Green Investment Bank

Written Evidence submitted by Justine Greening MP, The Rt Hon Chris Huhne MP, and The Rt Hon Vince Cable MP (GIB 41)

Thank you for your letters of 22nd September regarding the Government’s plans for a Green Investment Bank (GIB).

As part of the Spending Review, the Chancellor announced that the Government will capitalise a new UK-wide institution with £1billion of DEL funding together with significant additional proceeds from the sale of Government-owned assets. Funding is subject to final design and the GIB must meet the tests of effectiveness, affordability and transparency. £250 million of the allocated funding will be made available on the basis that the Scottish Executive agrees to the drawdown of funds from the Scottish Fossil Fuel Levy surplus.

In the coming years, the UK economy will require significantly higher levels of investment in (particularly green) infrastructure. These requirements are well above historical levels, with demand expected to be in the range of £40-50bn per annum until 2030. [1] Of course, not all of this investment will be "green" and it is anticipated that the significant majority of it will come from the private sector.

The Government is examining evidence that market and institutional failures and constraints can limit the availability of finance needed to deliver the scale and pace of investment required to deliver Government green growth objectives. Government will be looking at different models for the how the bank could operate in future and have as great an impact as possible.

Some of issues can be addressed, at least in part, by policy measures, such as reforms to the electricity market; reforms to the climate change levy which provide more certainty and support to the carbon price; changes to the planning consents regime; and so on. In other cases, the GIB may have a role in supporting these policy interventions. And, together, the policy measures and financial interventions can provide a more efficient and effective package than either is able to do by itself.

BIS has the lead responsibility for setting up the GIB   , which is a key element of our green growth agenda. The green economy is, however, a cross-cutting issue and BIS officials are working closely with officials from Defra, DECC and DfT. HMT officials are also closely involved , given the need for options to be fiscally affordable and to provide effective use of public funds. And Infrastructure UK is helping to ensure the proposals are consistent with the Government’s emerging national infrastructure strategy.

We are looking to create an institution which will make a radical new contribution to financing green infrastructure. We expect it to have an explicit mandate to tackle risk that the market currently cannot adequately finance. It will, thereby, catalyse further private sector investment and facilitate the entrance of new types of investor into green infrastructure. As a result, its impact on the finance gap will be many times the scale of the public contribution.

To be effective, the GIB will make its investment decisions independent from political control and it will employ private sector skills and expertise. We are also looking to create an enduring institution which can re-invest the proceeds from its investments.

We are looking to complete our design and testing work by Spring 2011.


26 October 2010

[1] Strategy for National Infrastructure, HMT, March 2010