29 Oct 2015 : Column 197WH

29 Oct 2015 : Column 197WH

Westminster Hall

Thursday 29 October 2015

[Mr David Crausby in the Chair]

Backbench Business

Green Investment Bank

1.30 pm

Graham Stuart (Beverley and Holderness) (Con): I beg to move,

That this House has considered the future of the Green Investment Bank.

It is a pleasure to serve under your chairmanship, Mr Crausby. I thank the Backbench Business Committee for awarding the time for this debate. It is good to see that so many colleagues from across the House are present. I thank all the other Members who requested the debate for their support. They are drawn from the Labour party, the Liberal Democrats, the Scottish National party and the Green party—the ultimate rainbow coalition, which reflects the widespread interest in and concern for the Green Investment Bank.

The GIB was a major success story of the 2010 to 2015 Parliament. In 2010, the Government’s Green Investment Bank commission highlighted

“the urgent need for a new public financial institution to unlock the investment needed for Britain to deliver a timely transition to a low carbon economy.”

That investment is focused on the five objectives set out in section 1(1) of the Enterprise and Regulatory Reform Act 2013 and in the bank’s articles of association: the reduction of greenhouse gas emissions; the advancement of efficiency in the use of natural resources; the protection or enhancement of the natural environment; the protection or enhancement of biodiversity; and the promotion of environmental sustainability. Since the bank was established in November 2012, it has delivered on those principles. As of August this year, it had invested in 52 green infrastructure projects; I think that figure was updated to a larger number in the evidence given yesterday to the Environmental Audit Committee.

The GIB has also invested in seven funds in more than 240 locations around the UK, ranging from anaerobic digestion on Teesside to a £241 million stake in the Westermost Rough offshore wind farm and, indeed, new streetlights in Southend. The bank’s chief executive, Shaun Kingsbury, anticipated that by the end of this week it will have committed £2.3 billion of funding as part of wider projects worth a total of £9.8 billion. In other words, the next deal that the GIB does will take to more than £9 billion the total invested in the low-carbon transition that this country has not only said it will deliver but, in the Climate Change Act 2008, set out in law that it must.

Those numbers reflect the assurance, given by Mr Kingsbury to the Environmental Audit Committee in 2013, that the GIB would “crowd in” an additional £3 of private capital for every £1 invested by the bank. Unlocking that level of investment in the green economy is a serious and substantial achievement, topped off by

29 Oct 2015 : Column 198WH

the GIB’s annual report showing that the company moved into profit in 2014-15, albeit marginally. Of course, it takes a long time for the types of projects it funds to come to fruition and for the cash-flow to flow. Nevertheless, the bank is successful—indeed, that very success has led to today’s debate.

In June, the Secretary of State for Business, Innovation and Skills, with whom I had a meeting last week, issued a written statement to the House that said that the Government

“have concluded that the best approach is to move GIB into private ownership subject to ensuring we achieve value for money…It has always been our intention that GIB should leverage the maximum amount of private capital into green sectors for the minimum amount of public money.”—[Official Report, 25 June 2015; vol. 597, c. 27WS.]

I do not think anyone would disagree with that last intention. I understand the Government’s concern to ensure that the GIB can borrow from financial markets and so increase its impact. I should also emphasise that I certainly do not object to privatisation per se; I am a keen champion of the private sector and believe strongly that it can be a force for good in driving quality, efficiency and innovation.

The Green Investment Bank is, though, a special case, and its transfer into private ownership will be more complicated than most. There are important questions that need to be resolved about the move to private ownership and the form that the transfer will take. Those questions centre on the extent to which the market failure identified when the GIB was established has now been corrected and how the Government will ensure that a majority-privatised GIB continues to deliver its green purposes when its ownership and statutes have changed.

This week, the Government introduced amendments to the Enterprise Bill in the Lords that will repeal part 1 of the Enterprise and Regulatory Reform Act 2013, section 3 of which protects the GIB’s articles of association from being altered unless they continue to meet the green objectives mandated in section 1 of the Act, and provides that any change under section 3 must be approved by a resolution of each House of Parliament. The bank’s objectives are delicate. It was clearly felt that legislation had to be put in place at the outset to ensure that protection, even when the bank was owned by the Government. Without it, what assurances can the Minister provide that a future purchaser will continue to focus on providing not simply capital for green or greenish projects but specifically the funding for the kind of novel technologies that the GIB has helped to support to date?

Caroline Lucas (Brighton, Pavilion) (Green): I pay tribute to the hon. Gentleman for his role in securing this important debate. Does he agree that it is likely that a profit-maximising Green Investment Bank will be unable to perform precisely that key role of reducing risk in important green sectors in order to crowd in private investment? There is a real risk that if the bank is put into the private sector it will crowd out other investors, rather than crowding them in.

Graham Stuart: I am grateful to the hon. Lady for that point. In so far as it was necessary to have a publicly controlled and funded green investment bank in the first place, what has changed so that such a bank can now be transferred to the private sector without ending

29 Oct 2015 : Column 199WH

up simply acting like and emulating all the other banks, even if it has a greater degree of green expertise than most? How do we know that it will continue to play this unique role? That is the nub of what we want to hear from the Minister.

A good deal of the GIB’s success has come in the form of delivering what its CEO has called “financing firsts”. To use Mr Kingsbury’s own words:

“We have taken on complex projects that would otherwise not have gone ahead and we have been innovative, helping new technologies into the financial mainstream.”

The Westermost Rough offshore wind farm I referred to earlier is a particularly good example of that. The GIB took a stake in the project in 2014. The project was unique, in that it was the first large-scale application of the new Siemens 6 MW turbines, which are significantly more efficient and better suited to the marine environment than previous turbines deployed to date. Of course, they had not been used in 2014, so there will have been natural caution about a move to a new technology.

The project will help to drive down the cost of offshore wind, which has already fallen by 11% in the past four years, and also has supply chain benefits—including, not least for me as the MP for Beverley and Holderness, the fact that Siemens will manufacture the turbines in Hull and East Riding. Over the coming years, we hope to see the supply chain develop around that initial investment. Indeed, there is hope that other manufacturers might see the supply chain and combination of specialties in Hull as something worth coming to and investing in.

The project simply would not have taken off if only private investors had been involved. When I spoke to Mr Kingsbury earlier in the week, he talked about the fact that DONG Energy, which was pushing the project, wanted to find a partner—it did not want to take on the responsibility and risk alone. It found a Japanese investor, but the partner company was looking for comfort. The comfort it sought came in the form of the Green Investment Bank’s expertise and particular positioning, which provided the reassurance needed for it to invest. The GIB got involved, negotiated—as Mr Kingsbury would say—high returns for high risk and used its expertise to help and give comfort to both the Japanese investor and DONG. The project then went ahead, with the positive ramifications being not only the lowering of the cost of wind energy but the delivery of investment in my local area and beyond.

Likewise, the GIB has joined Aviva Investors in financing NHS energy centres. A good example of that is the £18 million investment the bank made in the £36 million energy centre project for Cambridge University Hospitals NHS Foundation Trust. That project is emblematic of the market failure affecting the financing of non-domestic energy-efficiency projects. It required the installation of a combined heat and power unit, a biomass boiler, efficient dual-fuel boilers and heat recovery for medical incineration. The project will lead to a saving of £20 million on the hospital’s energy bill over the 25-year project period and an annual reduction of 25,000 tonnes of carbon dioxide.

I know the Secretary of State is confident that the eventual purchaser or purchasers will want to buy the GIB precisely because of its expertise in that kind of work. That is the nub of the Government’s argument. In a helpful briefing earlier this week, Mr Kingsbury

29 Oct 2015 : Column 200WH

told me that he is adamant that the GIB is a marketable proposition precisely because the decision was taken not to use the bank simply to offer cheap Government borrowing to the renewables sector, but to develop specialist teams with deep-sector knowledge that are capable of managing sophisticated and challenging financial deals and negotiating high rates of return, as it did with Westermost Rough. Mr Kingsbury was clear that he believes that makes the bank a great business and an attractive proposition to potential purchasers.

Concerns persist, however, about the fact that in private ownership the GIB may yet come to resemble more conventional competitors, such as Bank of America or Macquarie. I do not want to criticise those institutions in any way, but they are driven by the shareholder value that the hon. Member for Brighton, Pavilion (Caroline Lucas) rightly mentioned, and they come to different decisions, take different approaches and have different team assemblies from those of the Green Investment Bank, which has a very specific brief.

Kevin Brennan (Cardiff West) (Lab): The hon. Gentleman is making a thoughtful presentation on this issue, and he has come to one of the key points. Ministers have responded to questions about the future of the green focus. In his statement, the Secretary of State said that the Government

“also want and expect a privately owned GIB to continue this clear focus on green sectors”.—[Official Report, 15 October 2015; vol. 600, c. 21WS.]

In a written answer to the hon. Member for Brighton, Pavilion (Caroline Lucas), the Minister for Small Business, Industry and Enterprise said:

“The Government wants a privately owned GIB to continue this focus on green sectors”.

Does the hon. Gentleman agree that we need to hear something stronger than that before we can be convinced that that will actually happen when the bank goes into private hands?

Graham Stuart: The hon. Gentleman, who has served in Government, will know that even within Government it is not enough to wish that institutions will behave in a certain way. We know that the incentives must be understood. For example, it is necessary to understand how schools will behave—the hon. Gentleman and I have experience of that. It is not enough for people to sign up in name to deliver a certain thing and for politicians to say that they will do it, because they will be moved by the complex sets of incentives in which they find themselves. If we do not understand how those incentives collectively impinge on those institutions, we will not truly understand how the institutions will behave. That is as true for education as it is for a bank.

It is not enough simply to say what we want and what should be aimed for; we have to understand how the framework of incentives for a private owner of the bank will lead them to behave in the way that Ministers and the rest of us want. I am impressed by the chief executive of the Green Investment Bank; I think he is passionate and honest in his belief about where the bank will go. Nevertheless, I want to understand how it will go there.

John McNally (Falkirk) (SNP): Does the hon. Gentleman agree that the assurances that the Scottish Government sought from the Tory Government remain unanswered? We seek assurances because we are still

29 Oct 2015 : Column 201WH

unconvinced that the purpose and direction of the bank will not be lost unless we retain some sort of public sector control.

Graham Stuart: I will come to that point on the continuing role of Government in a minute or two. It is not enough to say that something will be privatised. It could be privatised 100%, or it could be privatised 100% with strings attached, whose value we would have to try to estimate in advance—if something is sold 100%, the strings are not normally worth a great deal. Then there is the issue of whether a minority stake is retained and, if so, how it will be used. I will come to that point later, but the hon. Gentleman is right to say that such questions, not least those of the Scottish Government, persist.

David Mowat (Warrington South) (Con): I am listening very carefully to my hon. Friend. Surely the principal factor protecting how the bank will operate is the fact that the green purpose is still in the 2013 Act and the articles of the company. It therefore cannot do anything outside the green purpose. That is set out in the five points that my hon. Friend mentioned, or did I misunderstand his point?

Graham Stuart: My hon. Friend is quite right. What happened—given the late tabling of amendments in the House of Lords this week, I think it came as something of a shock to the Government—is that the Office for National Statistics decided that if this place continues to determine the purpose of a supposedly privatised institution, such as this bank, that institution continues to be controlled not by its shareholders but by this place, and it is thus linked to the Government. Therefore, the ONS said that those ties have to be cut.

The nub of the matter is that those statutory guarantees and safeguards are being removed, albeit at the last minute—that was announced recently and will be coming to the House of Lords this week. We are asking how much the remaining wish-fulfilment requests will be worth in the real world of private finance, where people seek the maximum return for their money and often have a fiduciary duty to do so.

The senior directors of E3G—an environmental non-governmental organisation that works in these areas across the world—who were involved in the conception and creation of the bank, have heard worrying views from financiers that the bank may lean towards investing in safe, established technologies. Worse still, it could be attracted to purchases purely because of the virtue of the assets and cash flow that will come forward in due course, rather than because they are going concerns in their current form. It is possible, therefore, that it would be a zombie investment vehicle, rather than a genuine project-developing bank.

Those views were echoed by Bob Wigley, the former chief executive of the Green Investment Bank commission at the recent summit held by the Aldersgate Group. He warned of an “inherent tension” between the GIB’s continuing to invest in novel, more complex projects that are profitable in the long term, and shareholder pressure to maximise short-term returns on high-value investments, given their focus on quarterly performance. Such an outcome would defeat the objectives of the bank. It was and is intended to capitalise new green technologies and to invest in projects that other market

29 Oct 2015 : Column 202WH

operators shy away from. In doing so, it makes strides in environmental protection while simultaneously stimulating economic growth.

