Written evidence submitted by Transform
UK and E3G|
This evidence is focused on the Green Investment
1. BUDGET ANNOUNCEMENT
In the Budget on 23 March 2011 the UK Government
made the following announcement on the Green Investment Bank:
"The Government is committed to ensuring
that the Green Investment Bank (GIB) has the resources to help
the UK to move towards a low-carbon economy. The Government
announces that the initial capitalisation of the GIB will be £3
billion and that the GIB will begin operation in 2012-13,
a year earlier than previously anticipated. Government investment
alongside private finance should mean that there is in the region
of an additional £18 billion of investment in green infrastructure
by 2014-15 as a result of the GIB. The Spending Review allocated
£1 billion for the GIB and the Government is aiming for the
remaining £2 billion to be funded from the sale of assets.
This will include the £775 million net proceeds already received
from the sale of High Speed I, ensuring that funding is in place
to allow GIB investments from 2012-13. The Government will
enable the GIB to have borrowing powers from 2015-16 and once
the target for debt to be falling as a percentage of GDP has been
We consider the total capitalisation figure of £3
billion to be a reasonable start but still too low. The benchmark
for success set by Ernst & Young
is £4-6 billion and is supported by the Transform UK Alliance
of leading financial institutions, business and NGO stakeholders.
This higher level is the amount required to ensure the GIB can
raise the scale of finance required to fill the looming low carbon
energy finance gap. Ernst & Young estimates that £450
billion of investment in energy supply and demand infrastructure
is required in the UK by 2025 but that only 10 to 20% of this
funding is likely to emerge from the traditional investors in
this sector. To ensure the investment gap of 80 to 90% is met
the Government needs to provide £1 to 3 billion more capital
over this parliamentary term alone. Based on the investment leverage
ratio of X5 outlined in the Budget statement, an additional £1
to 3 billion of Government capital would leverage in an extra
£5 to 15 billion of private capital into the low carbon economy.
This would be clearly beneficial but is still not enough. To have
the transformational investment impact required the GIB also needs
3. DELAY IN
The Government has given initial capitalisation of
£3 billion to the GIB which it estimates will leverage an
additional £15 billion in private investmenta total
of £18 billion. If allowed to borrow and issue Green Bonds
the GIB could leverage far more private investment into the low
carbon economy. For example, if it was also allowed to borrow
£10 billion it could leverage an additional £50 billion
of private capital, representing another £60 billion. This
would create a total investment of £78 billion in the low
carbon economyapproximately four times more than the investment
set to be achieved under current proposals.
It is therefore of great concern that the Government
announced a serious delay to the power of the bank to borrow which
will severely constrain its ability to act as an engine for green
growth and economic recovery. This is a great disappointment given
the Green Investment Bank represented within the Budget the most
innovative policy with the greatest potential to generate growth
and jobs in the UK economy.
Furthermore, the detail of the announcement on the
delay in borrowing powers has created even greater uncertainty
because it is not clear when national debt will be declining as
a percentage of GDP. If growth occurs more slowly than forecast
then it could be well after 2015.
The 2011 Budget announced that the Office of Budget
Responsibility's growth forecast for 2011 and 2012 had been downgraded,
citing rising oil prices, higher than expected inflation and the
fall in UK GDP at the end of 2010. While the OBR forecast growth
will increase to 3% in 2014 (based on assumptions that inflation
will fall and household consumption increase), this assessment
does not factor in rising world oil prices. It also seems optimistic
given the Coalition Government's limited announcements on new
drivers for growth and the delay on borrowing it has imposed on
The borrowing powers for the GIB have been delayed
because of concerns by the Government on the impact on the UK
balance sheet. However, it is not the GIB borrowing potential
that poses a threat to the UK's fiscal credibility, it is the
failure of the UK economy to grow enough.
