Conclusions and recommendations
Urgency of action
1. If
a Green Investment Bank only became operational in September 2012
investors may put off investment while there is uncertainty about
how the Bank will operate. Investment may go abroad or into high
carbon projects. A Green Investment Bank operational in late 2012
may not have the time needed to grow and build its balance sheet
sufficiently to provide the level of investment support needed
to meet 2020 emission reduction and renewable energy targets.
The Bank must to be able to start making investments within 12
months. (Paragraph 15)
The advantages of a 'bank'
2. Capitalising
the Green Investment Bank with £1 billion, plus unknown and
unspecified proceeds from the future sale of government assets,
will only be enough to start to lever in the scale of private
sector finance required if it is able to operate as a 'bank'.
The Government must keep the level of capitalisation under review,
and be ready to increase it as soon as the fiscal position allows.
(Paragraph 22)
3. The Green Investment
Bank needs to be a bank, able to raise its own finance, fill a
gap in the market for government-backed bonds, bring in banking
expertise, be permanent and independent from government, and have
the flexibility to offer a range of interventions. (Paragraph
30)
Raising private finance
4. We
expect the Government to allow the Green Investment Bank, as a
bank, to issue bonds to institutional investors to raise much
of its finance. It is clear that they will need to be backed by
a government guarantee, calibrated to make them still attractive
while paying out low rates of interest, and also minimising the
potential government liability (and the consequences for the fiscal
deficit). (Paragraph 35)
5. We welcome the
Business Secretary's ambition for the Green Investment Bank to
be "a lot more than a fund", being able to lend and
borrow. We recommend that Ministers deliver swiftly, and in full,
on this ambition. (Paragraph 39)
Governance and oversight
6. If
the Government concludes that it does not need to introduce an
amendment to the Energy Bill, it should without delay be transparent
about what legislative route it intends to take to set up the
Green Investment Bank. That would ensure that this can be built
into the parliamentary timetable so as to allow for sufficient
scrutiny. (Paragraph 43)
7. Once operational,
the right skills mix within the Green Investment Bank will be
vital for attracting investors, and that will require competitive
remuneration. Representation from the third sector on the Green
Investment Bank's board could help ensure a balance between economic,
environmental and social issues in the Bank's investment priorities.
(Paragraph 49)
8. Monitoring of the
Green Investment Bank in its early years will be important to
gauge its impact and assess whether it has been designed and set
up in the right way. The Government needs to set out clear performance
reporting arrangements that should include data on a range of
key indicators about its performance in advancing green objectives.
(Paragraph 52)
9. If the Green Investment
Bank is established as a corporate body, Parliament must be given
a strong role in scrutinising its initial governance and remit.
If an arms-length body, Parliament must be allowed also to examine
its evolving strategy and operating principles. (Paragraph 119)
10. The Government
should consider how Parliament might be represented on an 'advisory
council' of the Green Investment Bank. The Bank's remit should
include a requirement to consult the Committee on Climate Change
and take its recommendations into account. (Paragraph 119)
11. The Green Investment
Bank, as a centre of expertise, should be given the independence
to decide on the projects to support within its given remit. The
Government should not interfere in the day-to-day management and
individual investment decisions. (Paragraph 120)
12. The Government
should set the Green Investment Bank with a clear green investment
mandate, to stop the Bank straying into more profitable but less
green investments. In doing so, the Government should clearly
define what it considers to be 'green investment'. But we caution
the Government not to set out the role of the Bank too rigidly,
to allow the possibility of the Bank supporting environmental
protection schemes in due course where these can be determined
to offer a commercial return in the long term. (Paragraph 121)
Nuclear
13. In
our judgement there remains some ambiguity about whether, under
the terms of the Government's statement, Green Investment Bank
support for new nuclear would constitute a subsidywhether,
for example, support would be regarded as market support similar
to that made also available to other types of generation. The
Government needs to provide greater clarity on what would constitute
a subsidy in regards to Green Investment Bank support for new
nuclear. (Paragraph 74)
14. It would not be
appropriate for the Green Investment Bank to invest in nuclear,
where the technology is already established. There is a range
of other potential interventions for the Green Investment Bank,
where its support will be vital and will make a real difference.
(Paragraph 76)
Green ISAs
15. We
are disappointed that the Government sees 'green ISAs' and other
retail investments as a longer term optionthey could provide
an important symbolic way of enabling individuals to contribute
to the low carbon transition. The Government should give the Green
Investment Bank the power to offer green ISAs once it becomes
established, and should consider how it might get green ISAs off
to a good start, for example by making the ISA investment limit
higher for Green Investment Bank-issued ISAs. (Paragraph 81)
Support for the Green Deal
16. It
is not clear how the three components necessary for the Green
Deal will be made available: sufficiently low-cost financing for
households, individual loans aggregated to a size attractive to
large investors, and loan terms sufficiently long enough to satisfy
the Green Deal 'golden rule'. The Green Investment Bank could
be an important source of additional capital for the Green Deal
and there should be much more joined up thinking between BIS and
DECC on the potential role of the Bank in this area. The Government
should conduct an urgent review to consider additional potential
sources of finance for the Green Deal, and should not rule out
the opportunity for the Green Investment Bank having a role. The
Government should examine what lessons might be learned for the
Green Deal from KfW, the state-owned German development bank,
which has dealt successfully with similar requirements. (Paragraph
90)
A level playing field
17. The
Government acknowledges that it can take up to two years to get
state aid exemption approval. We are therefore surprised that
it has not discussed with the European Commission the parameters
of the Green Investment Bank's operations, as this could be a
restricting factor on what the Bank would be able to do. We recommend
that the Government starts negotiations immediately with the European
Commission to ensure that required prior approval is secured for
the Bank. (Paragraph 103)
UK or overseas investments
18. The
Government must use the opportunity provided by the 'Green Economy
Roadmap' to set out ambitious policies to support green growth,
aimed at making the UK a world leader. We urge the Government
to develop this Roadmap and the Green Investment Bank in a joined
up way, and set out explicitly the supporting role expected of
the Bank. (Paragraph 112)
19. The Green Investment
Bank's focus should be on UK, rather than overseas investment,
because that will be needed to deliver the UK's carbon targets.