I went to the Conference of the Parties in Montreal in 2005, and from there I got involved in an organisation called Globe International, a global legislators’ organisation for a balanced environment. I am chairman of that group. I have been involved in the issue of climate change over the years; when I first came to this place, I was a member of the Environmental Audit Committee. It seems to me that the central challenge in tackling climate change, despite all the complexities, is to drive down the cost curve of clean and green approaches as quickly as possible.

For all the jobs that are created and for all the economic benefits, we cannot do that for free. One of the big challenges is to speed up the reduction in cost and ensure we have the institutions and frameworks to incentivise that. I say that because, for all the complexities around climate change and all the conferences I have been to over the years, I have always thought that we have to get the cost down as quickly as possible.

We have subsidised renewable technologies to try to make up for market failure, and successive Governments have struggled to create a dynamic regime that controls the level of public subsidy while encouraging investment. In that landscape, in which it is so hard to create dynamic frameworks that maximise value for money for the public purse but accept the need to pump-prime and drive the implementation of new technologies and lower costs, the bank is an important component.

On the bank’s next deal, it will have brought in a total of £10 billion into the UK green mix alone, of which less than a quarter has been from the state. To those outside who think the Green Investment Bank is rather arcane or marginal, I say that it is pretty fundamental to meeting the requirements of our industrial strategy and our desire for people to have affordable bills. We have got to ensure that we get it right. I urge the Government to consider how we can guarantee that the balance that I mentioned will be maintained under private ownership. For precisely that reason, I would be grateful if the Minister explained how the transfer will affect the shareholder relationship framework document that sets out the bank’s operating principles and strategic objectives.

Alongside primary legislation, the shareholder relationship framework document is an important safeguard to define the GIB’s role in the green marketplace. Article 3.1 states that the bank shall

“seek to align its activities with HM Government’s green policy objectives”


“seek to overcome market failures and improve market effectiveness”.

Article 4 lists the priority policy sectors and is clearly intended to be updated on a rolling basis in line with changing needs. It is hard to see how the SRFD could survive the sale of the Government’s shares. The Department for Business, Innovation and Skills is described in the SRFD as the bank’s “sole shareholder”, and the document as a whole appears designed for precisely that arrangement. It is likely that the SRFD would fall away if BIS ceased to be the sole shareholder. If the SRFD does survive a share disposal, the Government would not be able to protect it if their shareholding dropped below 25% and if the other shareholders or shareholder

29 Oct 2015 : Column 203WH

decided otherwise. If the Government retain a sufficient minority to resist any change to the SRFD, they would still lack the power to update the priority policy sectors that the bank invests in and supports.

How do the Government intend to safeguard the shareholder relationship framework document following a sale—or at least preserve its effect? Do they intend to maintain a significant minority holding in the bank? What assessment have they made of the implications of different sizes of shareholding that they may have going forward? Has any consideration been given to any form of arrangement, contractual or otherwise, to prevent the bank’s core purposes from being distorted or discarded after sale?

Before closing, I want to raise some related issues on which clarity would be helpful. The European fund for strategic investment is a pot of €21 billion of off-balance-sheet capital. That sounds a bit dodgy, but it basically means that it does not go on to national accounts for debt when used, which is quite important given the fiscal retrenchment that this country is going through and the commitments to eliminating debt and moving to surplus and so on.

The capital can be used by EU member states to finance energy and infrastructure projects. While the UK has committed an additional €8.5 billion to the fund, there is currently no effective intermediary within the UK to help British projects access the funds. Would a privatised Green Investment Bank be able to access the EFSI? If the privatised bank is an unsuitable vehicle to access it, will the Minister say what would be and how the UK’s green economy would be able to benefit? It would be a significant missed opportunity if there were no plan in place to ensure that we can leverage off-balance-sheet funds to which the UK is a key contributor. Indeed, if the UK were unable to access the funds, that might alter the whole calculus as to whether we stand to gain or lose by the privatisation of the bank.

While discussing alternative sources of finance, I also want to touch on the potential for the GIB to explore citizen investment. As I explained earlier, the bank has deliberately sought to make itself sustainable by operating a higher risk, higher return model, but one of the bank’s key aims since its inception has also been to accelerate delivery of the UK’s low-carbon future at the lowest possible cost—quite right, too. With that in mind, relatively cheap capital could be available from citizen investors investing via Green Investment Bank bonds. In Germany, such citizen investors are willing to accept lower returns on equity than traditional investment—more like 4% to 6% than 7% to 9%—because their motivations are not solely financial. Given the capital-intensive nature of most low-carbon investments, scaled-up citizen finance has the potential—only the potential—to make the delivery of large-scale infrastructure more affordable.

To get a sense of how important that is, a 2012 study by the Crown Estate showed that every 1% increase in the cost of capital leads to a 6% increase in the lifetime cost of an offshore wind farm. Similar analysis exists for the solar sector. The nature of both is that up-front investment is huge with relatively low costs thereafter to get a return. A huge premium must be paid when funding becomes more expensive for projects that require

29 Oct 2015 : Column 204WH

so much capital up front and there is therefore a huge incentive to secure the lowest possible financing costs for the GIB. Has the Minister considered the idea of encouraging citizen investment in the GIB? Might the Government pursue such a concept?

To conclude, we are at a crossroads when it comes to the development of the Green Investment Bank, with both new opportunities and old dangers presenting themselves. Failure to provide reassurance about the bank’s future role would send negative signals to low-carbon investors, who might feel that they have received a lot of negative signals already. That has the potential to threaten inward investment flows and undermine the low-carbon sector’s contribution to our ongoing economic recovery.

It is essential to get the privatisation process right and to remember that many investors and Governments will be watching how we decide to proceed with the GIB. As we head towards the UN climate summit in Paris this December, we have a responsibility to ensure that the Green Investment Bank remains a world leader in its field and a driver of investment and innovation in cutting-edge, low-carbon technologies.

1.56 pm

Mr Iain Wright (Hartlepool) (Lab): It is a pleasure to serve under your chairmanship, Mr Crausby. I thank hon. Members who are present and the Backbench Business Committee for selecting this important topic for discussion. I particularly want to thank the hon. Member for Beverley and Holderness (Graham Stuart), who gave an excellent, thoughtful and skilful speech that got to the heart of the key issues. It is to his credit that he did so in such a balanced manner. The future of the UK Green Investment Bank and the Government’s plans for it to be privatised have not been given sufficient attention, so this opportunity is very welcome. I also welcome the hon. Member for Warrington South (David Mowat). He and I were present at the creation of the Green Investment Bank, because we sat on the Bill Committee of the Enterprise and Regulatory Reform Act 2013, which set it up. We challenged the Government on some of the things to which the hon. Member for Beverley and Holderness referred, such as green purposes and where the bank can invest.

It is probably appropriate when discussing the future of the Green Investment Bank to consider, as the hon. Gentleman did in his opening speech, its status and achievements in its relatively brief life. Most stakeholders would agree that the bank’s first three years have been a success. It has enjoyed broad political consensus, which has allowed it to establish itself quickly and in some depth without risk of political knockabout and the turbulence that that causes. For an organisation barely out of nappies, the bank has proven to be remarkably mature. It already feels like an established and respected part of the financial and public sector architecture. As somebody who supports institutions designed to promote long-term and sustainable growth in competitive sectors, I think it is on a par with the likes of catapult centres, the Automotive Council and the Aerospace Growth Partnership, all of which should be long-standing players in a UK industrial strategy.

The bank was established to address and help to correct market failure and the reluctance of investors to put funds into the low-carbon sector because of risk or the lack of a track record. The bank has provided

29 Oct 2015 : Column 205WH

confidence in what remains a stuttering, albeit fast-evolving new part of the global economy. For example, the bank’s financial services arm has just enjoyed a second close of over £350 million into its offshore wind fund, bringing the fund to a total of £818 million and establishing its credentials as the largest renewable energy fund in the UK.

I am particularly interested in the three-year collaboration agreement between the bank and the Offshore Renewable Energy Catapult, designed to better manage the risks of investing in offshore renewable energy. The hon. Gentleman mentioned Siemens and the work of an offshore wind cluster in Humberside, and I have a similar cluster in Hartlepool and Teesside. Yesterday in the Chamber we were discussing the crisis in the UK steel industry, yet it could be an important component of the offshore wind supply chain, putting the steel industry in our country on a sustainable footing in every sense.

I fully support the comments about the collaboration between the bank and the catapult made by the Minister for Small Business, Industry and Enterprise. She said:

“This collaboration is a very positive step for our offshore wind industry—helping to increase business productivity, encourage green innovation and stimulate long-term growth,”

because it will bring down costs and ensure that the UK’s goal is to be the largest and most innovative and competitive global player in the offshore wind industry.

The hon. Member for Beverley and Holderness alluded to the bank’s projects and the funds invested. To date, the bank has invested in 55 green infrastructure projects and committed about £2.1 billion to the UK economy in the process of leveraging somewhere in the region of £8 billion to £9 billion more widely, as the hon. Gentleman said. After less than three years of operation, the bank has now posted a profit. Combining green credentials in a new, emerging and uncertain sector with a rapid move into profitability is fantastic work—I think we all agree on that. Credit must go to the bank’s leadership, Lord Smith of Kelvin and the chief executive, Shaun Kingsbury, as well as to every member of the bank’s staff, for the great combination of business and investment acumen with a green ethos and a commitment to environmental concerns.

Given that the bank has achieved so much in such a short period of time, the next phase of its life is truly promising—the opportunity to go to a new level of financial scale, which could boost investment in low-carbon technology and assert Britain’s leadership of this modern and exciting part of the global economy. Having established credibility, environmental sustainability and commercial profitability, the bank might look to relax its risk profile to diversify its investment to ensure that it invests in truly innovative technologies.

Caroline Lucas: I congratulate the hon. Gentleman on the compelling case that he is making. Does he agree that removing legal protection for the Green Investment Bank’s green credentials would be an economic own goal? Right now we have no real guarantee that the bank’s purposes will remain green, but that is the value added and what makes it so special—that it will focus on such areas. If we lose those purposes, the bank will lose its essence. We therefore need some kind of contractual commitment from prospective buyers that they will keep that focus.

29 Oct 2015 : Column 206WH

Mr Wright: The hon. Lady pre-empts the rest of my speech. I wanted to start with the glass half full, the positives and the promise; I now come to the buts. I have real concerns about the future of the Green Investment Bank, precisely because of what she has outlined.

As the hon. Member for Beverley and Holderness said in his opening remarks, the Government’s announcement in June of their intention—though they were vague about their plans—to privatise at least part of the bank raised the prospect of a number of risks. I was sufficiently concerned to use my first question on the Floor of the House as Chair of the Select Committee on Business, Innovation and Skills to ask the Secretary of State about his plans for the Green Investment Bank. Moreover, the Government have tabled an amendment to the Enterprise Bill, which is in Committee in the other place, that would repeal fully part 1 of the Enterprise and Regulatory Reform Act 2013, thereby completely removing the green purposes of the bank.

I agree with the hon. Member for Beverley and Holderness that the bank’s resources need to be scaled up and that it should be allowed to borrow. The Environmental Audit Committee report on the Green Investment Bank in the previous Parliament claimed that it was necessary for it to raise extra capital as a real bank can. I fully agree. However, the method proposed by the Government is questionable. In particular, we must ask—as the hon. Member for Brighton, Pavilion (Caroline Lucas) has just asked me—whether any loss of legislative protection for the bank’s green purposes would also mean the loss of safeguards.

I do not think that the Minister will be able to reassure us this afternoon. If the purposes are removed from the statute book, no subsequent private owner can give any such safeguards whatever. I will come back to the Government dilemma over Office for National Statistics classification and ensuring safeguards, but the fact that at the moment the Green Investment Bank can state, on its website and in all its publications, that it is “wholly owned” by Her Majesty’s Government provides confidence and certainty for investors in the low-carbon economy, which remains at an embryonic stage.

Coupled with policy announcements since the general election, such as changes to solar panel feed-in tariffs, onshore wind capability and planning approval, along with other things, it is difficult to avoid the conclusion that the Government are abdicating from any wish to lead in the global low-carbon economy. That is a real tragedy, not only for green issues, but for our future economic and industrial shape and for what modern industry and employment opportunities will look like.

