The Green Investment Bank - Environmental Audit Committee Contents

Examination of Witnesses (Question Numbers 190-265)

Justine Greening MP and Peter Schofield

12 January 2011

Q190   Chair: What I would like to do is, Minister, welcome you to our Environmental Audit Select Committee. I think it's your first appearance before the Committee so we're very pleased that you're here to set us off on our Green Investment Bank report, which we are currently doing. We understand that first of all you'd just like to make a brief statement on behalf of the Treasury, so in welcoming you and your officer, Peter Schofield, we would be very happy to have an opening statement from you if that's what you wish to do.

Justine Greening: It's a very short one—thank you, Chair. First, if I can introduce Peter Schofield. He's the Director of Enterprise and Growth at the Treasury, and clearly the Green Investment Bank probably has important aspects of both in it. So, I thought it was helpful to have Peter along today.

  Obviously, we as a Government very much welcome this inquiry because you are almost certainly aware that we've pledged that we want to be the greenest Government in history. We've talked about increasing the proportion of our tax base that comes from an environmental tax, and so that's the macro picture, if you like. But within that, we've got the challenge about the range of policy measures we then take to start delivering on our aspirations around reducing emissions, the tax base, for example. Within that the Green Investment Bank is clearly a key aspect of that policy.

  So, there are clearly a number of different roles that the bank could fulfil, and I'm sure that's one of the reasons why you want to have this inquiry: to start yourselves to look at some of the challenges around having a Green Investment Bank that does the right thing, does it effectively and does it affordably as well.

  From our perspective we see that the primary focus of the Green Bank is going to be to help finance Britain's green infrastructure. I'm sure you're aware of the funding gap that we have over, particularly, the next 10 years to make sure we get the necessary investment in green infrastructure. But I think it's also worth just briefly mentioning that if we do this well it will have broader beneficial effects for our economy. There's a clear interest for our country in continuing to press to see more growth in demand for green technologies and, of course, Governments across the world are looking at how they can reduce their emissions too. That creates opportunity for business.

  So if we can be at the forefront of that investment, at the forefront of that technology development, it's clearly in our interest and therefore we want to make sure that policies, particularly like the Green Investment Bank, put us in a position to be able to do that. So it's not just about the environment, although that is clearly the thing that's driven us to start to develop our policy around the Green Investment Bank. We think there's a broader imperative around the economy.

  I'm looking forward to the questions that you've got over the coming hour and a half, I guess.

Q191   Chair: That's really helpful. We do want this to be an inquiry that is going to be able to take this whole agenda further forward. I think, because we have got a lot of ground to cover in our questions this afternoon, we'd appreciate short responses. I think in the first instance we'd like just to have some idea of how much you are personally involved in this; how much the Treasury has been involved with all the negotiations that are going on with BIS and so on in developing the context of the Green Investment Bank; just to get some idea from you of how many civil servants are involved in this and whether or not there's any difference of opinion between the civil servants; and how this has been taken forward by the Treasury and what the mechanism is for your interacting with the Business Department as well.

Justine Greening: There are quite a number of questions there. In terms of my involvement, you can imagine we've had a ministerial group of new Ministers in the Coalition Government leading this. It's been a cross-departmental group. I think it's fair to say that the three Departments that have been most heavily involved have been, clearly, BIS, who lead this policy development and are, at the moment, leading the work to develop the potential models for the Green Investment Bank; but of course, because of the state of the finances the Treasury has a clear interest in ensuring that we get something that's affordable and we think is effective and value for money; and, of course, DECC. So those are the three Departments that perhaps will be more involved, but not only those. Clearly, there are other Departments interested—for example, DEFRA and Transport.

Q192   Chair: How many civil servants from the Treasury have been involved in taking the proposals forward?

Justine Greening: I think it's probably better to ask Peter that. But what I would say is I've not had a concern that we haven't had enough. So this has been one of our priorities within Treasury. We've put an awful lot of effort into working alongside BIS and to making sure that we play our role in it. In terms of the specific numbers, it's probably better for Peter to answer that. As you can imagine, I sit in meetings with more senior ones. It's less clear to me how many underneath those within the organisation work on the policy.

Peter Schofield: Well, Chair, very much at an official level, the sort of structure across the Government mirrors the structure that the Minister has described at ministerial level, so there's a group chaired by BIS, which the Treasury are represented on. Within the Treasury I lead the work at director level. I'm supported by the expertise in Infrastructure UK, which is part of the Treasury, and brings with it expertise on project finance and corporate finance. That's particularly helping with BIS on the market study and the market work—trying to understand what models might be effective in terms of delivering the objectives that the Minister has described. There are two individuals in Infrastructure UK who are working on this. I wouldn't say they're working on this full time, but they are working on it.

  I'm also supported by people from the environment, energy and agriculture team within the Treasury, though again, there are probably two or three people who support me on that side as well.

Q193   Chair: I just think from the point of view of our inquiry it would be—perhaps it might be helpful to you, I don't know, as much as to us, if you could just squash some of the debate that there was in the media: that there's a difference of opinion between the Treasury and the Business Department, and that there's no question whatsoever of officials in the Treasury having a different view from officials anywhere else.

Justine Greening: I think any time you're developing a policy there's clearly a number of different ways in which the Green Investment Bank could operate. You have to look at what its role and remit can be, what its relationship with Government should be, what it should get involved in and what it shouldn't get involved in. I think that that is an inevitable discussion process that takes place. But I can honestly say I think all the Departments have worked together incredibly closely on this as we try to work out the answers to some of those questions, and of course BIS are now working through the practicalities of some of the options we have around the different models and the market-testing that needs to happen. As Peter said, Treasury can be particularly helpful in that aspect of it because of course, our natural links with the City and with the investment community mean that we can probably provide some good advice about what models we think will work within the market that we want to leverage in private capital from.

Q194   Chair: So there's no difference of opinion between yourselves and BIS on that?

Justine Greening: I don't think it's—no, not particularly. We're at the stage of trying to work up a distinct policy. As you'll know, our plan is to bring forward the proposal within the spring, probably around May this year, about what the specific model will be. So of course, to get to that point you inevitably have to talk about a range of different options, so we're going through what I see, having spent a long time in business, as a pretty natural process of having a discussion about what those options are and then trying to work out which we think the best ones may be over time.

Q195   Chair: Just moving on very quickly, once the Green Investment Bank is up and running what kind of day-to-day role will the Treasury have or not have?

Justine Greening: That very much depends on the final business model because in a sense it depends on whether we—first of all, we definitely want it to operate at arm's length. We want it to have private sector expertise coming in to understand the investment decisions. However, there are particular models that could mean it has a closer relationship with Government purely because, for example, the organisation is close enough to Government that it ends up being within our public finances, in which case it has one relationship. If it has a relationship where the way in which its operations are dealt with is sufficiently independent that it's outside of public finances, then it has a more independent role and obviously Treasury is less involved purely because there's less of a direct public finance impact on it.

  I think it's fair also to point out that the most important thing is not the model but what the Green Investment Bank is ultimately able to deliver. So that's the ultimate test for us: what's the effectiveness of it in terms of tackling some of the market failures around risk and around making sure we get more private investment in, and to what extent can the Green Investment Bank start to unlock some of that private investment and leverage it into the technologies and the infrastructure that we need to see it coming into over the next decade?

Q196   Chair: But won't its effectiveness depend on the model that's adopted?

