Examination of Witnesses (Question Numbers
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.
It's a very short onethank 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.
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 interestedfor example, DEFRA and Transport.
Q192 Chair: How many
civil servants from the Treasury have been involved in taking
the proposals forward?
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
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
worktrying 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 beperhaps
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
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?
I don't think it'sno, 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
That very much depends on the final business model because in
a sense it depends on whether wefirst 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?
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?
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
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
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?
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?
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,
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?
You're asking the sorts of questions thatwithin 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 levelthe
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 throughyour
point that there are a number of different aspects of how the
Green Investment Bank could operateso that we've reached
a conclusion on all of those and that as a whole, it can operate
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 issuemore 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.
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.
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 whatwe 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?
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
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.
Coming back to the three tests that I said at the beginningthat
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 moneythere's a longer term economic equation
there that again points towards a bank, not a fund.
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
Chair: Is your question
on this point, Ian, because I'm conscious we have to make some
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?
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?
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 nowalso across Europe,
but obviously particularly for Britainour 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?
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?
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?
I can see Peter's chomping at the bit here.
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?
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
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 methat 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
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 imagineunless
there is some other element of a contractual relationship with
Governmentthat that would be classified by the ONS to the
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
So those are the twoit 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 aboutlooking
at the different options to achieve those three objectives of
transparency and so ongoing 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,
Zac Goldsmith: It would
be useful for our report.
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
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?
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 operationswhat it's lending, what sort of investments
it's makingin 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
Q217 Caroline Lucas:
Thank you. Could you confirm whether the Government are planning
to use the Green Investment Bank to fund new nuclear?
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
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.
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 thenand 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 nuclearwere it to be a bank and to fund
new nuclearis that a subsidy?
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 itergo, some kind of subsidy. So how are those
two things compatible?
It's very hard for me to go further than what I've already said,
which isthe 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
decidedor someone has already decidedit'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.
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
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.
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-cutit's
difficult for me to elaborate further when it's very, very clear
cutwhich 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 Bankor indeed the Green Investment
Fundwere 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?
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
beingbut 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?
That's probably a better question to direct at a Government lawyer,
in a sense. It's like any Government policythere'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?
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 thatwhether
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.
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?
In terms of the question, is the £1 billion enough, I've
got probably go back to this constant challenge that we have in
Governmentbut 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?
It's probably not wise for me to give a figure or a timeline at
Q230 Caroline Nokes:
How did you determine that £1 billion was a sufficient down-payment?
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 wantit'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
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?
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
Q232 Martin Caton:
So it passes the effectiveness test as long as it's better than
what we've had in the past?
Well, clearly we haven't had a Green Investment Bank in the past.
Q233 Martin Caton:
No, you were talking about low carbon technologies.
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
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.
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 ittesting
the final design against these three tests. You've now said that
you actually need the final design before you can know how to
I think that's probably not the right way to characterise what
I've said. I think
Martin Caton: Well, somebody is writing
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?
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.
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
KirbyI do apologiseon 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.
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?
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 getyou mentioned a committeewould
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?
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?
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?
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 universethat 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?
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?
I can't pre-empt the Budget. It wouldn't be right for me to do
Q244 Sheryll Murray:
But is this under consideration?
We make all announcements in relations to tax at Budget time.
It's a matter for the Chancellor, irrespective of what the area
But is that something that is actually under consideration?
As I say, it wouldn't be right for me to pre-empt in any way any
No, we're not asking you to pre-empt, but
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
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 technologymost of them aren't per sebut
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 BIStheir 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
exampleI think you're seeing him on 2 Februarycan
potentially comment on as well.
Chair: I think we need to move on. Neil
Neil Carmichael: Yes, I was just wondering
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
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.
It is the answer, I'm afraidthe 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
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?
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?
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 whywhether you're a company or
whether you're a householdyou 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?
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
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
taxand, indeed, the environment more generallythat
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 changethat in many
cases they would love to change but perhaps for various reasons
just can'tand 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 alsothis is probably more one for DECC
than for Treasuryin 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
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?
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?
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 isit's
air passenger duty, it's not freightwhereas 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?
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
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?
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
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?
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
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
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 inwe've
heard about aviationthose 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
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
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?
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.
It just so happens that on this whole area of environmental taxeswe
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 DepartmentI 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.
That's the challenge.
Chair: It is a challenge.
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 viewsthe circles I'm trying to squarein
a room together so that we can start to have a more structured
conversation about how we do this.
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.
Finallywe did say we'd try and finish
by just after 4 pm, and we're almost there nowthis 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.
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
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.
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.
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.
Thank you, and I'll look forward to your report.
Chair: Thank you.