Kevin Brennan: As I was explaining to my hon. Friend, I have been reading his 6,000-word speech in Committee on the bank. In discussion of the Bill that set it up, he said that it would not be a green investment bank, but only a fund, if it did not have the ability to borrow. In essence, the Government want, as we all do, the bank to be able to borrow, but that makes no difference. Whether it is in the public or private sector, the bank’s ability to borrow will mean that such borrowing goes on the Government’s books, unless they take the trouble to repeal the essential protection in legislation. As a result, therefore, is the proposal not fundamentally undercut and in need of revisiting?

29 Oct 2015 : Column 207WH

Mr Wright: I agree with my hon. Friend, although my concerns have changed since the Bill Committee three years ago. Then I was concerned that without sufficient powers to borrow the bank would be only a fund. Now I think that, given the privatisation plans, the Green Investment Bank will become simply another bank, and a very small bank at that, and will therefore lose its distinctiveness, which plays a major part in the leveraging or crowding in of other private sector investment.

Graham Stuart: Will the hon. Gentleman give way?

Mr Wright: I will mention one point, because it is central to my concerns, then I will certainly give way.

Given that the bank will be small, I am concerned that it will be vulnerable to a takeover by another institution, whose concern for its shareholders would be the pursuit of short-term profits rather than long-term value maximisation. That would be a real danger.

Graham Stuart: The bank will not be able to borrow, because it is at too early a stage—it does not have the cash flow to borrow against, so it would not be able to borrow. That is one of the reasons why it either uses the £3 billion—now £3.8 billion—provided by the Government, or gets private equity investment for the long term. Borrowing is probably out of the window, because there is nothing for the bank to borrow against, apart from future cash flow, which people do not normally lend on.

Mr Wright: I disagree, because of the bank’s financial track record so far. We are talking about a policy decision by the Chancellor. Throughout the bank’s life to date, he has stopped the ability to borrow. He has said in the past that once overall public debt is falling as a proportion of GDP, the bank might be allowed to borrow. He seems to have changed his tune now. However, based on the bank’s track record, the banks could leverage in further private sector money through borrowing as a means of strengthening its balance sheet.

I have mentioned the risk profile, which is another concern. As I said, the bank turned a profit quickly, which is welcome, but a scaled-up bank could diversify its investments, concentrating to an extent on higher-risk and innovative technologies. In many respects, what the bank has done in the first three years of its life is to invest in important and environmentally sustainable, but commercially lucrative opportunities, such as offshore wind, and in driving down costs by investing in, say, product and process innovation. In the next phase of its life, there is a real opportunity to think about the products and technologies that have not even been invented yet. A traditional market will not consider that unless a state-backed development bank both de-risks and crowds in further investment. In this field, Britain could have first-mover advantage, thanks to investments led by the Green Investment Bank. That would have positive effects for UK prosperity and employment opportunities.

In giving evidence to the Enterprise and Regulatory Reform Bill Committee in June 2012, the CBI told us something that stuck with me: that the bank could encourage

“investment into technologies that are not entirely proven yet, or that will require a little assistance to get going. The Green investment bank is part of helping private sector investment and

29 Oct 2015 : Column 208WH

it could have a role in topping up investment in new technologies.”

––[Official Report, Enterprise and Regulatory Reform Public Bill Committee,

19 June 2012; c. 5, Q5.]

I certainly agree, and we are putting that at risk with the Government’s plans. The Government have talked about securing safeguards and reassurances, but they cannot provide them because by sacrificing control and repealing the bank’s green purposes, they will have no input whatever. Clearly no safeguards can match legislation on the statute book.

The repeal sends out entirely the wrong message. The Minister is a decent, good man on a whole range of different matters, and I know that this is not his policy area—he has been cast into the lion’s den—but when he responds to the debate, I would like him to answer this question. If he cannot provide adequate safeguards now and he cannot articulate the criteria for the safeguards that would reassure us, why do the Government expect Parliament to repeal the part of the 2013 Act that provides the green purposes?

The Government have got themselves in a real bind. They want to scale up the bank’s operations, but they do not want it on the balance sheet. They have had conflicts with the Office for National Statistics, which said it was not possible to do anything and retain control without completely repealing part of the legislation.

The Government will have no direction whatever because they had to go for the nuclear option of repealing part 1 of the 2013 Act. They will therefore have no control over what the Green Investment Bank does, which leaves it entirely vulnerable to its private ownership. The strategic direction of the bank could completely alter.

Caroline Lucas: I agree with what the hon. Gentleman is saying. Does he think we could learn from some of the European public banks that do not seem to have the same squeamishness about having things off the balance sheet? Banks such as KfW in Germany leverage equity by a factor of 28 and the Portuguese national bank is leveraging by a factor of 17. They seem to have much less horror about having things off-balance sheet. We have had other things off the balance sheet—the CDC is off-balance sheet—so why is there so much horror about that in this country?

Mr Wright: I thank the hon. Lady for her remarks. I wonder whether she agrees that, in future, state-backed development banks will be part of a modern, innovative, dynamic economy. The UK is unusual in that we are the only one of the G7 countries without such a financial institution. Ensuring that the state, through a development bank, can drive forward the innovations and technologies of the future is the hallmark of a modern, successful and prosperous economy. It is madness that we are moving away from that model; we need to accelerate towards it and concentrate our efforts.

The bank has achieved so much in such a short period of time and it has the potential to achieve much more if its scale is expanded. The move the Government propose, given the bind they find themselves in, means that the privatisation is fraught with risk. It will compromise Britain’s environmental credentials and any ambition we should rightly have to lead global commercial and industrial opportunities in the new, low-carbon economy.

Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP) rose—

29 Oct 2015 : Column 209WH

Mr David Crausby (in the Chair): Order. If Members wish to speak, they will need to indicate that by standing. Philip Boswell is standing, so I will call him.

2.13 pm

Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP): Thank you, Mr Crausby. I also thank the previous speakers for their contributions to the important debate, which highlights the importance of providing capital in renewables. I share many of the concerns expressed by the hon. Member for Hartlepool (Mr Wright), but I will focus on more local issues pertaining to the Green Investment Bank.

The bank in its initial form represented not only a vote in confidence in Scotland, but an investment in the future of our country and its people. Scotland was chosen as the location for the Green Investment Bank for a variety of reasons, the first being that as it was to be located in Edinburgh, which has 11 universities within an hour’s drive, an abundance of academic knowledge and research would be available to it.

It is worth highlighting that Scotland potentially has a wealth of green energy. The Vivid Economics report for the Department for Business, Innovation and Skills in October 2011 emphasised the need to ensure that green economic policies were implemented in practice to unlock financial capital.

The whole point of locating the Green Investment Bank in Edinburgh, and vitally in Scotland, was the need to assist a necessary change in approach to develop low-carbon energy projects. The requirement for a green investment bank is more relevant now than when it was created. The development of green energy will make the economy capable of resisting the volatility associated with commodities, which can create price instability in the energy markets. Promotion of growth for the sake of growth can lead to boom and bust, so what is clearly needed is growth that is sustainable in nature, thereby ensuring longer term economic growth. The investment made by the Green Investment Bank in Edinburgh as a financial centre, with its expertise in asset management together with the factors associated with a highly skilled workforce, is now at risk due to the privatisation agenda.

It could be argued that one of the first acts of the new UK Conservative Government was to privatise the bank. That in and of itself not only creates a degree of market flux and instability, but shows that ideology overrules all other considerations. The Green Investment Bank has been marginalised. Its privatisation runs contrary to the principles of Vince Cable’s period in office at the Department for Business, Innovation and Skills.

John Mc Nally: I apologise to the House because earlier on I should have declared an interest in that a relative is associated with a company that represents the Green Investment Bank. Does my hon. Friend acknowledge that Edinburgh in particular was recognised by Vince Cable as a centre of excellence for the development of green energy? That was confirmed yesterday when the bank’s chief executive said that it wishes to keep its headquarters in Edinburgh because of the quality of its staff and their commitment to the green energy programme.

29 Oct 2015 : Column 210WH

Philip Boswell: I thank my hon. Friend for his intervention. I agree that it is vital not to view the bank in the abstract. Exactly as he said, its set-up was a vote of confidence in Edinburgh as a financial centre of note. In addition, it employs people from Edinburgh.

In respect of future green energy investment, the privatisation as currently outlined is a backward step that fails to recognise why the bank was set up in the first place, namely that mainstream financial institutions have not delivered green energy projects. The privatisation of the Green Investment Bank is cloaked in commercial confidentiality, as is the nature of such financial transactions. Having said that, it was confirmed to me in a ministerial answer that UBS has been advising the Green Investment Bank about the transaction. Though UBS is a highly regarded investment bank, it would be remiss not to state that it has had issues when it comes to adhering to strict financial regulations. This month alone it was fined $17.5 million for failing to comply with Securities and Exchange Commission regulations.

As stated previously, there were particular reasons why Edinburgh was chosen as the location for the Green Investment Bank. An excellent campaign was run by the Edinburgh chamber of commerce, and the bank was established there to build on the already good work undertaken in terms of asset management and the development of a key financial hub. The UK Government must recognise that other financial centres need to grow, not just the City of London. Edinburgh is that second hub.

The future is bright for green investment. One only has to look at the trends in other European countries. Denmark has a history of investing in offshore wind farms, with two pension funds taking a 50% financial stake in them worth $1.1 billion. This year, there has been a €2 billion investment in a Danish renewable energy fund and there is a €16 billion investment by a Dutch healthcare investment fund that aims to increase its green investments by 2019.

UK pension funds need to get active in clean energy, not just for the sake of the environment, but because investment in green energy is expected by many to provide greater returns on investment than fossil fuels. That is highlighted by the fact that there has been divestment from fossil fuels in pension funds throughout Europe. Swedish pension fund Fjärde AP-fonden—the fourth Swedish national fund—worth $40 billion, recently completely divested from fossil fuels. Mats Andersson, its chief executive officer, recently stated:

“We did it because we want to get better returns. There’s a misconception that there’s a conflict between sustainability and long-term investing. We believe it’s a return enhancer.”

I do not necessarily advocate that approach completely, but where financial trend analysis is going is clear. We must protect the future viability of our pension investments and our children’s future.

The hon. Member for Beverley and Holderness (Graham Stuart) spoke about the Green Investment Bank delivering affordable bills. That gives me an in on fuel poverty, which is critical, because one of the bank’s goals is to reduce it. The Scottish Government have designated ending fuel poverty as a clear policy objective—recent statistics have shown that 40% of households in Scotland are considered to be living in fuel poverty—but more must be done at the UK-wide level.

29 Oct 2015 : Column 211WH

The effects of fuel poverty reach far beyond being unable to keep the heating on. According to a report by Friends of the Earth, children living in cold homes are more than twice as likely to have respiratory problems, and adolescents living in cold homes are five times more likely to have multiple mental health problems, as those living in warm homes. Fuel poverty means that household income that could otherwise be used to purchase healthy, nutritious food is used to pay energy bills. It has far-reaching consequences right down to the ground. This is not just about banking and investment or Government decisions. It affects real people on a day-to-day basis. If we do not get this right, it will have a negative impact on children’s emotional wellbeing and educational attainment.

The combination of mental and physical health problems, poor diet, emotional turmoil and diminished educational attainment caused by fuel poverty is a recipe for condemning people to the cycle of poverty—in essence, they are poor and paying for it. Forty per cent. of households in Scotland face the consequence of fuel poverty every winter. Tackling fuel poverty must therefore be a key factor in any consideration of the growth potential of the Scottish energy industry. Ending fuel poverty goes hand in hand with using fossil fuels more efficiently and moving towards enhanced use of renewable energy.

Scotland has one tenth of Europe’s wave potential and a quarter of its offshore wind and tidal potential. In 2010 the eventual income of direct sales from the North sea’s electricity potential was valued at £14 billion, but if that potential is to be reached, there must be investment. The Green Investment Bank was a leap forward for investing in the future prospects not only of the renewables sector but of the people of this country, as that necessary investment was not being made by the private sector.

Caroline Lucas: The hon. Gentleman is making a strong case. Does he agree that there is a real irony that at the same time as we are talking about privatising the Green Investment Bank, many other countries are looking at it as a wonderful model to go forward with? China is particularly interested in following exactly our model. If the UK wants to remain a centre of green finance, it absolutely has to keep this kind of model.