Justine Greening: Absolutely, and I think there's clearly an intrinsic link between the two, but what I'm saying is that ultimately, what I want is to make sure that I get something that's most effective and the model that delivers that is the one that we want to go for. Of course, beneath that are two other tests that we've got, not just effectiveness. One is affordability, so we've got a clear imperative to sort out public finances. We have to make sure that we deliver that over the coming years. But also then transparency, so that people understand what the role of the Green Investment Bank is and what its relationship is with Government; and then if there are liabilities, how much they are and, if you like, whether they are accounted for within the Government public finances or whether they are something external to that.

Q197   Neil Carmichael: Can I just clarify, Justine? To what extent do you agree with those who say that the Green Investment Bank needs to be properly independent from the Treasury?

Justine Greening: I think we do want to see it working independently. I think that's something that we've always been pretty clear about from the beginning. It needs to be operating independently. It needs to have private sector expertise, so I don't think that's particularly been an issue. I think the key thing, as I've said, is ensuring that whatever that relationship is, it's appropriate to the model that we've got, and that ultimately, that model is effective in leveraging in the private finance that we need to invest in low carbon technology.

Q198   Neil Carmichael: This line of questioning is designed, I think, to tease out the risk of the Treasury interfering too much in the Green Investment Bank, or at least starting to count what the Green Investment Bank might have as liabilities as part of public finance. So that's what I think Joan is heading for and it's certainly what I'm interested in.

Justine Greening: Okay. I think in a sense, you're right, in that a different kind of model will mean Treasury naturally has a different relationship, in the sense that if it's the model that sees the Green Investment Bank's liabilities, for example, and assets as part of public finances, then necessarily it has a closer relationship with Treasury because it's our job to make sure we manage public finances. We've got to tackle the deficit. We've got to start tackling our huge levels of debt. If it's a model that is more arm's length from the Government and is not therefore within the public finances, at that stage clearly there's a different relationship to Treasury.

  What I do want to say, though, is I don't know whether members are more used to the Treasury of the days gone by, which was very interfering. Clearly for us as a Government, and for myself as a Treasury Minister now, and then as somebody who spent 15 years as an accountant in industry working with organisations on budgets, I think the intention is that we have a constructive role, but at the same time we want to make sure that we play our fundamental role of ensuring that we can tackle our public finances. That's our job. We've gone through the spending review and I think it's worth pointing out that, in spite of probably what had to be the most challenging spending review that any Government could probably have had to approach, we did find money to capitalise the Green Investment Bank and we have said that we want to see more money go in from asset sales over the coming months. So I think in spite of an incredibly tough financial position that we find ourselves in as an incoming Government, we do want to support it and Treasury wants to support the Green Investment Bank.

Q199   Neil Carmichael: There's another debate going along, which is basically, should it be a bank or a fund? What's your thought on that, and how far have you got in terms of defining that?

Justine Greening: I think I come back to my earlier comments. I'm less hung up on the semantics and more interested in whether the ultimate model that we end up with will deliver what we need, which is to start plugging this big investment gap we have between what's currently been invested in low carbon technology and infrastructure, and what we need. I know that members of the Committee will be aware that there's a varying range of estimates about what the gap could be. I think Infrastructure UK within the Treasury have said it could be around £100 billion. Of course, Ernst and Young have said it could be significantly higher. That's what we need the Green Investment Bank to play its role in doing.

  I'm less hung up, if you like, on the word than whether we ultimately end up with a model that can do it. I think it's fair to say that the FSA would say, for example, a bank is something that takes retail deposits, and I know there's been debate about whether it should be able to borrow. So everybody has got their own definition of what a bank is. What matters is whether the model we have delivers effectively in helping us close the investment gap that we want to close to get the investment into low carbon technology and green infrastructure.

Q200   Neil Carmichael: What about the degree of guarantee for investors that the Government might provide? Have you got any thoughts on that and how far would you wish to go down that route?

Justine Greening: I think that's obviously one of the considerations that BIS are looking at as they develop all these models, and this comes back to your earlier question about the relationship that Treasury might have with the bank. Clearly, if you had a scenario where there were guarantees, then that obviously means there's a public liability potential and we'd need to understand it. In fact, one of the issues was, can it borrow? Clearly, that might mean there'd be some questions about what happens if interest rates change.

  Those are precisely the questions that BIS now looks at to sort out what's the best way in which we can structure the Green Investment Bank to make sure that it delivers in the way that we want it to on getting more investment.

Chair: Just on that point, Caroline.

Q201   Caroline Lucas: Sorry, you moved on from the issue of bank versus fund more quickly than I thought you were going to, but I just wondered, you yourself have spoken about this huge gap and Ernst and Young are saying it could be up to £450 billion at the top end. If it were a fund, how could a fund leverage the kind of private capital that we're going to need on that kind of level? I can't see how a fund could do that. How would a fund be able to borrow and be able to have bonds and do all of the things, have all the tools necessary to leverage that amount of capital?

Justine Greening: You're asking the sorts of questions that—within BIS, we're trying to work through some of those challenges. I think it's fair to say the Green Investment Bank isn't the only way we can try and encourage more investment in these technologies. So you'll know very well that we've just released the Electricity Market Reform. Within Treasury, just before Christmas, earlier in December, we issued the consultation on putting in place a carbon price floor. There's also the Green Deal. So if you like, there are supply side issues and policies that we're now consulting on that we think could create a better investment environment alongside the Green Investment Bank, and then there's almost a pull factor on the demand side for Green Deal. I think you have to see the Green Investment Bank in the context of all of that. Do we want to make sure that it is something that has a substantial and significant ability to pull in and leverage in, critically, private sector finance into some of these key projects? Absolutely.

  I think the other questions are, for example, you could have that finance coming in at the institution level—the Green Investment Bank level. You could clearly have that finance coming in at the investment opportunity level of a particular project, and those are the questions that we've got to work through—your point that there are a number of different aspects of how the Green Investment Bank could operate—so that we've reached a conclusion on all of those and that as a whole, it can operate successfully.

Q202   Zac Goldsmith: Just very briefly on that point. I welcome everything that you've just said, Justine. I think it would be a mistake to see the Green Investment Bank in isolation from all the other levers and policies. But on this distinction between bank and fund, I think it's right to say, of all the people who have given us evidence here in this inquiry, there is complete unanimity that the bank needs to be able to issue bonds and it should be a bank not a fund. More than that, at a ministerial level, all the way up to the Prime Minister, I think it is also correct to say that there is a consensus on this issue—more compelling than I can think of, at least, than on any other undeclared or undecided policy. We've heard some very bullish statements from Chris Huhne and the Prime Minister, and so on. What I'm finding hard to understand, being new to politics, is where is this uncertainty coming from? Where are the newspaper articles? There have been a number of newspaper articles in the last few days saying that it's going to be a fund not a bank, it's not going to be able to issue bonds, and it's just very hard to understand why that should be the case, given the consensus both outside of Government and at a ministerial level.

Justine Greening: First of all, it's very difficult for me to comment on newspaper articles written by a journalist who clearly just needs to sell papers at the end of the day.

Q203   Chair: You could set the record straight once and for all.

Justine Greening: I think it's just symptomatic of the fact that there are different options around how we can set up a Green Investment Bank. We wouldn't be doing the right thing if you don't have a proper look at each of them and understand the pros and cons. We've got to get this right and, critically, we've got to get it right first time. I think that's the other reason why we want to make sure we go through a period in the early part of this year and later on of market testing, because it's not just what—we might have our particular view as a Government about what we think can be successful, but ultimately it has to work for the investment community, and so your questions about size and capacity are absolutely the ones that we're looking at. But the secondary question is then, well, having reached a conclusion on that, is it something that the investment community is going to say, "Well, this is a vehicle we can use to put money into these technologies in a way that we otherwise wouldn't have done".

