what many people are looking for. That is a commitment that Ministers have set out and that we will stick to. We believe that the £3 billion funding to 2015 is appropriate and that the plan to borrow thereafter, on the basis that I have said, is right. It will ensure that in years to come, the GIB has the best chance of becoming a future KfW or similar. The danger of putting into primary legislation a commitment to borrow in a year hence, when no one in this Room can actually say what the financial circumstances will be, would be imprudent. On that basis, I urge Members to resist amendment 6.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

The Minister is a good performer, and I enjoyed listening to his speech, but I disagree with him. As I said in my opening remarks, we need to have a greater degree of urgency to grasp the enormous opportunities that exist. If we think about the six or seven sectors in which Britain could lead the world in 2030 or 2040, the low carbon economy is one of them,  but the window of opportunity is narrowing very quickly. By setting out a clear framework, without the ambiguities of current Government policy, this amendment would allow investors to think that there is some degree of certainty there that borrowing would allow us to leverage up additional capacity to be able to exploit those commercial opportunities in the long run.

I stick by my amendment because it provides a good middle way—not borrowing now, but putting in place procedures in the medium term to ensure that the Green investment bank can borrow for the benefit of the British economy. On that basis, and given the strength of feeling on the Opposition Benches, I will, with respect, disregard the Minister’s response and test the opinion of the Committee.

Question put, That the amendment be made.

The Committee divided: Ayes 8, Noes 10.

Division number 4 Decision Time — Clause 4 - The UK Green Investment Bank: financial assistance

Aye: 8 MPs

No: 10 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I am buoyed up by the fact that we are closing the gap. Politics is all about momentum, and I am confident that if I keep the Committee here for long enough I will be successful in one amendment.

This is an important clause about the funding of the Green investment bank, and I have a few questions for the Minister. We have talked about the £3 billion that the bank will have at its disposal, but I am not convinced that that is true. The Minister mentioned the funding in response to the amendment that we have just considered. My understanding is that £3 billion may be pledged over the lifetime of this Parliament. The spending review in 2010 stated that the Government would capitalise the Green investment bank with £1 billion by 2013-14, together with proceeds from the sale of Government assets. With only £1 billion available until 2013, I understand that the rest will be provided for in 2014-15 onwards. Have I interpreted that correctly? Nothing was mentioned in the Budget beyond a cursory sentence about the matter, so I want to press the Minister on this. To a large extent, we have accepted the figure of £3 billion, but is that correct? What is the spending profile in each year, starting from this year and moving forward to 2015?

Photo of Mark Prisk Mark Prisk The Minister of State, Department for Business, Innovation and Skills

I am happy to answer that straight away. The commitment is £3 billion in funding to March 2015. It is £775 million, as I said earlier, in the current financial year. It will be £1 billion in the next financial year, and £1.225 billion, totalling up to £3 billion over three years.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

That is very helpful. I thank the Minister for that. Could he also outline to the Committee how some of these investments, and perhaps more importantly, the nature and principle of the investments, might work? When giving evidence last week, Paul Lee seemed to strongly suggest that what is required from the markets is—this word again—certainty for the Green investment bank to be an effective communication channel between the Government and the markets, especially to ensure that there is consistency in regulation right across Whitehall and probably largely the EU as well, and for the bank to take on the risk on behalf of the private sector.

In evidence, responding to questions from me, Mr Lee said that the structure of investments could be where the Green investment bank took on

“the top layer of risk, leaving a more secure return for the private markets”––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 19 June 2012; c. 47, Q94.]

That would be almost like bond returns. Is that how the Minister anticipates that the bank will operate? Will he give us further details? I draw attention to the excellent publication from his Department about the update of the design of the Green investment bank. That gives a number of scenarios when it comes to investment. Will the Minister elaborate on that matter for the Committee’s deliberations?

I have two quick questions on funding for the bank. The Bank of England is printing money through quantitative easing. Could that mechanism be used for the purposes of the Green investment bank? Could the Bank of England—I recognise that it is independent from Government—channel some of the additional money that has been printed into a green investment bond, and then the Green investment bank would in turn use the money raised to invest in long-term sustainable innovative assets? What does the Minister say about that?

My final question is simple. What happens if the bank is in financial difficulties? Will the Government bail out the Green investment bank? Given that its risk profile will probably be higher than comparable financial institutions elsewhere, and it will therefore be more at risk of running out of money because of cash-flow problems, will the Government pledge to bail out the bank?

Photo of Mark Prisk Mark Prisk The Minister of State, Department for Business, Innovation and Skills

I will address the particular points about the bail-out, the Bank of England and the types of investment. If the hon. Gentleman looks more carefully at clause 4(3), he will see that it is quite specific about grants, loans, guarantees and so on. I hope that gives him some idea of the financial assistance.

In the previous debate, the hon. Gentleman raised a relevant question about state aid, which I omitted to answer. As I said earlier, in the Budget we committed to put £3 billion into the bank. It needs to be able to make commercial green investments with that funding as swiftly as possible, and as soon as state aid approval is received from the European Commission. In response to his specific point, at the beginning of this month, the Commission confirmed that the proposal to operate the UK Green investment bank appears to be capable of being approved, subject to satisfying the Commission’s outstanding concerns. We aim to respond to those concerns as quickly as possible. We are finalising our revised notification, and we will get that back to the  Commission. In timetable terms, that means that we are aiming for the bank to be fully operational this autumn. That timetable is firmly in line on the question of state aid.

The hon. Gentleman mentioned Mr Lee in the context of the financial issue. To support the UK economy in this transition period, it is important to bear in mind that it has been argued that section 228 of the Banking Act 2009 provides legal vires for it to fund the Green investment bank’s initial set-up and investment activity prior to Royal Assent for the Bill. Although we feel that reliance on the 2009 Act is justified prior to the Bill being enacted, we do not think that it is appropriate for the bank over the long term. The clause therefore provides the Government with the express sui generis power to fund the bank in the longer term. We think that will enable the bank to become an enduring part of the UK’s financial system and architecture.

In terms of the range of financial products, although the clause lists a number, the way I would look at it is that there will be a choice of debt guarantee and equity. Each of those will have a number of different characteristics but the bank will certainly be in a position to deliver those products, and that is what it will look to do. I am sure that the hon. Gentleman will understand that, ahead of the bank being formed, I cannot predict the mix of assets—indeed, I cannot guess what the bank directors may decide.

The hon. Gentleman asked about a guarantee. An unlimited guarantee to the bank would, in effect, be unquantifiable state aid, and therefore would not be approved. We intend that the bank would function commercially, and a guarantee would undermine that. That is an important point.

A fundamental issue of the clause is the broader matter of the borrowing and, having considered that, I ask colleagues to agree that the clause should stand part of the Bill.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.