Many other development banks in Europe (eg the European Investment
Bank and Germany's KfW) have been making use of their borrowing
powers in the face of the European economic crisis. It seems perverse
and short-sighted that the GIB should be restricted from doing
so at time of such critical need.
It should also be noted that the Government has more
than £3 trillion in off balance sheet liabilities that could
be brought back on balance sheet at ONS say so. Proposed GIB borrowing
in comparison is minimal.
4. NEXT STEPS
FOR GIB CREDIBILITYBORROWING
POWERS & LEGISLATION
The Budget announcement did not state whether the
GIB would have its borrowing powers enshrined within its constitution
and in legislation. It is essential to do both in order to give
the market as much certainty as possible that the Green Investment
Bank will be able to borrow, that the GIB will not be subject
to political risk and that it will be able to operate independently
and at sufficient scale to meet the UK's carbon reduction targets.
The Green Investment Bank should be allowed to borrow
as soon as it is up and running. Just like other development banks
, the Green Investment Bank can protect itself by ensuring its
portfolio of investments does not present a risk to its financial
sustainability by operating a transparent risk management system
and by conducting professional due diligence.
It is essential that when the Government publishes
its detailed GIB plans at the end of May 2011 it announces legislation
to set up the Green Investment Bank and that the power to independently
borrow will be enshrined within this legislation.
Without legislation the market will perceive a strong
risk that the GIB may never turn into a proper, fully functioning
bank and if it does so it may have those key borrowing powers
quickly rescinded or heavily restricted. This will have a damaging
impact on the entire low carbon investment market.
Legislation will also enable Parliamentary scrutiny
for the Green Investment Bank which is essential for the establishment
of an institution that is getting £3 billion + of public
money and is central to the UK's commitments to reduce greenhouse
In addition, legislation offers the best way to establish
the bank in terms of creating the custom built governance structure,
mandate and transparency requirements it needs to operate effectively.
Legislation can also play an important role in helping to smooth
the path to EU state aid clearance for the GIB.
By announcing legislation, ensuring the power to
borrow is enshrined within this legislation and by giving the
GIB the power to borrow from the beginning, the Government can
still enable the GIB to fulfil its enormous potential to maximise
the UK's climate and energy and economic security.
E3G is an independent, non-profit European organisation
operating in the public interest to accelerate the global transition
to sustainable development. E3G builds cross-sectoral coalitions
to achieve carefully defined outcomes, chosen for their capacity
to leverage change. E3G is not a campaigning NGO, a thinktank
or a consultancy, although its activities overlap with all of
these models. E3G is an attempt to build a new type of organisation
which can help drive change inside existing global frameworks
at a rate consistent with preserving critical ecological limits.
E3G aims to creatively reconcile the conflicting imperatives of
day-to-day politics and long term climate change risks, and E3G
senior staff have unique experience at the highest levels of Government
and from the private and NGO sectors. In its first five years
a critical role in Russian ratification of the Kyoto Protocol.
agreement to cooperation on a full-scale EU-China CCS demo plant.
6-8 billion for 10 CCS power plant demos in the EU.
the concept of Low Carbon Zones and gained agreement from the
Chinese government to five LCZ pilot projects in areas of five
to 15 million people.
a public UK Green Investment Bank to support low carbon infrastructure,
and played a critical role in delivering UK government agreement
to establish it.
and supported the first UN Security Council debate on climate
Transform UK is a programme of E3G and is an alliance
of business, finance, union and charity organisations that campaigns
together to accelerate investment into the low carbon economy.
Transform UK founded the campaign for the Green Investment
Bank in January 2009. It seeks to build consensus among key stakeholders
on the most effective model for the GIB to support the rapid transition
to a low carbon energy system and co-ordinates the alliance campaign
for its delivery.
21 April 2011
95 "Capitalising the Green Investment Bank"
(October 2010)-Ernst & Young Back
SME R&D tax relief will be increased to 200% in 2011 and 225%
in 2012. Back
warned that poor growth could hit the UK's AAA sovereign debt