Philip Boswell: The hon. Lady is absolutely right. If it’s not broke, why are we fixing it?

Moreover, privatising the Green Investment Bank will put future investment in the vital emerging renewables market in jeopardy. The privatisation is one in a long and growing line of actions taken by the Government which hinder renewable growth and investment. That is not the future that most people in these islands want for themselves and for their children.

2.22 pm

George Kerevan (East Lothian) (SNP): Thank you, Mr Crausby, for giving me the novel opportunity of winding up from the Front Bench. I will try to add a little to the debate briefly.

The hon. Member for Beverley and Holderness (Graham Stuart) is to be thanked for securing this debate and for providing such a rounded and nuanced case—one that

29 Oct 2015 : Column 212WH

all of us here can agree with—that we might as well have stopped there and asked him to go and talk to the Cabinet. The substance of the debate, both today and in the Environmental Audit Committee the other day, is that everyone is convinced that the Green Investment Bank works. No one has come up with even a modest complaint about what it has done. Hon. Members on both sides of the House agree that it works and it has been there for only three years, so, in the standard form, if it ain’t broke, why try to fix it? If we move to a quick privatisation, I worry that we will in fact destabilise the existing operation, which is in its infancy. It will divert management time—time that is scarce—and expertise to selling the company, reorganising its culture and dealing with new owners, who are likely to be institutions rather than a widespread number of investors, at precisely the wrong moment.

The hon. Gentleman put well the point that the chances of the bank’s being able to borrow substantial amounts of money—possibly in the billions—to provide for further investment are very limited at this stage. I agree. It will be some years before the bank will be in the position to lever in the kind of money that the Treasury and the Government have been talking about. Selling it now is therefore premature even on the basis of what the Government think the bank will be able to achieve once privatised. The privatisation makes no sense unless the Government have an alternative agenda. I think they do. It is clear that the Government are trying to sell off as much of what remains of the household silver as possible to find capital to pay down the overall level of debt.

David Mowat: The hon. Gentleman makes two very good points: that if it ain’t broke, we should not fix it, and that the privatisation could cost management time. However, the bank’s management requires and has asked for more capital; that is presumably why both the chief executive and the chairman, who I guess must be part of the success of the past three years, seem quite keen to bring more capital in through this route.

George Kerevan: Having spoken to the chief executive I totally concur. The bank wants the facility to borrow more money. After all, for it to be a bank rather than a fund it will need to be able to think strategically and have funds in place; as we all know, it takes a long while to broker and deliver infrastructure projects. The projects delivered to date have been small scale, so if it wants to step up a quantum it will need large amounts of money in the pipeline. But that is covered in the existing legislation, under which it is allowed to borrow.

The worry on the Treasury’s part, one that I am happy to accommodate, is that if the bank borrows more money, that money will be counted by the various statistical agencies as part of overall debt. But that possibility is absolutely notional. The City is not worried—it supported the creation of the Green Investment Bank and has been backing it; indeed, it would not lend money in the medium term unless it was convinced that the GIB was a sound proposition as a bank. The impact of any loan on public debt will therefore be notional.

The Government—in particular the Treasury, which is driving this agenda—are trying to sell off available assets. Others, such as Channel 4, are in the pipeline. They are doing so to find capital to prove that they can

29 Oct 2015 : Column 213WH

begin to reduce the overall level of debt, which they have not managed to do so far. One accepts that that is the Government’s agenda, but in this case it would mean sacrificing something that the Government themselves have worked to bring about and that is successful. It would be a cheap sacrifice for a minimal impact on the overall debt.

Graham Stuart: We may or may not hear from the Minister today about whether there has been an evolution in Government thinking. I am a fiscal hawk and believe in balancing the books. Paying down the debt is a reasonable thing to do with a successful organisation. But when the Government set off on all this, they did not realise they would have to repeal the very statutes that give the bank its focus. There could therefore be a case for saying, “Let’s look at this again. We respect your need to raise money from assets, but maybe we might like to make sure we are not going to lose out here.” It would be a shame to cut off our nose to spite our face.

George Kerevan: The hon. Gentleman could not have made the case better. He has more chance of convincing the Chancellor than I have, so I am glad that, even if we achieve nothing else today, we have at least given him a public facility to make that point.

Caroline Lucas: Does the hon. Gentleman agree that another way in which we are cutting off our nose to spite our face is that balancing the books is precisely what happens with investment? They are not two alternative opposing options, as it is precisely through investing that we will get the finances back to help us balance the books.

George Kerevan: I am hesitant to stray too far, as I am sure you would stop us having a general debate about capital borrowing, Mr Crausby. I agree in general with the hon. Lady that in essence, there is a strong distinction between capital borrowing, which produces an asset and a rate of return, and borrowing to fund revenue. I assure the Government that the Scottish National party is more than committed to reducing the deficit on the revenue account, but we think that borrowing on the capital account is a positive, because it creates rates of return that the Government and Treasury will benefit from in the longer term. That is why this particular privatisation is a step too far.

There is a contradiction here, however. On Monday, I will sit on the First Delegated Legislation Committee, and we will discuss putting public money from the Treasury into the creation of a new investment bank—strange? We are capitalising the Asian Infrastructure Investment Bank to the tune of £2 billion. If we approve the order on Monday, the paid-in capital will be added to the UK’s overall public debt, so what we are about to do is try to privatise an effective investment vehicle in the UK that has been very successful in raising productivity in particular sectors—the Government’s prayer—and claim we are doing that to pay down overall debt. On Monday, however, we are about to put money into the Asian Infrastructure Investment Bank that will go on to our national debt.

Where is the Asian Infrastructure Investment Bank going to invest? It says it on the tin: Asia. It is a Chinese vehicle to invest in the new silk road, to invest in infrastructure developments right across Asia and to

29 Oct 2015 : Column 214WH

move Chinese goods into Europe. I am perfectly happy with that as a project, but if I were to choose where to put UK public money, the Green Investment Bank might come first. When the hon. Member for Beverley and Holderness has discussions with Ministers, as I hope he will, he might ask them what overall gain we have achieved by selling off the Green Investment Bank, only to add back into the national debt by providing public paid-in capital to the Asian Infrastructure Investment Bank.

John Mc Nally: In Scotland we are developing a clean and green image. We are working well with the Scottish Futures Trust. We are developing infrastructure projects with schools and hospitals, and developing charging points in all those places. Does my hon. Friend think that work could be placed in jeopardy?

George Kerevan: Indeed. The success of the Green Investment Bank has been in creating partnerships and a model of development. We are going to lose that. It is certainly the case—hon. Members on both sides of the House have alluded to this—that the strength of the Green Investment Bank is its staff and the expertise they have built up. Is that safe in the private sector? If a major investment fund in the private sector is looking for staff with the expertise to fund its expansion and its next level of activity, it goes and buys the staff. It can buy them individually, but that is usually more difficult when it comes to investment projects, because investment staff work as teams, rely on one another and build up collective experience. So the investment fund goes and buys the bank or the bit of the bank it needs to move over to its infrastructure development. My worry is that once we take away the public involvement, no matter how experienced and successful the team that runs the Green Investment Bank is, it will simply be snaffled by someone else. That is why we have to, at least in the interim, let the model develop as it is.

I come back to the BIS Committee the other day. The Green Investment Bank was essentially set up to meet a degree of recognised market failure. If that market failure has not been cured in some generic sense, taking the Green Investment Bank out of public ownership, control and involvement means that we go back to where the market failure was. What was the market failure? I want to add a little to what the hon. Member for Beverley and Holderness said. Infrastructure projects and energy projects are, in the main, highly expensive capital projects.

Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP): Given what my hon. Friend just said, does he share my concerns about the possible impact of this Government move on our ability to meet the sustainable development goals on climate change, which are universal and apply to the United Kingdom?

George Kerevan: I absolutely agree. Underlining the achievement of the climate change targets is a vast capital investment in major renewable energy projects. To date, the Green Investment Bank has invested in essentially small pilot projects, but the scale of overall investment needed to meet the climate change objectives is huge.

That brings us to the issue of how we fund major infrastructural investment. Single banks and single funds will not undertake all the risk, so most major investment

29 Oct 2015 : Column 215WH

projects are undertaken by a consortia of capital groups. They do not trust one another. It takes a long while to broker such consortia. That is the fundamental weakness in the market, and it has been exacerbated since 2008, when we had significant bank failure. That has made banks or funds worry about whether they will get their money back—they know what they are doing, but will the other partner really be in a strong position five years down the line?

If we want infrastructure development, energy development and capital investment, we need consortia. We need an honest broker to put the consortia together. That is where the market fails, and that is why many countries have put together some public body that is trusted by everybody, has seen the books and does not provide a full commercial guarantee if there is failure but takes an element of the risk. That is what brings everybody else to the table.

It is not a question of us wanting the Green Investment Bank to be a public body, risking public money. We want it to essentially be an honest broker. That has proven brilliantly successful in the past three years. What we are about to do is what fundamentally destroys the model of the Green Investment Bank: if we weaken the public guarantee behind it and the public involvement in it, it ceases to be an honest broker. It just becomes another player in a crowded field and eventually, because of its small size, it will be snaffled up by some hedge fund and that will be it. The team will go off to do something else.

Graham Stuart: That was a rather brilliant exposition of the issue. What the honest broker role is and why it is often some minority investor bringing in all this cash is quite a subtle point. On the subject of market failure, the other aspect is that this particular market, of course, relies on subsidy. It relies on trust of Government, and there is not a lot of that either. People who do not trust one another and who do not trust the Government are therefore given a little bit of solace when they see going into a project Government money that, just like their money, relies on the Government honouring their pledges to pay the subsidy over the period and to not change the rules or lift the carpet out. That is another element that could have more of a knock-on effect than is immediately obvious.

George Kerevan: The hon. Gentleman adds immeasurably to my contribution. Trust is a limited commodity, but in a sense, it is about how we add incrementally to get everybody around the table. The chief executive at the Green Investment Bank proved something fundamental by his ability to get people round the table. We are threatening to lose that.

Ultimately, the Government are arguing that we could still protect things by having the articles of association. I look around the room and see many people—my hon. Friend the Member for Coatbridge, Chryston and Bellshill (Philip Boswell), for example—who have worked in major companies in this area. I, on a much smaller scale, have been involved in creating a couple of dozen companies over the past 30 years. Articles of association are meant not to tie a company down. They give a company a general direction, but a coach and horses could be driven through most articles of association I have seen. We cannot rely on that.

29 Oct 2015 : Column 216WH

We need to keep the primary legislation intact, at least for a period. I would be happy if the Government came back and said, “Give us three or five years, then we will come back and revisit it,” but if they move now and change the primary legislation, the Green Investment Bank as we know it will disappear—maybe not next week and maybe not three years down the line, but within 10 years. This may be of more local interest to SNP Members, but, as one of the people who initiated the campaign to get the Green Investment Bank to Edinburgh, if we remove the legal protection, the headquarters will become a nameplate in Edinburgh and, significantly down the line, it will cease to be in Edinburgh. Indeed, if the Asian Infrastructure Investment Bank is successful, the Green Investment Bank may end up in Hong Kong or Shanghai.

I come to my final point. We might look at the model of how the Treasury is approaching its investment in the Asian Infrastructure Investment Bank if the Treasury wants an out when it comes to dealing with the Green Investment Bank. The British contribution to the funding of the Asian bank is about 3% of the overall capitalisation. The Treasury proposes to put some paid-in capital to the Asian bank and provide the rest as a capital guarantee, which of course is a contingent liability but does not lead to immediate borrowing. The Treasury is desperately trying to promise that we will never have to have that contingency—ever—because the Asian bank will be so successful.

It seems to me that if the Green Investment Bank needs more capital in the next two to five years, a guarantee could be given from the Treasury of that capital. It would be a contingent liability, but that would not impinge on the real level of debt. The Government could look at funding models, if they wanted to keep the present green model, without that impinging on overall debt. I urge the hon. Member for Beverley and Holderness to go back and see whether he can persuade the Treasury to discuss some of those models and bring in some of the people it sent off to help set up the AIIB to see whether there might be a crossover. And with that, I will sit down.

2.40 pm

Kevin Brennan (Cardiff West) (Lab): It has been an extremely high-quality debate and I will attempt, in my half of the one hour and 50 minutes that we have left, to do justice in responding on behalf of Her Majesty’s official Opposition.