  Clearly, I think it's fair to say that there would be part of the investment gap that we've got that's closed purely by the fact that there are good commercial opportunities, and therefore the Green Investment Bank shouldn't be crowding out those. But what we want to do is crowd in money into those projects where there are perhaps market failure issues around risk that are causing people to stand back when we think that instead, with help from the Green Investment Bank, they can come in and invest.

Q204   Caroline Lucas: That being the case, would it not be clear that a bank would be much better placed to play that role than a fund? I can't understand beyond the fact that, as we know, if it's a fund it means that there are fewer problems when it comes to what it looks like on the Government's books in terms of adding to the deficit and so forth. But that apart for a moment, if you're looking at what is going to be most helpful in those cases where commercial banks aren't going, what possible reason could there be to go for a fund rather than a bank?

Justine Greening: In a sense you're pre-empting where BIS are going to get to and the work that they're doing looking at the potential different models, so I've no doubt that Vince Cable will also be able to answer that.

Q205   Chair: Sorry, I think what we want to get at, which is at the crux of all the evidence that we've had, is what's the Treasury's slant on all of this and whether or not there's a steer of one kind or another from the Treasury? Because it'd be much more typical, I think, for the Treasury to let go than perhaps it might be for other Departments to do that.

Justine Greening: Coming back to the three tests that I said at the beginning—that we want to make sure the Green Investment Bank we end up with as a model is effective, and is affordable and transparent in terms of its role, its relationship with Government and its liabilities; but I think the affordability question is important. It would be great if we could just say, "Setting that aside"—it's a bit like a company managing director saying, "Setting aside the fact that technically, we nearly had the receivers come in". You can't quite do that, so we have to find a way through all of these different challenges because of course, we've got to have something that's sustainable and we won't be able to do that if we don't have public finances that are sustainable.

Q206   Caroline Lucas: Can I come back to that? I think that's at the crux of it because when I said "set it aside" I meant set it aside for the purposes of this argument, not set it aside permanently because obviously it can't be set aside; but doesn't that come back to exactly what kind of model one has in mind in terms of what's going to kick-start the economy and so forth? If you were to invest, having it on the books, with a proper Green Investment Bank that could lever in the sort of money that we're talking about, the knock-on impact in terms of what that would do for the green economy would pay you back in spades. So it's to do with a short-term economic equation now and, yes, it will show up on the books in a negative way, if you like, as a deficit in the very short term; but if you were to believe in the fact that when you invest in green energy, for example, that brings back money into the economy and saves us money—there's a longer term economic equation there that again points towards a bank, not a fund.

Justine Greening: I think we do have to find a way to strike an appropriate balance. There's no doubt about that. What you're highlighting quite rightly is there are different models we could have and clearly, different people have different views about the pros and cons of those models. That's precisely why we need to go through the process that BIS is leading right now to say, "Well, you know, what are the trade-offs?" I think ultimately we need something that can tick all of those three boxes I've talked about, that can be effective, that can be affordable and at the same time is also transparent for investment.

Chair: Is your question on this point, Ian, because I'm conscious we have to make some progress?

Q207   Ian Murray: Yes, it's on this very point. Given the answers that you've articulated from BIS and the process it's going through, what's the Treasury's view of what the Treasury would prefer?

Justine Greening: I don't want to get too repetitive, but I think BIS is leading the work, and we are working with them, and we will look at all these options through the lens of these three criteria about the bank being effective, affordable and transparent.

Chair: Okay, we've got those three, I think.

Q208   Neil Carmichael: Yes, we've got that one. So, options open, then. Have your officials been giving you some advice on the way in which the Green Investment Bank would avoid being accounted in national accounts?

Justine Greening: The ONS effectively sets the accounting standards, if you like, that determine how our public finances are reported. It's probably worth noting that, in terms of debt, which of course clearly is a huge issue for our country right now—also across Europe, but obviously particularly for Britain—our definition of public sector net debt is broader than other countries'. One of the questions that's come up in relation to the Green Investment Bank has been, well, other countries have a quite narrow, or narrower, definition of debt. They look at basically local government and national Government debt added together.

Q209   Neil Carmichael: But in terms of our definition?

Justine Greening: In terms of our definition, it's far broader. We think that's better because it means that it is more transparent and it's more credible. Critically, it's what we've used in terms of the way in which we talked about our fiscal mandate of tackling debt.

Q210   Neil Carmichael: So have your officials come up with a structure that would avoid a Green Investment Bank being looped in with national accounts?

Justine Greening: It depends on the model, effectively.

Q211   Neil Carmichael: I know that, but have they come up with a description of any model that would achieve that objective?

Justine Greening: I can see Peter's chomping at the bit here.

Peter Schofield: I wonder if I may help the Committee. As the Minister said, the decision as to whether any entity is scored into the public sector or the private sector is one taken by the Office for National Statistics. They operate independently and follow European and international guidance, but critically, what they look at is the degree of control and within that the degree of financial exposure that might fall to a Government.

  You can create plenty of entities. Entities clearly operate across the economy that are in the private sector, but those are the critical elements that would be looked at by the ONS as a Green Investment Bank is created, as to whether it should be scored in the public sector or whether it should be scored in the private sector.

Q212   Chair: So you say it's the ONS's decision?

Peter Schofield: It's the ONS's decision as to whether a body should be classified to the public sector or to the private sector, that's right.

Q213   Zac Goldsmith: Would the ONS also be able to provide advice as to how you might be able to create a bank in such a way that it doesn't have the impact we're concerned about? They don't just passively respond to presentation—

Peter Schofield: I mean, the ONS operate independently.

Chair: Surely the Treasury has some view on it. Sheryll.

Q214   Sheryll Murray: Could I just ask you, have you been given any specific examples of a body that you could introduce that would, first, have an effect on the national debt and, secondly, would not? Have you got any examples that you could give to me—that is, if you had a fund, it wouldn't impact on the national debt; if you had a bank that was operating in this way, it would? Could you give me some examples of what you think would constitute both of those areas?

Peter Schofield: I can give you examples on either side of the boundary. Your question may well be about the grey area in the middle which, of course, for obvious reasons is much more difficult. Clearly, if an entity is created by the private sector where there is no element of financial exposure to the Government, and where the Government have no element of control, then I would imagine—unless there is some other element of a contractual relationship with Government—that that would be classified by the ONS to the private sector.

Where there's a body that is created by Government in some form where the Government have a degree of control over the operation of that body, where the Government are providing the finance, then the ONS will, I imagine, classify that to the public sector.

  So those are the two—it goes back to the criteria that I was describing in answer to the earlier question. When you look at those criteria, they are what the ONS would be considering in making their judgment.

Q215   Chair: We have spent a lot of time on this area but I think it's the concern of all members of the Committee that it's the grey area in the middle. It's that which everything then depends upon, and whether or not that then relates to legislation that may need to be introduced and the speed at which that legislation gets introduced. How is that going to be resolved, that grey area in the middle? How, Minister, is the appraisal that you talked about—looking at the different options to achieve those three objectives of transparency and so on—going to be resolved? What mechanism have you got for resolving that because people want to know what the actual model will be?

Zac Goldsmith: And when.

Chair: And when, yes, exactly.

Zac Goldsmith: It would be useful for our report.

Justine Greening: Quite right, and we talked in the spending review about being clear about what the model would be in spring 2011. I think we're sort of expecting, hopefully, to be talking more details around May time.

Q216   Chair: Does that mean there's going to be a piece of legislation and it's going to be in the BIS business plan?