Helping the UK meet its carbon targets should be made explicit
by linking the Bank's remit to the Climate Change Act. (Paragraph
113)
The Green Investment Bank's relationship with
existing low carbon focused government bodies
20. The
rationalisation of current government low carbon institutions
and funds within the Green Investment Bank is not crucial to raising
funds to capitalise the Bank, but it could be helpful in the longer
term. We welcome the Government's review of the institutions and
funds involved, and as part of this the Government should examine
what lessons might be learnt by the Bank from the Energy Technologies
Institute partnership between private and public sectors. (Paragraph
117)
Testing the design of the Green Investment Bank
21. We
recommend that before its announcement in May on the favoured
model for the Green Investment Bank, ideally in this month's Budget,
the Government defines precisely its three tests of effectiveness,
affordability and transparency. We also recommend that the full
results of these tests are then published when the Government
makes its announcement in May for each of the models considered,
so that there is an opportunity for the House, potential investors
and the public alike to understand the decisions that have been
reached. (Paragraph 126)
22. We recommend that
the Government, in undertaking the remainder of its market testing
work, engages with all classes of investors and undertakes a thorough
and transparent consultation exercise with them. (Paragraph 130)
23. We recommend that
the Government conducts a brief public consultation on the proposals
to be announced by the Government in May. (Paragraph 132)
The Green Investment Bank in the wider green landscape
24. The
Government should give the Green Investment Bank a remit to monitor
the Electricity Market Reform and Carbon Floor Price proposals,
and other low carbon targeted initiatives to come, and to advise
the Government on the need for any further policy and regulatory
reforms to continue to provide a clear and long term framework
for investors. (Paragraph 140)
25. Bringing investors
closer to policy appears to us to be a fundamental role of a Green
Investment Bank. By providing advice to the Government on the
risks investors face and the impact on investors of policy decisions,
the Bank could provide further help in bringing investment in.
The Bank should be given an explicit continuing role to advise
the Government on low carbon and green infrastructure policy,
from the perspective of current and prospective investors. Also,
being outside of government, the Bank could perform an important
cross-cutting role by advising government on whether its low carbon
and green investment policies are joined up across departments.
(Paragraph 144)
26. To provide the
greatest financial leverage and maximise the economic benefits
to the UK in terms of growth and jobs, the Green Investment Bank
should not be designed in isolation, but in the context of the
range of policies the Government is developing. As work developing
the Bank continues, there is a role for a small 'set up' team
within the Bank to start creating and coordinating the linkages
between the Bank's role and other government initiatives. (Paragraph
149)
27. We believe that
there is a role for a Cabinet Committee or Minister, perhaps in
the Cabinet Office, to ensure co-ordination across the relevant
departments on initiatives that will impact on the remit of the
Green Investment Bank. (Paragraph 151)
Impact of the Green Investment Bank on the deficit
28. Financing
the Green Investment Bank using the proceeds from the sale of
government assets, regardless of how the Bank is classified for
National Accounts purposes, will not impact adversely on the public
sector finances, other than a lost opportunity to pay down government
debt. We urge the Government to channel as much of the proceeds
from asset sales as possible into the Bank. (Paragraph 160)
29. We are concerned
that the Government is not seeking advice from the Office for
National Statistics (ONS) about the possible National Accounts
classification consequences of the options for a Green Investment
Bank. The Government should now work proactively with the ONS
to ensure that the Bank can be developed in such a way as to maximise
its impact on investment levels, whilst minimising its impact
on the fiscal position. (Paragraph 166)
30. The Government's
primary policy objective is reducing the deficit. The Government
expects green growth to be a major future driver of the economyguided
by the National Infrastructure Planable to create new jobs
and help transform the UK to a low carbon economy. The 'step change'
that this requires means that this is an urgent agenda. If it
has not already done so, BIS should raise with the Treasury the
scope for a 'temporary and extraordinary' exclusion of a public
sector Green Investment Bank from the strictures of the Fiscal
Mandate. If, however, the Treasury's deficit reduction strategy
prohibits such adjustment, and the Treasury can only support a
Green Investment Bank that does not sit on the Government balance
sheet, then compromises in the ideal Green Investment Bank set-up
may have to be contemplated. (Paragraph 167)
31. We are not advocating
a so closely regulated and supervised body that it is unable to
operate commercially and attract private sector investors. If
close day-to-day control were to put the Green Investment Bank
on the public sector balance sheet, it would be of limited value
if, as a result, it could only operate as a relatively small un-leveraged
'fund'. For us, a red-line is that the Green Investment Bank is
a bank, explicitly charged with a specific green investment purpose
and backed by government, that is able to lever in the large sums
needed to deliver the hundreds of billions of pounds of required
green infrastructure. (Paragraph 168)
|