I congratulate the hon. Member for Beverley and Holderness (Graham Stuart) both on leading the campaign to secure this extremely important and timely debate and on his excellent speech. The Chair of the Business, Innovation and Skills Committee, my hon. Friend the Member for Hartlepool (Mr Wright), also said that it was an excellent speech, and it set up our debate today well. The hon. Member for Beverley and Holderness outlined examples of Green Investment Bank investments extremely well, including some in his own locality. Early on he put his finger on the key issue of the future of the green focus of the bank after privatisation.

The hon. Gentleman said that he thought the Green Investment Bank was vital to the UK’s industrial strategy—he obviously did not get the memo from the Department for Business, Innovation and Skills that the

29 Oct 2015 : Column 217WH

term “industrial strategy” is not to be used any more, but nevertheless he happens to be absolutely right. The bank is vital and we do need an industrial strategy that includes a focus on green investment and renewables as an absolutely essential part of the economic future of this country.

As I listened to the hon. Gentleman’s contribution, I became ever more convinced, as someone new to this brief who did not sit on the relevant Bill Committee or anything of that kind, that the proposal, as it stands, is not oven-ready. Whatever the Minister has to say at the end, I think that Ministers will have to go back and look at the issue in some detail. I know that discussions are going on in another place, but it seems to me that this is far from an oven-ready proposal.

We also heard a contribution from the Chair of the Select Committee on Business, Innovation and Skills, my hon. Friend the Member for Hartlepool, who, as ever, was extremely assured and knowledgeable. He spoke very well about the role of state development banks more broadly and internationally, and how important they are. He said that, in a way, the UK is an outlier among G7 countries in not having such an institution and that we should not lightly put the Green Investment Bank into jeopardy, given the role that it can play in helping to develop that sort of approach in the UK.

We also heard a contribution from the hon. Member for Coatbridge, Chryston and Bellshill (Philip Boswell)—that constituency name has changed since the last Parliament, so excuse me if I did not get it quite right. His contribution was also very effective; he told us about the local impact of the Green Investment Bank, particularly in Scotland. He took an intervention from the hon. Member for Brighton, Pavilion (Caroline Lucas) about China; it crossed our mind over here at the time that China could well end up owning the Green Investment Bank in quite a short space of time, given the way things are going. We should perhaps cogitate for a while on that prospect.

Finally, the hon. Member for East Lothian (George Kerevan), again, made a very effective contribution to our debate, raising a lot of new and interesting points in addition to the ones that had already been made. He was intervened on by the hon. Member for Warrington South (David Mowat) in relation to the position of the Green Investment Bank’s CEO, Shaun Kingsbury. Yesterday, when Mr Kingsbury gave evidence to the Environmental Audit Committee, he made it absolutely clear that he would have liked a statutory lock to remain with regard to the focus and purpose of the Green Investment Bank. He also said, unless I am mistaken, that he remained agnostic about exactly what sort of stake the Government should have in the bank, rather than being a wholesale cheerleader for privatisation. He accepted that that might be the right route for the future of the bank, but unless I misheard him he said he was ultimately agnostic about the level of skin in the game, as it were, that the Government should have in relation to the bank.

The hon. Member for East Lothian also pointed out very effectively that the Treasury was all too ready to allow UK borrowing to be part of the financing of the Asian Infrastructure Investment Bank, yet seemed extremely reluctant to allow the same for our own Green Investment Bank. If the bank is a flagship, innovative policy of the last Government, which I think it is, actually—it was

29 Oct 2015 : Column 218WH

initially conceived even before that, during the previous Government—it will be a terrible shame if the Government are not willing to do for our own Green Investment Bank what they have done for the Asian Infrastructure Investment Bank.

I thought that the hon. Gentleman very effectively described the way in which market failure could be countered by the presence of a Green Investment Bank with an honest broker role—not just like any other bank in the business. He also put a fairly effective bomb under the argument about the articles of association being the protection that could replace the statutory protection that the Government intend to remove. He also made a very interesting alternative funding proposal.

We have covered quite a lot of ground, very effectively, during the course of this debate. I hope that the Minister has the opportunity to respond to some of those points in his contribution, although he may not have enough time to respond to them all; if necessary, I hope that he will take back to the Department what hon. Members have said during the debate.

Ruth Cadbury (Brentford and Isleworth) (Lab): Does my hon. Friend agree that the Government’s proposals on the Green Investment Bank seem to go against not only business policy, but areas that I and many of my constituents are passionate about, such as air quality and, as other hon. Members have mentioned, the carbon economy?

I cannot compete with the business and investment knowledge of Members here today, but I feel, as somebody with a local government background and an understanding of the effective use of limited public funds, that there surely is a case for the use of public money to invest in additional growth and additional jobs. Job creation is also a very important role. Does my hon. Friend not also agree that the problems relating to fuel poverty would also benefit from the long-term support of the Green Investment Bank?

Kevin Brennan: Yes, I agree. I am tempted to quote Kermit the Frog, who said, “It’s not easy bein’ green.” It is not easy, actually—why make it more difficult? That is the problem with the proposal. Everything that my hon. Friend said is absolutely right. There is nothing currently in the proposal that will make any of those things any easier. That is why all of us, in all parts of the House, are asking the Minister to go away and think again about the current proposal with his colleagues.

I do not intend to rehearse, once again, everything that people have said about the success so far of the Green Investment Bank. I remember it as a very embryonic idea when I was in Government, all those many years ago now. It was certainly mentioned by Alistair Darling in one of his Budgets and it was kicking around the Cabinet Office and BIS when I was a Minister in both those Departments during the previous Government. I was very pleased when the coalition Government brought forward proposals, the Bill was passed and the bank was set up and am also pleased about what a good start it has had—how well it has got under way. There have been criticisms about the straitjacket that the Treasury may have put on the Green Investment Bank. Nevertheless, it has genuinely been able to participate in the financing of projects that otherwise would not have taken place and which make a real contribution, as the hon. Member for

29 Oct 2015 : Column 219WH

Beverley and Holderness said at the outset, to meeting our commitments under the Climate Change Act. Essentially, it is a good story.

Graham Stuart: It is touching to see the hon. Gentleman paying such tribute to this creation of a Conservative-led, now Conservative, Government, especially because at the end of Labour’s period in power, when he was a Minister, only Luxembourg and Malta had a lower share of renewables as part of their energy mix. I am delighted to say that whatever questions need to be asked about the Green Investment Bank, the record of this Government is a paragon compared with the abject failure of so many years of Labour, sadly.

Kevin Brennan: I have known the hon. Gentleman for a long time. All I will say is that he has let himself down slightly by injecting a slight note of partisanship into our proceedings; I knew it would inevitably come. Given the sort of person I am, of course, I would never respond to anything of that kind.

David Mowat: Without wanting to take this too much further, I should say that I do not think it was Luxembourg and Malta; I think it was Cyprus and Malta. Perhaps we could clarify that.

Mr David Crausby (in the Chair): You were doing so well.

Kevin Brennan: We were indeed, Mr Crausby. All I will say is this. The notion that, had the Conservatives carried on in power after 1997 we would have had a much greener Government than the Labour one, who passed the Climate Change Act 2008, is one that I find slightly difficult to believe. Anyway, without labouring the point too far, I was saying that in my view—

Graham Stuart: We have time. Will the hon. Gentleman give way again?

Kevin Brennan: I will give way one last time on that point.

Graham Stuart: The hon. Gentleman is extremely generous. A little partisanship does not go amiss. It is important to have the perspective that the current Prime Minister, then Leader of the Opposition, was the first major party leader to call for a climate change Act. That same day, the Liberal Democrats followed, and it was only because it felt that it was going to be left behind that Labour joined in. It was thanks to the current Prime Minister that we got the Act, and it is within that framework going forward that we can have confidence that we can meet these challenges. That is why it is so important that Ministers get their policies right.

Caroline Lucas rose—

Kevin Brennan: Convention requires me to respond to the intervention from the hon. Member for Beverley and Holderness before I take one from the hon. Member for Brighton, Pavilion. All I will say is that there are very few people who take seriously that slogan of “the greenest Government ever”, not least given the recent retreats away from any kind of renewable investment and the turmoil that that is causing in renewable investment markets.

29 Oct 2015 : Column 220WH

Caroline Lucas: I am sorry that we are descending into partisanship, but as we are kind of there, I just point out that under this Government the amount of investment going into the green economy has dropped massively. We are now, in many league tables, out of it completely; we used to be in the top 10. Government Members need to take seriously the signals that they are giving to international investors. The signal that they are giving is that the UK is not a good place to put investment into green areas, and that is deeply worrying for economic as well as environmental reasons.

Kevin Brennan: That is right. We have all read the reports about the confusion of the international community ahead of the Paris conference as to what the position of the UK is now, having been at the forefront, for more than a decade—under both the coalition Government and the previous Labour Government—of pressing forward on renewables.

David Mowat: On that point, will the hon. Gentleman give way?

Kevin Brennan: I will.

Graham Stuart: It’s all my fault.

David Mowat: It is indeed the fault of my hon. Friend; we can all agree on that at least.

We have the Climate Change Act—no other country in the world has come up with an Act that has also required an 80% reduction. It is also true that the level of carbon emissions in this country is lower than the EU average and one third lower than in Germany. We should be pleased about where we have made progress.

Kevin Brennan: If it was the fault of the hon. Member for Beverley and Holderness that we descended into partisanship, credit should go to the hon. Member for Warrington South for raising the tone once again, bringing us back on topic and pointing out that it is important that the UK shows leadership in this area. Perhaps we can all agree on that, even if we do not agree on the extent to which that is currently being displayed by the Conservative Government.

As I said, this has essentially been a very successful innovation. One problem—we have had differences of opinion about this during the debate—has been the restrictions placed on the Green Investment Bank in relation to borrowing. Obviously, the Treasury does not want that to appear on the books, because of the targets that it has set in relation to deficit reduction. However, we have come to a strange pass when even something that we could all agree would be a good thing, even good borrowing, is bad if it is on the Government books, simply because it is on the Government books. Hon. Members touched on this during their contributions. Sometimes in this country we seem to be the prisoners of public accountancy convention, rather than common sense, in relation to when borrowing is a good and effective thing to do—when it is to invest to grow our economy in the future in a sustainable way.

Clive Lewis (Norwich South) (Lab): I want to touch on my hon. Friend’s point about good investment. What we need to look at is this. Over the last three or four years—since 2012, I think—one third of all the

29 Oct 2015 : Column 221WH

growth in the UK, during very difficult years when we were sometimes in recession, came from the green economy. It accounted for about 1 million jobs in the low-carbon sector, worth £128 billion. It is now very disappointing—in fact, tragic—that the Government seek to undermine one of the key drivers of that sector, as we have heard today from so many hon. Members.

My last point is that if we were able to tap into one third of our country’s potential in respect of wind, wave and tidal power, we could create another 145,000 high-quality jobs. When we look at those figures and at how the Green Investment Bank has performed so far, we see that we have to protect it.

Kevin Brennan: My hon. Friend will not be surprised to learn that I agree with that point. In relation to wave power, we are all very interested to see how the Swansea lagoon project proceeds. That is a very interesting development in the sustainable generation of energy; if it is a success, it could lead to even larger projects, particularly in the part of south Wales that I represent.

Mr Iain Wright: I agree with everything that my hon. Friend the Member for Norwich South (Clive Lewis) said. My hon. Friend the Member for Cardiff West (Kevin Brennan) is relatively new to his post. Could I urge him to read the CBI’s “The colour of growth” report? It says that we have a £130 billion share of a global low-carbon marketplace that is worth about £4 trillion. That will rise hugely in terms of the opportunities around the world, but we are slipping down the ranks. We cannot abdicate our leadership on this issue, because our prosperity as well as our environment will suffer. Will my hon. Friend have a look at that report?

Kevin Brennan: I most certainly will. I am sure that my hon. Friend will lend me his copy so that I can do that as soon as possible. I look forward to receiving it shortly in the post or perhaps by a more green method: he can hand it to me personally.

It is a myth that privatisation is necessary and is the only way the Green Investment Bank could go out and borrow in the marketplace. That could be done, as I understand it, under the current legislation in any case, but because of that financial orthodoxy and the desire, which I understand, for the Government to be able to say what they want to say about their deficit targets, they are extremely reluctant to allow the Green Investment Bank to do it.