Justine Greening: I guess, whatever the model is, we would need to see to what extent it needed legislation to enable it. But perhaps if I can give you the overall timeline, that probably would help. What we're aiming for is for the BIS-led piece of work looking at the different models and the market-testing around that to take place this year, but to be able to give some more details about what we expect the model to be around May time. Of course, there are some logistical operational issues around back office, literally making sure a Green Investment Bank as an organisation can function. That's another thing that we need to look at over the course of 2011.

  I think the intention is to see it up and running in 2012 and, I think, what we'd like to be doing is to start reporting on its operations—what it's lending, what sort of investments it's making—in the following year, 2013. So I hope that helps to set out some of the milestones that we've got going forward for the Green Investment Bank.

Chair: I think we need to move on now to perhaps other aspects of all of this. Caroline Lucas.

Q217   Caroline Lucas: Thank you. Could you confirm whether the Government are planning to use the Green Investment Bank to fund new nuclear?

Justine Greening: As you know, one of the coalition agreement aspects was that there wouldn't be a subsidy for nuclear, and it is very clear-cut in the guidelines that DECC has issued that there won't be a levy, there won't be direct payment or market support for electricity that's supplied or capacity provided by private sector new nuclear operators. So I think it's very important to be clear-cut about that.

Q218   Caroline Lucas: But it's sort of not quite that clear-cut, is it, because I was looking on the BIS website and I noticed that they were seeking tenders for consultancy work specifically for consultants to look at financial models for each sub-sector of the Green Investment Bank, and one of those six sub-sectors is indeed new nuclear? If the Treasury provides a guarantee for investors' capital invested in the bank, then that could help the bank keep its cost of capital lower than it would otherwise be. In other words, that is an implicit subsidy. So on the one hand, in the BIS tender it's clearly saying new nuclear; on the other hand, if that were to be funded by the Green Investment Bank, that could be seen, I think, as a subsidy.

Justine Greening: You've got two things. One is a fact, which is the fact is the DECC guidelines are very clear that there will not be subsidy. And then what you're talking about is the potential for a potential green model to potentially then—and I think that is, to my mind, a leap too far. So we've been very clear-cut in the coalition agreement. We've been very clear-cut by issuing DECC guidelines. That's what our Government have said and have issued.

Q219   Caroline Lucas: Would you agree that it would be a subsidy? Were the Green Investment Bank to fund new nuclear—were it to be a bank and to fund new nuclear—is that a subsidy?

Justine Greening: I don't think it's fair for me to jump the gun and say what the Green Investment Bank will or won't be investing in. What I can assure you is that we're going to stick to the guidelines that DECC has issued.

Q220   Caroline Lucas: But it doesn't make sense. I'm sorry, but with respect, Minister, it's clear in the tender that new nuclear is being proposed to be funded by the Green Investment Bank. It's also clear that if it is a bank, then that means there will be some degree of Government support to it—ergo, some kind of subsidy. So how are those two things compatible?

Justine Greening: It's very hard for me to go further than what I've already said, which is—the problem with your question is that it has one important word in it, which is "if". My answer is an absolute fact, which is, we have the DECC guidelines that are very clear-cut about what they say we will not be doing, which is, there won't be the subsidy for nuclear. So it's very difficult for me, and I don't think it appropriate for me, to comment on an "if" question when we've already been very, very, very clear as a Government in issuing the guidelines about our position in relation to Government support for nuclear.

Q221   Caroline Lucas: I guess I can only say, to conclude, that it looks to me that if in the tender document people are being asked to do models on new nuclear, that presumably means the Treasury has already decided—or someone has already decided—it's going to be a fund, not a bank, because if it were a bank they wouldn't be able to do that because it would be a subsidy. That's the conclusion I draw from what you've said.

Justine Greening: Obviously, you can draw any conclusion you like.

Q222   Chair: But would the Treasury have any other views on what is or isn't a subsidy, or how you might define a subsidy that would perhaps get included even in the Green Book, which would then determine strategic investment decisions elsewhere?

Justine Greening: Clearly, over the years various Governments have provided various subsidies for various industries for various reasons, but now—

Q223   Chair: But this Coalition Government have said, no subsidies.

Justine Greening: What I was about to say is we've been very, very clear about our position in relation to subsidies and nuclear, and I don't think I can really go beyond that because, in a sense, it's so clear-cut—it's difficult for me to elaborate further when it's very, very clear cut—which is that there won't be. So I think I would direct you to the DECC guidelines, and I think they're absolutely clear about what the Government policy is in relation to nuclear.

Q224   Sheryll Murray: If the Green Investment Bank—or indeed the Green Investment Fund—were making a loan at commercial rates, or across the board at maybe lower commercial rates than somewhere else, and it was being repaid, surely that's not a subsidy anyway, is it?

Justine Greening: I guess the key thing with the DECC guidelines is that any Government policy-related decisions would have to be seen to comply with those guidelines. So it's very difficult to say, we could end up with this hypothetical potential investment deal on the table in several years' time. That's something that we will work our way towards— what the Green Investment Bank model ends up being—but what I can tell you is, if you like, the context in which any Government-related decisions will be taken, and the context will very clearly be the DECC guidelines.

Q225   Zac Goldsmith: Minister, are those guidelines the legal guidelines? If favourable conditions were offered by the Green Investment Bank which were defined materially as subsidies, could that therefore be challenged against the guidelines that DECC has produced?

Justine Greening: That's probably a better question to direct at a Government lawyer, in a sense. It's like any Government policy—there's a sort of legal basis within which it stands. I think I can probably be no clearer with the Committee than I have been. I think we've been crystal clear about our position as a Coalition Government in relation to nuclear and its not having subsidy. I think that that's something we intend to stick to, so I don't think there's any question mark over whether that's something that we'll stick to or not.

Q226   Chair: Minister, I do want us to move on from this, but to round this set of questions off, could the Treasury set some kind of a condition that would subsequently influence what may or may not be considered as a subsidy, in the interests of bringing together the whole commitment of the Coalition Government in terms of green investment?

Justine Greening: Whatever the Green Investment Bank model ends up being, it clearly will be something that has been established by the Government and therefore has to fit in with the broader Government approach that we've got and the DECC guidelines, which have already been set out. That's clearly the Department that leads on energy and climate change, and it's clearly the Department that is setting out these guidelines in relation to nuclear. I don't know whether the Committee is particularly concerned about that—whether those guidelines are just there for show. They're not. They're there because we have made a commitment in that area, and they matter. And I think they should be taken seriously because that's certainly the Government's intention.

Q227   Mr Spencer: Just a little question, Chair, while we're speculating, which we seem to be doing a lot of. The fuel of choice for electricity generation on Earth is still coal. I just wondered whether you saw carbon capture as something the Green Investment Bank should be looking to invest in. If we can position UK electricity generation carbon capture at the forefront of global industry, we could build quite a big industry and an income for the United Kingdom.

Justine Greening: It's a fair point to mention carbon capture and storage, because as a Government we've said we want to go ahead with the four projects to look at how we can develop that technology. At the spending review we committed £1 billion to the first pilot project, and we talked about, in the Budget coming up, looking at how we can fund the rest of those carbon capture and storage projects. I think we agree that they are incredibly important. And therefore, again, in spite of the huge financial challenges that we faced as an incoming Government in both the emergency Budget and the spending review, we thought it was important to continue to push ahead with these projects.