As the hon. Member for East Lothian said, in a sense this is a notional concept; it is the sort of debt on the books that really is not of great concern to the City or to the markets. It is part of the obsession of the boffins at the Office for National Statistics that where the Government, in any minor way, have an influence over what an institution such as the Green Investment Bank does, by setting out to limit the types of investment that it makes in any way shape or form, it has to be counted as being in the public sector for the purposes of Government debt.

[Mr Andrew Percy in the Chair]

It is an incredibly esoteric and technical reason for requiring the Green Investment Bank to be privatised even though there is clear evidence of real problems with that process, as we have seen from today’s debate.

29 Oct 2015 : Column 222WH

The decision to privatise the Green Investment Bank was announced in June. Was it a premature decision? I believe a lot of people thought it was. Many commentators expressed concern at the time. The Government were able at the time at least to give the assurance made by the Secretary of State for Business, Innovation and Skills in his written statement on 25 June, in which he said that he was going to privatise the bank:

“This should bring a number of important benefits, giving GIB greater freedom to operate across a wider range of green sectors in accordance with its green purposes, which are enshrined in legislation.”—[Official Report, 25 June 2015; Vol. 597, c. 27WS.]

A key part of the Secretary of State’s announcement, emphasised in that written statement, was the fact that the green purposes of the Green Investment Bank were protected by the legislation in which its duty to pursue them was enshrined. Obviously, something has gone horribly wrong in the meantime.

The advice from the Office for National Statistics that I referred to earlier has led the Government to say that they intend to repeal the very legislative protection that they prayed in aid when deciding to privatise the bank on 25 June. By October, they had to say, “Do you know what? That is not so important after all. It doesn’t really matter if we repeal all that to make sure that the Green Investment Bank doesn’t appear on the books.” That requires a great deal of thought, scrutiny and debate. I thank the hon. Member for Beverley and Holderness for pointing that out—and, indeed, for ensuring that we are having this debate.

I do not think it is unfair to say that so far, the Government have no answer to the question of how we can ensure that the Green Investment Bank maintains its green purposes. The letter from the Secretary of State for Business, Innovation and Skills of 15 October, in which he announced his intention to repeal the relevant measures in the Enterprise and Regulatory Reform Act 2013, offers no assurance that those green purposes will definitely be maintained. The Secretary of State does say:

“We want to ensure GIB’s green principles continue to underpin its business in future and this will form an important part of our discussions with potential investors.”

That is all very well, and I am sure that potential investors will come along and happily assent to the green purposes of the Green Investment Bank prior to privatisation. That is not the question, however; the question is what happens after privatisation. At that point, when the bank is either fully or partly in the private sector—we do not know the full details of the Government’s proposals for privatisation—how are we to ensure that it maintains its green purposes and does not, as other hon. Members have suggested, simply become yet another bank, albeit a very small bank that can easily be, and is likely to be, gobbled up by somebody else?

Although the Secretary of State says in the letter that the Government want to ensure that the green principles will be maintained, he cannot ensure that they will be. The Government can only entreat; they cannot ensure. We need to hear more about how Ministers will pursue this proposal, and how they will ensure that the green purposes remain if the current proposal is implemented. There has been no answer yet from the Secretary of State or Ministers.

29 Oct 2015 : Column 223WH

I referred earlier to a written question from the hon. Member for Brighton, Pavilion to the Minister for Small Business, Industry and Enterprise. In response, the Minister repeated that the Government want a privately owned Green Investment Bank to continue the focus on green sectors, but she did not explain in any way, shape or form how the Government can ensure that it does. We need to know more about that, and I would be interested to hear more from the Minister when he responds to the debate. That absolutely central question has to be answered if we are to have any confidence in what is happening. Otherwise, the situation would seem to be a bit of an unholy mess, and we need to know how the Government will unravel it.

I will ask a few other questions, because there will be a reasonable amount of time for the Minister to respond when I have finished my remarks. Will he admit that he cannot guarantee that privatisation will not dilute the green purposes of the Green Investment Bank? Is the Government’s policy simply: “Fingers crossed”? Have the Government discussed or considered the possibility of some form of penalty for the privatised company should it depart from the green purposes currently enshrined in legislation when the legislative guarantees are removed? Can he confirm that the legislative lock on the green purpose is being repealed purely in order to get the Green Investment Bank off the books? Is that the only reason for removing that lock? Can he tell us a bit more about the stake that the Government expect to retain in the Green Investment Bank following privatisation? Some clarity on that would be greatly welcomed by the House and the country.

What about the £1.8 billion that the Government have set aside to fund the Green Investment Bank and its projects, which is yet to be committed? Do the Government intend that £1.8 billion to be committed to green projects as originally intended, or do they intend that money to be taken back into the Treasury during privatisation? If the latter, what will the Treasury do with that money? Will it simply be set aside against the deficit, or will it be used instead for other green projects and priorities? We need some clarity on that, because some of the claims made about the Green Investment Bank will ring pretty hollow if that £1.8 billion is not devoted to the purposes for which it was intended.

Can the Minister give us a ballpark figure for how much the Government expect to raise through the privatisation of the Green Investment Bank? I do not expect him to be precise, because it is impossible to be precise about that, but can he give us some idea of the parameters that we are talking about? How do the Government intend to avoid the sorts of criticisms that they encountered about the lack of value achieved for taxpayers in the privatisation of Royal Mail? I will not put it any more strongly than that, because we have raised the tone of the debate again since the partisan interventions of the hon. Member for Beverley and Holderness; I do not want to lower the tone again or tempt the hon. Gentleman out of his slumber. [Interruption.] He is not asleep; I apologise.

Graham Stuart: It is contentment.

Kevin Brennan: I do not want to tempt the hon. Gentleman out of his contentment. What advice were Ministers given when the guarantee was first enshrined

29 Oct 2015 : Column 224WH

in legislation? Was there any suggestion at that time that putting the green purpose in legislation might jeopardise any future privatisation? Is it possible that when the bank is privatised and its purposes are widened, its funds might be used to invest in things such as fracking?

John Mc Nally: The hon. Gentleman raises an issue that has been raised since SNP Members first arrived in the House from Scotland. We are extremely concerned about fracking in our areas, and I am sure others here are on the same wavelength. Everything my colleagues and I have seen since we arrived has been driving towards making fracking this country’s main source of energy. The fact that some of the subsidies under the renewables obligation will end a year early only goes to show that we were right in our thinking. Does the hon. Gentleman agree?

Kevin Brennan: That is a legitimate concern to raise. At a reception the other evening, I heard a BIS Minister describe fracking as a sustainable form of energy. If it is sustainable, a privatised Green Investment Bank could presumably invest in it. We need to hear whether Ministers think that that is possible.

George Kerevan: The hon. Gentleman may remember that the one form of energy the bank was specifically banned from investing in under EU state aid rules was nuclear. Once the bank goes into the private sector, that will no longer apply, and it will be open to the bank to invest in, say, the Hinkley Point C project, which the Government have heavily subsidised with huge amounts of taxpayers’ money 30 years in advance simply to lever in investment.

Kevin Brennan: The hon. Gentleman is right: that was the ruling in relation to state aid. For what it is worth, I find it difficult to see how we could meet our obligations in coming decades without some investment in nuclear. The hon. Gentleman and I may not agree on that—[Interruption.] The expression on the face of the hon. Member for Brighton, Pavilion tells me that she does not agree with me either, and I am not surprised by that. However, that is my view, and it is shared by quite a lot of people with strong green credentials. None the less, the hon. Gentleman is right to point this issue out, because it is absolutely an implication of privatisation.

Is the Minister concerned that these things will provide further uncertainty for low-carbon investors, at a time when there is great concern about the Government’s retreat on investment in wind power, for example? Do they send the right message to our international partners, on the cusp of the Paris summit, about the importance of renewables?

Clive Lewis: My hon. Friend talked about sending the wrong signals. There is a growing global divestment movement, which is moving funds and investments away from high-carbon fuels and into low-carbon fuels. In my constituency, I have Aviva, one of the largest insurance companies in the world. It is very concerned about the effect of climate change on its business models, and one of its clear goals is to divest its funds from high-carbon investments. We have heard about the Green Investment Bank perhaps changing its shape and becoming, in effect, another privatised bank. The Environment Agency, which has a £2.9 billion pension fund, has recently been looking to invest £450 million in low-carbon

29 Oct 2015 : Column 225WH

energy, but it has now said that that will be very difficult without a Green Investment Bank. Will my hon. Friend comment on that?

Kevin Brennan: Again, my hon. Friend makes an important and appropriate intervention—I can see why he has taken on a shadow Front-Bench role in a similar area, given his level of knowledge. It is a shame that the fact that he is not on the Front Bench for this debate precludes him from making a speech, which would have added greatly to our proceedings. There are a great many speeches that might have been made here in the last hour or so, although we have heard snippets of them in the form of interventions. I do agree with my hon. Friend.

The hon. Member for Beverley and Holderness asked about using the European fund for strategic investments, and I just want to remind the Minister—he is getting a barrage of questions, but he has plenty of time to answer them—that that question was asked.

Are the principles being used by the ONS that are causing the Government such a problem and dilemma used in other European jurisdictions? We have had evidence in today’s debate that that is perhaps not the case. Are we, therefore, allowing an accounting convention to undermine a key green policy initiative?

Have the Government considered structures other than privatisation for the Green Investment Bank? There have been suggestions that other legal structures might get round some of the issues the Government face.

The key question is, why are the Government in such a rush, given all the problems that have been identified in the debate? We know one of the reasons: they want to get the bank off the books—that is part of their deficit-reduction strategy. They are keen to do that as quickly as possible, and we know that significant cuts are coming in the autumn statement. However, it really would be a big mistake and an act of vandalism to rush things just for that reason and to get them wrong, with the Green Investment Bank ending up just like any other bank and perhaps being gobbled up by some Chinese bank. Would it not be better to pause, step back and get this right so that that does not happen? We have learned over many years that making policy in haste is not wise. It is certainly not wise to privatise in haste, because we repent at our leisure. That is not a sustainable way to make policy.

3.16 pm

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (George Freeman): It is a great pleasure to serve under your chairmanship, Mr Percy. We started the debate under Mr Crausby, and I nearly addressed you as him. It is a genuine pleasure to respond to the debate. We have had a gem of a debate; as other hon. Members have observed, we have covered a huge amount of ground, and I think we have covered all the main issues.

The hon. Member for Cardiff West (Kevin Brennan) rattled off a veritable machine-gun volley of questions. A bit like the football results, the answers are coming out of my teleprinter as I begin my speech, and I am confident that, by the end, I will have the detail to deal with all the questions that have been asked.

29 Oct 2015 : Column 226WH

I thank my hon. Friend the Member for Beverley and Holderness (Graham Stuart) for raising this issue, which he has done with the support of hon. Members from all parties. I also congratulate him on his tenacity. He recently met my right hon. Friend the Secretary of State, along with E3G and the Aldersgate Group. He was also a distinguished member of the Committee that considered the draft Climate Change Bill back in summer 2007, and he served with great distinction for four years on the Environmental Audit Committee. He is not a Johnny-come-lately on this subject, but somebody who has been interested in it for some time.

Despite one or two of the comments made earlier, I am not filling in for anybody. I am here as a Minister at the Department for Business, Innovation and Skills, and I have a long interest in green energy. I served at the Department of Energy and Climate Change as a Parliamentary Private Secretary. In a 15-year career in investment in technology companies, I saw that this country and its economy have great strength in clean tech and green tech. As a Minister with responsibilities for science, technology and innovation at BIS, I know the Department wants to do everything it can to unlock UK leadership in the clean-tech sector. Energy costs are a major issue for UK business, and making sure we have a clean, green, lean, resilient economy for the 21st century is of strategic national interest for the Department. It is therefore a pleasure to respond to the debate on behalf of the Department’s ministerial team.

Unusually, we have the luxury of time this afternoon, although you will pleased to know, Mr Percy, that I do not intend to exceed my great-great-great-uncle Gladstone’s record of speaking for more than three and a half hours in the House. However, I do have the chance to set out the full context and to deal with all the questions that have been raised. If I fail, perhaps I can write to hon. Members to pick up any points I have missed.

I am struck by the degree of common interest among all parties in the House. Everyone present wants the Green Investment Bank to flourish and celebrates the success it has had. We start from a good place; we all want the same thing—a green investment bank that brings about growth in the sector and its activity, taking on UK leadership in that space. I congratulate and thank the chairman, chief executive and staff of the Green Investment Bank for their work. They have taken the initiative and made a great success of it. It is a tribute to them that we are engaged in a conversation about options for what we can do with the institution. We should not overlook that.