As you point out, there are many reasons why we wanted to push ahead with those, but certainly there are two main ones. First, we are determined to reduce our emissions and meet our targets. Certainly, on the Conservative side, it was our proposal to have a Climate Change Act in the first place. Secondly, clearly there are real commercial opportunities for us in terms of technology and know-how if we can go through this project and hopefully be successful. So I think it's something that, as a Government, we've been trying to get on the front foot on from the word go, and to commit some resources to that and to look at how we can commit further resources and make sure we've got the funding in place to do the remaining pilots.

Q228   Caroline Nokes: We learnt in the spending review that the Green Investment Bank is to be capitalised with £1 billion of Government funding, and from the future sale of assets. Two questions based on that: first, is that £1 billion enough and, secondly, do you have a time frame for the amount and a timeline for those asset sales?

Justine Greening: In terms of the question, is the £1 billion enough, I've got probably go back to this constant challenge that we have in Government—but particularly, you're sort of in the crosshairs within Treasury of trying to make sure we've got our investment of funding where we want it and where we think the public wants it, and we're meeting our various priorities, including the Green Investment Bank, while at the same time making sure that all the numbers as a whole add up to something that means we can tackle the financial deficit and start to be in a position to tackle some of our debt.

  So we felt the £1 billion was substantial, but we recognise that it would be good if we could have the potential to have further capitalisation go against the Green Investment Bank over the coming years. So there will be an asset sale programme that we are now commencing. Clearly, when funds become available in part it depends on how fast we sell the assets, making sure that we get good value for money for the taxpayer. But I think it's very positive that we are identifying some additional capitalisation that's come in.

  Again, let's not forget that we very much hope, and the whole point of the Green Investment Bank is, that whatever that seed capital, if you like, from Government, it can leverage in a huge amount more from the private sector.

Q229   Caroline Nokes: So have you any idea what you might get from the proceeds of asset sales, and when?

Justine Greening: It's probably not wise for me to give a figure or a timeline at this point.

Q230   Caroline Nokes: How did you determine that £1 billion was a sufficient down-payment?

Justine Greening: We looked at the various challenges we had and what we thought would be a substantial amount that we could use to capitalise the Green Investment Bank, knowing that we would hopefully be able to complement it with some funding from asset sales, but also understanding that the Green Investment Bank sits alongside other policy measures that we were bringing forward around electricity market reform, Green Deal, carbon price floor support, to also create a climate where we were going to get alongside the Green Investment Bank further investment from the private sector into closing our investment gap.

So I felt it important, and I think the Government felt it important, that we didn't just have one thing that we're relying on to close that gap. So, the Green Investment Bank is a key aspect of closing the gap, but it's not the only one. I think that over time, obviously, we will take a keen interest to make sure that the model we bring forward is successful, but also that we do indeed close the investment gap, and that's obviously a challenge for any Government. But we're hoping that the suite of policies that we've got will give us the best possible chance of making sure that, depending on the different reasons why we might not get the investment we want—it's not always a financing issue, so you have to bear in mind that the Green Investment Bank can probably tackle some of the problems where the question is, we can't get finance. Some of the other issues are around R&D and they're of a different sort of problem to get financing into. So the Green Investment Bank is part of the solution and we think that the initial capitalisation is a good start. We think it's critical to get the model right so that we can get the maximum possible leverage into the Green Investment Bank of private sector capital, too.

Q231   Martin Caton: Minister, several times this afternoon you've repeated the Government's intention that the design of the Green Investment Bank will be subject to the tests of effectiveness, affordability and transparency. Can you tell us more about how you will measure these three objectives in assessing the final design?

Justine Greening: Yes. In terms of effectiveness, clearly I suppose at its most basic we've got the assessed gap between what we are currently seeing investing in the low carbon technology and infrastructure versus what we need, and we want to make sure the Green Investment Bank can play a substantial role in closing that gap. So that will be one of the ways in which we can measure its effectiveness. I think some of the other ways in which you'd look at how effective it was—

Q232   Martin Caton: So it passes the effectiveness test as long as it's better than what we've had in the past?

Justine Greening: Well, clearly we haven't had a Green Investment Bank in the past.

Q233   Martin Caton: No, you were talking about low carbon technologies.

Justine Greening: Yes. So, what's important is that it does fulfil its role, which is ultimately to leverage in private sector investment alongside this public sector capitalisation that we're going to put into it. That's the other reason why taking the time to get the model right is critical and taking the time to do market testing is critical. Because if it's going to be successful, we want to make sure it is able to leverage in substantial private capital and that's the clear intention. So that's on the effectiveness side of measurement. And I think part of how you would have to look at its success does in part depend on how it's ultimately set up.

Q234   Martin Caton: What has come across crystal clear this afternoon is that you're not very far forward, or you're at least not prepared to say how far forward you are, with the design of the Green Investment Bank. What you've been very clear about is you've got these three tests, but you seem just as vague on those tests and you're now saying we've got to get the Green Investment Bank set up before we know how to test it.

Justine Greening: I don't think that's true. I think I'm just stating the obvious, which is that you can only know how you would measure something once you know exactly what it is you're talking about, and I think that's simply a statement of fact. Are we right to look at a range of different models and work out which ones will tick the necessary boxes that the Government and the taxpayer and the investment community need ticked? Absolutely. Will, once we've reached the end of that process, we be very keen to go out and talk to the public about what it is and how it can develop over the coming months? Yes. But the main thing for us is making sure that we get to the right point in the right model, and I think that's the most important point.

Q235   Martin Caton: But the way the Government, and you this afternoon several times, have said you're going to do that is by testing it—testing the final design against these three tests. You've now said that you actually need the final design before you can know how to test it.

Justine Greening: I think that's probably not the right way to characterise what I've said. I think—

  Martin Caton: Well, somebody is writing it down.

Justine Greening: I've simply said that there will be different criteria by which we would want to evaluate different models, and that clearly there will be different aspects of those criteria that weigh in importance depending on what model you have. For example, I've talked about affordability. Some models would weigh more heavily perhaps on the public finances than others, so in that case affordability has a slightly heavier mix in terms of consideration, and I think that's just a statement of fact. And in terms of clarity, I think it's just symptomatic of the fact that you're doing an inquiry, in a sense, at the right time, because obviously we're still working through our thinking about the right model and, of course, that inevitably means that when you do your inquiry you're going to get Ministers coming to it before they've got to the end. I guess the alternative is that I could have come and given evidence after we'd worked out what the model was, and then I could have been crystal clear on the model and everything; but then for you as a Committee, we wouldn't have the benefit of your thoughts to feed into that consideration before we'd taken our final decision. So I do understand, in a sense, the frustration on that.

Q236   Martin Caton: In the spirit of transparency, will you be publishing the results of these three tests before you launch the bank?

Justine Greening: Well, we've said that we want to come back with more details of the design in May, so absolutely there will be an ability to see, if you like, what the Green Investment Bank will do, what its role is vis-à-vis Government, what its remit is, some of the issues you've talked about around how it will be set up. All of that is precisely why we want to talk about more details when we've got through this initial process in May-time.

Peter Schofield: I can add a bit more on effectiveness if that would be helpful to the Committee, because one of the issues at the moment is that we are still in the process of the market study and market engagement. Very much as the Minister said, on key effectiveness the test is whether this is leveraging additional private sector funding, and one of the things we need to avoid is crowding out private sector funding that would already be there. So, getting this right is absolutely crucial to the effectiveness test and I'm sure we'll be able to say more about how the model has performed against that test in May, at the end of this market investigation process, when we've been able to gauge what's already out there and where the gaps actually are at the moment.

  Martin Caton: Thank you.

  Chair: Thank you. In my haste to make progress I overlooked a further question that we've got from Simon Kirby—I do apologise—on the scale of the challenge. Over to you, Simon.

Q237   Simon Kirby: That's okay, Chair. I appreciate, Minister, that the final model has yet to be decided, but given the financial mess that you've inherited, how do you ensure the bank stays green? Surely the temptation will be there at some stage in the future to use the money for less green projects.

Justine Greening: Well, I think ultimately it will have to operate within a framework and we've been very clear-cut about why we wanted to set up a Green Investment Bank. I think we will make sure that the safeguards are in place to ensure that the way in which it's investing is in the sorts of technologies, in relation to green investment and low carbon technology, that was intended. I think the other reason for that is actually, in terms of leveraging in private capital, clearly there needs to be some sort of certainty for investors that if they are transacting with the Green Investment Bank or through the Green Investment Bank, that's what they're doing and they're not investing in something that they're not expecting to. So, yes, I think that's a fair question but I think we'll be making sure that there aren't any problems in that area.

Q238   Simon Kirby: It depends on the model, I appreciate that. Do you think it's likely to be a Cabinet Committee that has an ongoing involvement in direction, or whether you'll have a robust framework if you have a more arm's length arrangement?

Justine Greening: I think there are some questions about the corporate governance of the Green Investment Bank and to what extent you should set it a framework and then allow it to operate independently, or to what extent there's a closer relationship with Government. Part of it comes down to this earlier discussion we had about the fact that there are different sorts of models and they maybe have different sorts of relationships. So, I think the organisational outcomes you might get—you mentioned a committee—would be dependent on what model you ended up with.

  Simon Kirby: Thank you.

Q239   Ian Murray: Minister, the projections are that £250 million of the £1 billion capitalisation is to come from the fossil fuel levy. Are we at a stage now where the Treasury really has to sort that mess out, and could the argument with the Scottish Government be preventing the Green Investment Bank from sticking to the timescales that you outlined earlier?

Justine Greening: Obviously, you know the background, which is that we've clearly said that £250 million of Green Investment Bank funding can be there for funding into Scottish renewables, low carbon technology. My understanding at the moment is that offer hasn't been taken up by the Scottish Government, but it's still there and we're still ready to continue to make that offer going forward. So really, the ball is in the Scottish Government's court, and let's hope we get some constructive discussion with them over the coming weeks, and maybe coming months.

Q240   Ian Murray: Perhaps you should write to the Scottish Government again on 6 May; that might help. Will that mean that the Green Investment Bank resources will be restricted to spend in Scotland, then, in terms of that particular package of funds?

Justine Greening: I think we have said that the desire was that we would provide Scotland with that £250 million guaranteed funding.

Q241   Sheryll Murray: The Coalition Agreement states that the Government would create green financial projects for individuals to invest in. Now, I know you've not said whether you'll have a bank or a fund, but would the Government be looking at providing green ISAs, and if so, how important are these? If the bank itself worked out that it didn't need them because it had attracted investment from larger companies, would the Government intervene to insist that they provide green ISAs?

Justine Greening: Well, it's a really interesting point because it sort of gets to this grey area between where Government should be making things happen and where the market can make things happen. And, of course, with our limited funding we want to make sure that every single pound has the maximum effect, particularly around climate change, in reducing emissions. That's what we have to try and be as clear-cut on as possible.

In relation to green ISAs, obviously there are a number of banks and companies already providing green ISAs and I think we're looking at potentially what maybe a Green Investment Bank could do to promote those. And, of course, I suppose theoretically there's also the potential for some of those companies to say, "Well, actually, we do a green ISA as a private bank and part of our investment potentially could be with the Green Investment Bank". So I think there are a number of relationships that we could have in that area and I think you're right to flag them up. To me, what it shows is there could be an exciting future, and I think it shows some of the scope for the Green Investment Bank in terms of making sure we get a very strong relationship with those private institutions that are already interested in this area and able to work. Again, that's why we want to ensure we take the time to make sure we've got the right model and do the market testing, to make sure that we're not going suddenly to be operating in a parallel universe—that actually, we can make sure we fit in with the market that's already there, leveraging in investment for these sorts of projects that we want to see investment go into as well.

Q242   Sheryll Murray: Would you consider additional tax breaks for green ISAs to make them more attractive than ordinary ISAs?

Justine Greening: Well, I think those sorts of tax matters are obviously something for the Chancellor.

Q243   Sheryll Murray: Is it something that you perhaps think could be considered?

Justine Greening: I can't pre-empt the Budget. It wouldn't be right for me to do that.

Q244   Sheryll Murray: But is this under consideration?

Justine Greening: We make all announcements in relations to tax at Budget time. It's a matter for the Chancellor, irrespective of what the area is.

Q245   Chair: But is that something that is actually under consideration?

Justine Greening: As I say, it wouldn't be right for me to pre-empt in any way any announcement.

Q246   Chair: No, we're not asking you to pre-empt, but—

Justine Greening: Well, but even saying what we are or are not considering on any area, in a sense, starts to give a sense that we may or may not do something in an area. It wouldn't be right for me to do that, for a whole host of reasons. Ultimately, what's in the Budget on Budget Day in March is a matter for the Chancellor. He goes through a process of considering his options and then reaches a conclusion, which at that stage gets made public.

  Chair: That's fine. Caroline Lucas.

Q247   Caroline Lucas: You spoke earlier about the fact that the Green Investment Bank would be working alongside a whole range of other tools; for example, the Green Deal. I wondered if you could say any more about what the relationship between the two might be. For example, I was interested in the German bank example where the KFW subsidises the interest rates, essentially, for the energy efficiency roll-out in Germany, which is the equivalent of their Green Deal, if you like. Do you think there could be a role for the Green Investment Bank in doing something similar with the interest rates for the Green Deal?

Justine Greening: Certainly, at this stage the relationship is clearly, on the one hand, we all want to make sure that there's a supply side investment going into these markets, and the Green Investment Bank is part of ensuring that investment goes in for product technology infrastructure development. On the other hand, we also want to make sure that people want it, so it's a sort of push-pull relationship, really, a symbiotic relationship.

You mentioned KFW and I think that is an interesting example. Arguably, it's slightly different because, of course, it was set up in I think the 1940s and since then it's had a huge amount of time to grow. In fact, if you look at some of the other, not necessarily similar banks that are focused on climate change and green technology—most of them aren't per se—but a number of other state banks, a lot of them have been set up in some cases in the 1800s, and they've got quite a long heritage compared with the Green Investment Bank.

So, on your question about whether we will see some subsidies, those are really matters for BIS—their consideration about the model and, ultimately, the relationship the Green Investment Bank has with Government and to what extent Government are directing it; to what extent it's far more at arm's length and actually, it takes its own decisions about whether it will invest in some technologies that could end up being part of a Green Deal in the future. So I think it's no doubt something that Vince Cable, for example—I think you're seeing him on 2 February—can potentially comment on as well.

  Chair: I think we need to move on. Neil Carmichael.

  Neil Carmichael: Yes, I was just wondering—

Justine Greening: Actually, can I just say that I think the point I do want to make is we want to see things joined up. So, they do have to operate as a whole and we don't want to see them conflicting with one another. I think that's an important point to make.

Q248   Neil Carmichael: Are you expecting the Green Investment Bank to be subject to the banking levy?

Justine Greening: Well, in terms of how it fits in with banking regulation generally, that will depend on the model.

  Neil Carmichael: I thought that would be your answer.

Justine Greening: It is the answer, I'm afraid—the right answer, if you see what I mean. It does depend.

Q249   Neil Carmichael: It is the right answer, yes; but the thrust of this Committee has been to tease out, what model? So far—

  Chair: I don't think we're going to get any further on that at this stage. Let's move on to environmental taxes.