Since its establishment in 2012, the Green Investment Bank has committed more than £2 billion to 55 green projects and seven funds, and has pulled in £6 billion of additional private investment. It invests on fully commercial terms, achieving strong returns without the need for soft loans or grants. It does so because it can draw on its specialist expertise to assess commercial risks properly and to identify sound investment opportunities that can provide good commercial returns. That is how it has been able to attract new sources of finance into green sectors for the first time—by demonstrating to the wider market that investing in green can be profitable and is not the preserve only of Government subsidy. Achieving that demonstration effect and attracting new sources of private capital into green sectors are crucial

29 Oct 2015 : Column 227WH

since Government funding alone will not achieve the transition to a clean, green and resilient economy that we all want.

An example of the bank’s success is the important role it played in securing a £500 million financing deal for the Westermost Rough offshore wind farm off the coast of Yorkshire. That is a new offshore wind project in the early construction phase that involves the first use in the UK of new larger and more efficient turbines. It represents a step forward for that important sector. The deal demonstrates what the Green Investment Bank does well—attracting private investment into such important projects. Its leadership has helped to stimulate not just UK or European but global private interest in renewable energy. I looked earlier in the debate at the latest data from Bloomberg New Energy Finance and the eighth United Nations Environment Programme report on global trends in renewable energy investment. The sector globally was up 17% in 2014. That was the first time it was back up in four years, as it had had a quiet three years. It has now raised £270 billion for green energy globally. Renewable power, excluding large hydro, around the world, has gone from between 8% and 8.5% to just over 9%, so there is success globally.

In the UK between 2010 and 2014 we raised £42 billion in the green energy sector and renewable electricity generation has gone from 6% to 19%. That is a stunning achievement in anyone’s books. There are 11,550 firms here in the supply chain, with 460,000 employees. Since 2010, on average, if the peaks and troughs are evened out, more than £7 billion a year has been invested in UK renewables, and renewable energy capacity in the UK trebled between 2010 and 2014. That is in no small part because of interest in the Green Investment Bank and the work that it has done.

Caroline Lucas: I apologise to the Minister because I have another meeting and so will not be able to hear his full reply now; but I will check it in Hansard later. I am sorry.

I have two things to say. First, the Minister was bigging up renewables investment in the UK, but to bring him down to earth I remind him of an article from earlier in the year saying that the UK has just hit a 12-year low in attracting renewables investment. We need to be aware of the context. Secondly, does he agree that a privatised Green Investment Bank will become more risk-averse and therefore contribute to market failures, rather than helping to eradicate them?

George Freeman: No, I do not accept that. The hon. Lady’s party is committed to promoting green technologies and investment, but I do not think her insistence that the sector is in decline will be encouraging for investor sentiment. We all have a duty, whatever our policy differences, to contribute to confidence in the sector.

Philip Boswell: The Minister talked about the Government promoting green energy; but there are wind and solar energy subsidy cuts. I was Shell’s contracts lead on the carbon capture project, moving it from Longannet to Peterhead, and with the way things are going I am waiting for a backtracking announcement on that. The Green Investment Bank is a unique British

29 Oct 2015 : Column 228WH

success story, still in its infancy and much admired around the world. Does the Minister agree that privatising it is an exercise in blind ideology, and that it ignores common sense?

George Freeman: The hon. Gentleman has made his point eloquently. Not surprisingly, I do not agree, and I will explain why. Perhaps I can just say something about the rationale for the move.

Several hon. Members have asked why the Government want to move the Green Investment Bank into private ownership if it is already so successful. One or two said, “If it ain’t broke, don’t fix it.” I want to explain why it ain’t broke, and why we want to allow it to go on and succeed. Moving the bank into private ownership is the natural next step for the company, now it has proved itself to be a successful commercial enterprise making a strong rate of return on its investments. We want it to be able to grow and develop its balance sheet, get access to private capital markets and borrow, none of which it can do at the moment, as a public sector entity. It is because we want it to flourish that we want to give it those freedoms.

George Kerevan: Surely it was in the legislation, and in the way the bank was set up, that it could borrow. It is perfectly able to borrow. There is no prohibition on that. It is just that the Treasury does not want that notionally on its books. The bank can legally borrow now.

George Freeman: It could indeed. The difference between us is that the level of borrowing needed in this country has been far too high. The Government’s view is that we need to reduce the country’s borrowings, not increase them, and we want to liberate the bank; we want to allow institutions to grow and flourish without saddling the next generation with more public sector debt.

George Kerevan: I was merely correcting the Minister, who tried to give the impression that the bank cannot at the moment go to the markets and borrow. It can, and I think that the markets would in due course give it all the money it wanted, because it has been so successful. There is no need to change the legal model to enable the bank to borrow. That is my point.

George Freeman: I respect that. The point I am making is that the Government have a strategic commitment to the British people, and it was not the least of the reasons we were returned to office—to get our public debts under control. The hon. Gentleman’s party may take a more cavalier view of public debt, and I respect that, but our view is that we need to get it under control. For that reason, but not only that reason, institutions that can borrow today, thus contributing to exacerbating the public sector debt problem, need to be liberated to get access to the flourishing private capital markets that the Green Investment Bank has played no small part in creating. The figures that I gave earlier on the extent of the global sector are relevant to that.

To complete my comments on the rationale for the decision, I looked this morning at research on market interest, and interest in acquiring a stake in the Green Investment Bank is likely to come from large-scale institutional investors such as UK pension funds, infrastructure private equity funds and sovereign wealth funds—specialist investors with an interest in green

29 Oct 2015 : Column 229WH

infrastructure. The bank has already successfully attracted similar investors into its managed fund for investment in offshore wind. Many of those investors do not currently invest in individual green projects. Allowing them to acquire a stake in the bank will provide a vehicle for them to invest in the area for the first time. That is a part of developing a more active private sector market in renewables and green energy. Through the bank’s portfolio of renewable energy and green infrastructure projects we hope to widen the pool of investor exposure and stakeholders in the sector. The sale of the bank is partly about enabling that new pool of capital to be brought to bear, helping to accelerate investment.

Graham Stuart: Do the Government have any preference, then, as to the number of investors that might come to the Green Investment Bank? He has talked about some taking a stake—perhaps pension funds; but what if a major international bank offered for 100% of the bank, and that was the highest offer? Would they sell to a single institution, and would there then be a danger that that would just be swallowed up in a much larger organisation, so that the purpose of the bank could eventually be diluted?

George Freeman: The overriding principle is that we want to ensure that the bank is put on a footing where it has the freedom to operate and is able to raise the necessary capital without being jeopardised by having an investor base that is too fragmented and small to be effective, or too small or too large an interest to be sustainable. Both of those represent risks. We will need to take a view and ensure that we give it the best possible chance to be able to carry on and fulfil its remit. I will say something about its green remit in a minute.

Graham Stuart: I know that it is difficult and, I imagine, sometimes commercially sensitive but I would like to press the Minister. Is it the Government’s view that the sale to a very large global bank would be a bad thing? He has described it as a risk. I know that the Government will take a view but do they have a view that they can share with the House today? We are trying to find out what the Government are going to do with this bank.

George Freeman: Our view is that we want to give the Green Investment Bank the best possible chance of having a stable and secure future and being able to raise the sort of money that it needs out of the market. Having been an investor myself in much smaller companies, I would say that anyone involved—my hon. Friend is aware of this—will know that there is no perfect shareholder structure. Often having a very small number, particularly if it is one, can create risks of its own. Having far too many small investors can mean that it is a struggle to raise the capital needed. A happy balance will need to be struck, but the judgment will have to give the Green Investment Bank the best chance of fulfilling its remit. I will say something about its green remit in just a moment. My hon. Friend made an important point.

Crucially, the plans are not being imposed by the Government on a reluctant bank. They have the full support of the company and its independent board and chair, Lord Smith of Kelvin, and others. Lord Smith of Kelvin said:

“I welcome this. You can’t keep going back to the Government for more and more money. If we want to build something that is sustainable and durable, we need private capital. This was always going to happen.”

29 Oct 2015 : Column 230WH

He also said:

“The UK Government led the world in their vision and commitment in setting up the world’s first dedicated green investment bank, so we are delighted to have their support as we enter a new phase and seek additional investors in our business.”

Shaun Kingsbury, the chief executive officer, said:

“That is why I believe the decision announced by the Business Secretary is the right one. It is the option that gives us the best chance of creating the greatest green impact.”

Other important commentators have concurred. Richard Howard, head of environment and policy at the think-tank Policy Exchange, said at the evidence session of the Environmental Audit Committee yesterday that the legislation may not be needed to maintain the green focus, and that if we remove that legislation and allow someone to invest, that investor would come along and invest because they are interested in supporting what the Green Investment Bank is doing. He said that private capital funds have got involved precisely because the bank has a track record in these areas and that they are buying into a pool of expertise in investing in green projects.

The Environmental Audit Committee’s report on green finance in March 2014 said that the Green Investment Bank

“needs to be able to raise significant further private sector capital for investment alongside the Bank’s programmes, and to borrow itself to enlarge the scale of its work…The Government must make an early and clear statement about the Green Investment Bank’s long-term future beyond the 2015–16 horizon of its Spending Review funding settlement”,

which answers one of the points made earlier.

Kevin Brennan: I am grateful to the Minister for giving way. That is all very well but the problem is that is all just opinion. Today, we are seeking more of an assurance that the Minister can guarantee that when the bank is privatised, it will not lose its green focus. Nothing that we have heard so far gives that guarantee. Is he coming to that?

George Freeman: I am coming to that. I have been very generous in giving way. Perhaps I should crack on and then I could answer the points that I keep being asked.

In consultations on the Green Investment Bank in May 2012, Greenpeace said:

“If it’s going to be more than an empty gesture, the bank’s got to have the borrowing powers necessary to support the green shoots of the UK’s renewables industry.”

It recognised that the sector is moving fast.

On the freedom to borrow and to raise capital, by giving the bank access to private funding, we will enable it to grow in accordance with its ambitious green business plan, giving it access to a much greater volume of capital than if it remained in public ownership. I commend that plan to any Members who have not looked at it, as it is a legal document that investors are investing in and will be the subject of all the legal constraints of a company sale. Crucially, it will give the bank much greater freedom to operate, removing a number of constraints that apply to it because it is a Government-owned enterprise, and enabling it to borrow freely on the capital markets without impacting on public sector debt. Hon. Members who take a view that public sector debt is not a national priority or issue will not find that

29 Oct 2015 : Column 231WH

argument compelling. Those of us who believe that that debt is an issue will find it compelling. That is firmly the view of the Conservative party.

In Government ownership, the bank must compete for funding along with all other Government expenditure needs, in a necessarily tight public spending round. We do not want to constrain it because of that. For all those reasons it makes sense for the Green Investment Bank’s investment activity to be funded by private capital where possible and to minimise the need for public funding, which fits with our original strategic policy aim of getting the market to work in tackling green policy challenges. Part of the coalition’s strategic intention was to try to generate, support and de-risk that early green investment market here and globally. As a number of Members have mentioned, the bank has been very successful in that first phase.

I want to touch on the need for repeal of the legislation, which a number of hon. Members have talked about. The reason that we need to repeal the legislation on the bank contained in the Enterprise and Regulatory Reform Act 2013 is so that the company can be reclassified to the private sector rather than remain as a public sector body. That is essential to achieving the benefits of private ownership, including the aim that the bank should be free to borrow and raise capital without affecting public sector debt. It has become apparent that, unless we repeal that legislation, there is a major and uncarryable risk that the bank would remain classified to the public sector, even after a sale, because the legislation will be likely to constitute a continued public sector control over the company’s business. The hon. Member for Cardiff West asked whether this was wise in terms of the drafting of the original legislation that set up the bank. I cannot comment on that because I was not involved in it. Our advice now is very clear. If we want the bank to be able to operate in the way that we do, that piece of legislation needs to be repealed. While the decision was not arrived at lightly in any way, we are clear that it is a necessary step if we are to achieve our aims.

Mr Iain Wright: This is a really important point. Given the Government’s determination to move the bank off the public books, does the Minister accept that there are no safeguards whatever to ensure that a privatised Green Investment Bank will continue with the green purposes that are currently enshrined in that legislative lock in the Enterprise and Regulatory Reform Act?