Justine Greening: I've explained the innate conundrum, if you like, for the Committee and myself as a Minister.

  Neil Carmichael: Which we're very impressed with, make no mistake, but we're going to persist—

  Chair: Can we move on to environmental taxes if we've made as much progress as we can there. Mark Spencer.

Q250   Mr Spencer: Can I just ask about the general portfolio of the taxation system? At the moment, we're committed to increasing the proportion of tax that's coming from an environmental angle. Can you give us a feel as to what level the current percentage of those taxes is today and the percentage you would like them to get to, and what time scale are we talking about?

Justine Greening: I think what we do need to do is in a sense agree what our baseline is. So, for example, there are taxes that wouldn't per se be classed as environmental tax but ultimately many people would see as having a direct environmental impact; for example, fuel duty. So I think we want to go through a process of understanding, if you like, what our Government assessment is of what the current proportion is. What we said in the Coalition Agreement is we want to see that grow and, in fact, over the coming month I am holding a series of workshops in Treasury where I am getting together a range of stakeholders, not just the environmental groups but also business groups and other stakeholders, to talk about how we can make sure we do this. So, I will be asking them to look at our tax base in relation to people at home, what progress we can make there, what progress we can make at work, and I think there's a sense that we need to join up, if you like, the range of DECC policies in this area already and then how they relate to perhaps some Treasury policies that we've got; and then, of course, transport is another key issue.

But I am quite keen, actually, to have this discussion. If you're me, as a Minister, one day you will have some of the environmental groups in to talk to you about why it's so important that we take particular steps and particular taxes, and they put their ideas. The next day you've got perhaps industry groups with a completely different perspective. What I want to do is get us round a table together and say, "Well, all of those viewpoints are absolutely valid but somehow we need to strike a balance". And what I need to agree with them is where we think those balances should be struck that can then give us a sense of direction about where the areas are where we think we can make some real progress, and that we can get general buy-in to greening our tax base more than it has been in the past. So in a sense, what I want to have is quite a logical process towards understanding what our opportunities are, but also to do that in a way that we understand what the pros and cons are of doing so, so that we don't jump into something without understanding what the consequences are.

Can I make one other point?

  Chair: Briefly.

Justine Greening: Well, the other thing that strikes me about this area in particular is that it's tended to be looked at from the perspective of individual taxes, and then we wonder why—whether you're a company or whether you're a household—you then get hit with a plethora of different initiatives on different areas. Some of them are tax. They don't make sense to you as a whole, and we wonder why they don't have as big an impact on changing behaviour as they might do. What I want to do is look at things from the perspective of the public and the company, back to the tax, not the other way round; that's the key difference that I want to have in these workshops that I'm holding over the next few weeks.

Q251   Mr Spencer: But how important is the tool of making certain investments tax deductible? Is that a tool that you're looking at as well?

Justine Greening: In all of this, I've got to go back to the fact that we're tackling a huge fiscal deficit, and that inevitably constrains us financially. But within that, there are tax incentives. There are different taxes that are intended in changing behaviour. The key is to be very clear-cut about which ones are effective and which ones are not, and to be clear about, if we are able to have £1 less or £1 more in that area to change behaviour, what decision would we then take? Which are the tools that we think do and don't work, and to what effectiveness? I think we need to be far more robust about that than perhaps we have been in the past.

Q252   Zac Goldsmith: Just on this issue of green taxation, I think one of the reasons why green taxes have been unpopular and are for ever being slammed by the press as well is that they haven't historically in this country, with the exception of the landfill tax originally, been transparent and they have probably been stealth taxes, not environmental taxes, if you really analyse them. So the question is, is there a greater appetite within this Government to hypothecate those taxes? I know there's been a huge reluctance on the part of the previous Administrations to do that, but if you can see that you're taxing one thing in order to encourage another and you can see the direct link, it removes the possibility of the Government being seen to be using environmental concerns as a means of raising revenue.

Justine Greening: I think it's probably wrong to say that we want to see more hypothecation, but what we do want to see is green taxes and an approach to environmental tax—and, indeed, the environment more generally—that works and that actually does change behaviour. An approach that works with the grain of what people want to do instead of perhaps what they felt like it's been in the past, where they've been penalised for behaviour that they can't change—that in many cases they would love to change but perhaps for various reasons just can't—and financially may be constrained to do it. So I think we've just got to be clear that we've got to work with people more, and also—this is probably more one for DECC than for Treasury—in the areas where people don't buy into why they should change, clearly that's then an issue where really you've got to win the argument about why behaviour needs to change in the first place. I think that we've got to bring people with us, and they've felt a little bit left behind in all of this. And as you say, Zac, they haven't felt trust. Often they've felt that things have been wrapped up as green tax but, in fact, it's just been about getting money. So I think part of it is about rebuilding trust and I think you only do that by perhaps having a more thoughtful, genuine and successful approach. But that will take time and I should also say it's complex as well.

  Chair: I think we want to turn to a specific tax. Caroline.

Q253   Caroline Lucas: The Government say their looking at changing the aviation tax system, which is an area that the previous Environmental Audit Committee looked at. How would you like to see aviation taxed, and when might we be able to expect a new system to be in place?

Justine Greening: Well, the debate around passenger duty effectiveness and the role of aviation in terms of the environment are arguments that lots of people are very familiar with, and of course, you'll be extremely familiar with them. In terms of aviation and air passenger duty, we've been very clear that we do want to look at reforming APD. I've met up with an awful lot of stakeholders in relation to this over recent months. Any changes that we do make to it will be subject to consultation. We have felt that in the past, big changes to taxes have been made without really consulting the sectors and the individuals they're going to affect. We don't want to do that, so any major change would be subject to consultation, and clearly those sorts of statements would be happening at Budget time rather than in advance. I think it's also fair to say, as you know, that the other key aspect of aviation and environment will be the fact that aviation may become part of the emissions trading scheme in 2012. That clearly will be an extra element of environmental consideration in relation to that industry that has not been there before, and which can potentially have a behavioural change for the industry.

Q254   Caroline Lucas: Potentially. The ETS apart, though, do you imagine it might be changes that would affect freight? At the moment you've been talking about the air passenger duty. Are there proposals to look at how you'd include freight under any new system other than the ETS?

Justine Greening: Yes, I think one of the options clearly that's been discussed is a per plane duty. Of course, one of the questions around that is that at the moment, air passenger duty is what it says it is—it's air passenger duty, it's not freight—whereas per plane clearly gives you an option of having freight in. So there are a number of different considerations around that as an issue, and they're ones that obviously we'll work our way through. I come back to my comments to Mark earlier. What we need to do is make sure that when we're making changes, we fully understand how they're going to impact on industries and individuals in jobs, and that's why we're very clear-cut that if there are going to be major changes, they've got to be consulted on.

Q255   Martin Caton: The Government have announced that they will reform the climate change levy to deliver a floor price for carbon. How quickly will you be able to make the higher tax bite, given that new low carbon infrastructure requires a lead-in time to produce?

Justine Greening: Well, the consultation was launched in December and what that talked about was a steady rise, bringing in a floor and then seeing that floor rise, precisely, Martin, so that those longer-term decisions on investments can be made. So, in other words, those highly capital-intensive utility companies can understand exactly what the carbon price will be going forward in a particular year, and they can make their investment decisions accordingly. So, hopefully, that should start to bring some certainty to investment decisions, and people have a better understanding of their revenue streams, which means they're best placed to invest.