George Freeman: I am trying to remember the beginning of the hon. Gentleman’s question. Will I confirm that there are no safeguards? No, I will not confirm that. It will not be set out in legislation in the way that it is at the moment, but there will be a whole series. The shareholder agreement has not been drawn up yet. Despite the earlier comments of the hon. Member for East Lothian (George Kerevan) about articles of association, the funding and raising of subscription moneys for companies like this is a major legal undertaking. The business plan will be a material document in that process. The bank has set out what it is raising money to invest in. That has to be done when money is being raised. That is all subject to incredible legal scrutiny. The investors who are investing in the company have to sign warranties and give undertakings to their own investors

29 Oct 2015 : Column 232WH

that they are investing in what they say they are. Although they will not be set out in legislation, there are a number of safeguards to ensure that the bank will continue to operate in the green investment space.

John Mc Nally: Does the Minister agree with me—this is the firm view of me and the Scottish Government—that the UK Government’s amendments to the Enterprise Bill to remove public sector controls on the Green Investment Bank would require a legislative consent motion in the Scottish Parliament, given the impact on devolved law?

George Freeman: The hon. Gentleman makes an important point about the devolution settlement. I will come to that. I am not ducking it; it is an important point that I will come to.

On the protection of the bank’s green mission and green values, the Government recognise that people will rightly be concerned about whether repealing the legislation means that the bank’s focus on green investment is in any way diluted. Let me be very clear. As the Secretary of State has sought to make clear in his written statements on the matter, the Government’s intention is that, following a sale, the Green Investment Bank should continue to focus on green sectors, mobilising more private capital and further accelerating the transition to a green economy. As somebody said earlier, the clue is in the name on the tin. Green investment is what the Green Investment Bank does and where its value lies, and that will be the basis of its offering and the offer it makes to investors. It is clear from preliminary feedback that potential investors are interested in the Green Investment Bank precisely because of its unique green specialism, business plan and investment track record. We fully expect that potential investors will wish to maintain that focus and will be bound by the prospectus and green business plan that the bank is putting at the heart of that subscription.

As a key part of any sale discussions, potential investors will be asked to confirm their commitment to those values and the plan, and they will be asked to set out how they propose to protect them. The Government envisage that that will involve new shareholders agreeing to retain the specific green objectives in the bank’s articles of association and to ensure that the bank continues to be required to invest in a way that achieves a positive green impact.

The Government also expect that new shareholders will maintain the bank’s existing standards for reporting on its green investment performance and will continue to provide for independent assurance of that reporting. We fully expect that approach to be effective in securing the outcome we want, which is that new shareholders readily commit to maintaining the Green Investment Bank’s green mission and values.

Mr Iain Wright: That cannot be reconciled with the Government’s intention to get the Green Investment Bank off the national accounts. The Office for National Statistics has criteria for determining whether an entity is on balance sheet or off balance sheet, and those criteria will include a Government right to control via contractual agreements and via regulation such that a unit cannot diversify its activities. The Minister can say that the Government intend, wish and hope, but does he accept that they are impotent on the future operations of the Green Investment Bank?

29 Oct 2015 : Column 233WH

George Freeman: The hon. Gentleman and I are in violent agreement. Let me make it clear that we will not put in legislation or in regulation—

Mr Wright: What about in contract?

George Freeman: Let me answer the question. We will not put a binding contract in regulation or legislation, but we will ensure—here is the point—that when the Green Investment Bank goes to raise funds in a subscription round, the subscription agreement and all the legal documentation will be based on the bank’s current mission to be a green investment bank. The bank’s green business plan will be a material document in the context of that funding round, and investors will be investing in that mission, that plan and those values. As I have said, we will build in a series of protections to ensure that the vehicle in which they are investing is clearly committed to that green mission.

I want Members to understand that we have taken legal advice, and in order to comply with state aid and Treasury rules on public sector financing, and in order to give the bank the freedom that we want to give it, it is essential that we do not bind it with statutory, legislative and regulatory instruction but ensure that, in its offering to the market, the intention of the bank is clear. That is the right mechanism for us to ensure the bank’s green mission.

Kevin Brennan: Some might observe that assurances were sought ahead of the Royal Mail privatisation and that those assurances lasted about five minutes after the privatisation happened. Leaving that aside, the initial investors may well come in on the prospectus that the Minister is putting before the House today, but there is nothing to say that that will last for any period of time. Within a pretty short period of time, we could be looking at a very different kind of institution. Can he give us any guarantees about that?

George Freeman: I think I have made it clear that I will not commit the Government to giving statutory and legislative guarantees that would constrain the operation of the bank, not because we do not want to see the bank continue doing what it is doing, but because we have been clearly advised that once such guarantees are given, we will not be able to allow the bank to have the freedom that we want it to have or to be able to raise money that does not count towards public sector debt. We have made it clear that we want the bank to continue doing more of what it has been doing, such as investing in green energy and catalysing that market. I do not know whether the hon. Gentleman has seen the bank’s green business plan, which is a clear document. When investors invest in any entity, particularly a bank, the entity has to set out a prospectus and a business plan into which the investors are investing. That document will clearly set out the bank’s green activities. It will be very clear that people will not be investing in a company that can do something outside of that.

Kevin Brennan: Fracking?

George Freeman: It will be up to the investors and the bank to determine where the green energy market goes in the longer term. None of us in this room is able to predict where the bank should be investing, given the pace of investment. I have seen a number of interesting

29 Oct 2015 : Column 234WH

technologies—hydrogen cells and some of the battery technology are extraordinary stuff—and we want the bank to be free to invest in different sectors.

Kevin Brennan rose

Graham Stuart rose

George Freeman: I will take these two interventions, and perhaps I can then crack through the questions.

Kevin Brennan: I want to ensure that this is on the record. I said “fracking” from a sedentary position, and I think the Minister accepted that it is possible, under the current privatisation plans, that the Green Investment Bank might be involved in investing in fracking projects.

George Freeman: I want to take specific advice, but I will write to the hon. Gentleman on whether any constraints are envisaged on what may or may not constitute green investment. My understanding is that we want to give the bank the freedom to invest in a range of different technologies. Indeed, part of the bank’s mission is to be able to catalyse investment in a much wider range of technologies that will be key to building a 21st-century green economy.

Graham Stuart: The Government announced that they will privatise the bank so that it can access capital, as the Minister has set out. The letter announcing that privatisation stated that the bank will be guaranteed by the statutes. Those statutes have suddenly gone, and promises have been made to the Treasury. It feels as if the Government machine has already decided to privatise this bank, but the basis on which the Government are privatising the bank has changed. Will it be possible to go back? The Treasury is rightly trying to address the deficit and the debt, but there is a conversation to be had, because the bank is not being privatised on the basis that was originally proposed. There is a risk that this thing will not do what we want it to do. The Climate Change Act 2008 commits us to action, and if that action costs more, we would be back to cutting off our nose to spite our face.

George Freeman: My hon. Friend makes a good point, and I know he has raised it with my right hon. Friend, the Secretary of State for Business, Innovation and Skills. It flows from everything I have said that we are determined to ensure that the Green Investment Bank is able to continue being a green investment bank. Given the constraints under which we are operating, we need to be creative in exploring every option. I am open to my hon. Friend’s suggestions about how we might be able to do that in a way that does not compromise the bank’s ability to operate in the way we want.

Mr Iain Wright: Will the Minister give way?

George Freeman: I want to crack through. Time is galloping on.

Kevin Brennan: You have 43 minutes.

George Freeman: Well, the shadow Minister should see the list of questions I have been asked, not least by the shadow Minister himself. I will try to answer those questions and, if I fail, the hon. Member for Hartlepool (Mr Wright) can intervene at the end.

29 Oct 2015 : Column 235WH

I was asked whether the management of the Green Investment Bank would prefer a statutory lock. The chief executive officer allegedly said that he is “agnostic” about privatisation, but he did say that he prefers a statutory lock. He also said that he wants the ability to raise funds from the private sector, and he understands the need to remove the statute and the statutory constraints.

My hon. Friend the Member for Beverley and Holderness asked how the shareholder framework document will change. Clearly, the framework document will need to change as the shareholding changes. When the bank was set up in 2012, the document’s primary purpose was to set out that the bank should operate independently so that the Government could not interfere in its investment decisions and to ensure the bank’s green ethos. Privatisation will further increase that operational independence, but the bank’s green ethos is now entrenched. The Green Investment Bank is what it is, and it is what is in its business plan, which will be a material document in the shareholder subscription round.

My hon. Friend also asked whether the market failures that the bank was set up to address have now improved to such an extent that we no longer feel the bank needs to operate in the same way. He is right that the bank was set up shortly after the banking crisis in the depths of the dark period of 2010, 2011 and 2012, when the economy was moving very slowly, to rectify a lack of long-term liquidity in the market. It is true that long-term funding for infrastructure projects has recovered strongly, as illustrated by the data I gave earlier. There was a lack of specialist green infrastructure investors, particularly at scale, which is what the bank has now become. The bank has helped to support such infrastructure projects, and we intend that the bank will remain a specialist green investor after privatisation. That is what the bank does, and it is what an acquirer will be buying. We want to let the bank off the leash to do more of that.

The hon. Member for Brighton, Pavilion (Caroline Lucas), who is no longer in her place—she gave her apologies—asked whether a profit-maximising bank would be in danger of crowding out investment because it would be just like any other bank. In fact, the Green Investment Bank is already profit maximising; it has turned its first profit. It exists to prove that it is possible to be green and profitable. That is in the bank’s very DNA; we want to show that the green economy is a real economy. That is how we will attract the private sector capital that we need. The GIB’s expertise can do so regardless of whether it is in the private or the public sector, of course, but we want to give it the freedom to raise that money.

The hon. Lady also asked whether other countries are copying us. It is true that we were in the vanguard when the Conservative-led coalition set up the Green Investment Bank, and we have been copied. It is our ambition to be in the vanguard as we take the market forward. We need to raise not just hundreds of millions or billions, but tens of billions—actually, over the next decade or so, we need to raise hundreds of billions—of money for green infrastructure. There is no way that any Government could fund all of it, even if they wanted to. We need to go to the next stage by leading private sector capital into the market.

29 Oct 2015 : Column 236WH

Several hon. Members, including my hon. Friend the Member for Beverley and Holderness, asked whether the bank cannot raise debt anyway, and whether we had explored all the options. The truth is that equity raising by the bank will effectively score like debt to the public sector once that equity is invested, so this is not just about debt, but about ensuring that the bank has the right financial mix to operate. My hon. Friend also asked about the European fund for strategic investments, a £300 billion pot for capital raising, and whether the bank will still be encouraged and able to access that money.

The Government are aware of the European funding for infrastructure investment, and are examining how best to make use of that facility—my hon. Friend makes a good point. In our view, that does not alter the case for moving the bank into private ownership. We absolutely need to ensure that it can access funding. The Government and devolved Administrations are actively considering, along with other UK institutions, how they can work alongside the bank to maximise the impact for the bank and others of accessing that European funding. The EFSI guarantee can be used by the bank to co-invest in and co-finance with both public and private institutions, so privatising the bank does not in itself preclude benefiting from the European fund.

Graham Stuart: For the record, is the Minister saying that the bank’s change from its current status to privatised will have no impact whatever on its ability to access those funds, to which we are contributing so many billions of pounds?

George Freeman: I would not want to go as far as to say that it will have no impact. What I am saying is that we are actively ensuring that the bank will still be able to access funds from the EFSI. It may have to do so through consortiums with other parties, in a slightly different way from how it did when it was a state-owned bank.

My hon. Friend asked whether citizens would have the opportunity to invest directly. We are exploring all options as part of the sale. I would point out that the bank is still a very young company that has only just broken even, meaning that it is pretty unlikely to have a sufficient track record to attract much interest from the retail market, but we are obviously keen to grow the level of retail investor exposure into the market as it matures. He and others asked whether we and the bank had considered raising green bonds. Issuing bonds is absolutely one of the things that the bank will be free to do if it chooses. At present, it is prevented from doing so, as it would score against public sector debt in the same way as borrowing.

Several hon. Members have asked why we are repealing the legislation. I have touched on this already, but in order to grow in line with its ambitious green business plan, the bank needs the freedom to borrow and access much larger pools of private capital, and it will have that freedom if it can borrow without affecting public sector net debt. That means getting the bank reclassified as a private enterprise and off the Government’s balance sheet. To do so, we must do two things: sell a majority of the company, and repeal the legislation. Otherwise, the company could still be classified in the public sector, even after a sale.