In terms of timelines, we've done the consultation now; our intention is to bring forward some legislation in the Budget in 2011. So, clearly, this is something we want to be in the position to get on with, but alongside that there's this long-term trajectory, which is a key part of it that we want to set out for business.

Q256   Martin Caton: Some people had expressed concern that by introducing a floor price, we might end up shifting investment to our European Union partners who haven't got a floor price. How are the Government going to tackle that?

Justine Greening: Well, clearly we've done a consultation to make sure that we get it right. As you can imagine, in advance of that I've spent an awful lot of time talking with the industry and different stakeholders, including environmental groups, about the pros and cons of a carbon price floor. Certainly, my personal view is that the certainty that it brings creates a better investment environment for utility companies, and I think that alone is something that they very, very much welcome. The initial reaction to the consultation has been very positive, although we'll wait to see over the coming weeks ultimately what everybody says.

Q257   Martin Caton: Do you think there's any danger that our big utility companies, which are mostly foreign owned now, will actually start to produce energy abroad and import into the UK to avoid the higher climate change levy?

Justine Greening: Let's see what their consultation responses say, but my sense is no. I think that the secondary issue you raise, which I'm sure is one that's really of interest to your Committee, is around energy security. I think that's a very important and fair point to bring out, and of course, some of the electricity market reform that is encouraging investment ultimately in renewables will have this benefit of helping that challenge around energy security.

Q258   Martin Caton: I have to say those were devil's advocate questions, but can I ask how will revenue from the additional tax be used?

Justine Greening: Well, I think we've just had the question about hypothecation and it's probably impossible at this point for me to say specifically what that would be used on. Clearly, reducing the deficit is our key issue, but as you've seen with the spending review, we've invested across the board in public services, not just environment. So, I think the answer is, hopefully, effectively.

Q259   Mr Spencer: Climate change policy involves a whole web of different obligations and taxes all aimed at cutting carbon, and clearly some of those reforms are going to almost culminate, I suppose, in a climate tax. Now, will you use the opportunity basically to simplify the taxation system?

Justine Greening: To answer your question directly, I think we do need to look at the complexity of the overall myriad of policy measures that were left in place in order to tackle climate change and reduce emissions. There's no doubt that, whether you were a business in particular or an individual, an awful lot of different policy initiatives were going on that I think people in industry found difficult to manage collectively, and as individuals and households they couldn't really get a grip on exactly which ones were meant to do what.

I think in relation to tax there is a need for simplicity, as much as because we don't like having complexity in the tax system. That's just generally not a good thing. We want to see simpler tax overall. But also I think if you're going to change behaviour, then simplicity is probably the best way in which you can do that and not have unintended consequences.

Q260   Mr Spencer: I suppose, depending on which sector of industry you're in—we've heard about aviation—those sorts of taxes will impact on you differently. Have BIS made any representations to the Treasury on what impact some of these measures might have on different sectors?

Justine Greening: Can you be more specific when you say "some of these measures"?

  Mr Spencer: Well, whatever taxation you're looking at will obviously affect different industries in a different manner. I just wonder if BIS are saying to the Treasury, "If you do this, this will dramatically affect this sector of industry", where we're actually looking at those sort of measures in that detail.

Justine Greening: A couple of things on that. First, we're aiming, as I've said, to bring forward tax policy in a more thoughtful, considered way. That means making sure that there's more consultation, more time for stakeholders affected, including industry sectors when that's the case, to respond. Secondly, the way in which we work across Government is, certainly in my experience, absolutely joined up. So, Treasury does not operate in a silo where we simply do a big tax in a particular area and there's no discussion. For example, if you're looking at transport, clearly it's absolutely important for us to work alongside other Departments, including BIS as you specifically mentioned, to make sure that we achieve the aims that we want to as a Government.

Q261   Mr Spencer: Yes. However, what about other Government Departments? To give you a specific example, if you were looking at changing taxation to agriculture, would DEFRA make comments to you on the impact that would have on food prices?

Justine Greening: Well, I nearly smiled because actually what I've found is a lot of Government Departments are very proactive about saying what they think needs to happen in terms of tax incentives and fiscal measures to Treasury. So, in my experience, there's absolutely no reticence in that discussion and debate that goes on between Treasury and the different Departments.

I think the key thing is that we can have our debate in Government but we need to make sure that we always give external stakeholders the chance to say, "Well, hang on a minute, this is going in the wrong direction", or "Actually, this is exactly what we want". That is precisely why we've brought forward this tax-making policy proposal, which is to say that we've got to have more consultation, and people have also got to be able to see draft clauses of legislation for Finance Bills. We published just before Christmas the Finance Bill that we're bringing forward. So, I think there's a sense that we want to get things right first time. I've already done a couple of SIs where we're correcting drafting errors, and I don't think we want to be in that position as a Government ourselves.


Q262   Chair: It just so happens that on this whole area of environmental taxes—we talked specifically about the climate change levy, and then we just had questions from Martin and Mark about specific business and how that relates to the Business Department—I have a constituency interest in respect of intensive uses of energy in the ceramics industry. I think that that very clearly illustrates how, somehow or another, there needs to be an alignment of European taxes to make sure that there's no double-counting when UK taxes come to apply, linked to the climate change levy. I'm just wondering, in respect of the stakeholder meetings that you talked about in the Treasury, which involve business and different sectors, and those intensive users of energy who see themselves at risk from carbon leakage, whether or not it is your intention to reconcile some of these irreconcilable issues as they stand at the present.

Justine Greening: That's the challenge.

  Chair: It is a challenge.

Justine Greening: You're right, it is a challenge, and actually my personal view is I don't think we're going to get over it unless I get people with different views—the circles I'm trying to square—in a room together so that we can start to have a more structured conversation about how we do this.

Q263   Chair: Sure. It would be wrong of me to use my position as a Select Committee Chair, but I do make the general point that there is an issue here relating to intensive uses of energy, particularly the ceramics industry, if I may.

  Finally—we did say we'd try and finish by just after 4 pm, and we're almost there now—this is our second inquiry and we published our first report just on Monday of this week about embedding sustainable development. I just wondered if you'd had a chance to look at our report, because I think that we clearly defined the so-called Green Book in the Treasury as an area where in future there needs to be a lot more joined-up thinking on green environmental issues. We just wondered if you had any immediate reaction, prior to any perhaps formal response that Government may wish to be making on this, to that first report.

Justine Greening: Well, I think this is an issue that is really important and I think for us as Treasury we will continue to look at making sure that the Green Book supports—

Q264   Chair: Sorry, you say "continue". I think that one of our criticisms from previous reports that this Committee has done has been that the so-called Green Book has been perhaps in name and nothing in deed at all. It's a bit of an anomaly that it should be called the Green Book, because in the past it's had nothing to do with informing other investment decisions on green issues.

Justine Greening: Well, that may have been the case in the past, but certainly we want to work with the Social Impact Task Force to make sure that we can see the Green Book support the sorts of issues that you've raised in this report that you first did around sustainability. I think it's not just about the Green Book. My sense is it's a way of working across Government that we need to have, and certainly for myself I feel very passionately about all of those environmental issues we've been talking about today. So, on a personal level as well as a ministerial level, I'll certainly be doing my best to play my role to make sure that those discussions that you've highlighted as needing to happen do happen.

Q265   Chair: Well, we look forward to that. Can I say, finally, thank you very much indeed. You've been very generous with your time and I think it's been very helpful to have this whole impact in terms of the Green Investment Bank, so thank you very much indeed for coming along, and to Mr Schofield.

Justine Greening: Thank you, and I'll look forward to your report.

  Chair: Thank you.

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