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Albert Owen (in the Chair)
As a result of the vote, I remind Members that the debate is an hour long and will finish at 5.41 pm. I shall call the Front-Bench speakers, beginning with the Scottish National party—I believe it is Ms Cherry—at 5.21 pm, for five minutes only, followed by Dr Whitehead, the Labour spokesperson, at 5.26 pm. At 5.31 pm, I shall call the Minister, who may want to give Ms Thomson a couple of minutes to finish.
Michelle Thomson (Edinburgh West) (Ind)
I beg to move,
That this House has considered the sale of the Green Investment Bank.
It is a pleasure to serve under your chairmanship, Mr Owen; I have not done so previously. I have sought the debate as an independent MP—independent as to party and mind—in the light of considerable concerns raised about the proposed sale of the Green Investment Bank. I must signal my thanks to Macquarie and to the Minister for recent meetings. I look forward to another meeting with the Green Investment Bank tomorrow, and then another with the Business, Energy and Industrial Strategy Committee in the near future. Thanks are also due to the Environmental Audit Committee for the report of December 2015; to the hon. Member for Brighton, Pavilion (Caroline Lucas), who tabled an urgent question; and to members of the quality press, such as Aimee Donnellan, for ensuring that the matter gets the scrutiny it deserves.
The Green Investment Bank is one of our success stories and has supported 30 green energy infrastructure projects up to the end of 2015-16. Profits were up to £9.9 million in the last year, and the bank committed £770 million to transactions during the 12 months of 2015-16, taking the total capital committed to £2.6 billion. The imperative of a green agenda remains, and our resolve must be increased in the light of President Trump’s threat to step back from previous Paris climate change commitments. Our ambition associated with a green agenda is high, particularly within the Scottish Government, but can the Minister confirm that Macquarie is the preferred bidder, or will he continue with the ridiculous pretence that he cannot mention its name?
Why sell, and why now? I want to make it clear that given my business background I understand why privatisation can be attractive to a business in terms of access to capital and to provide certainty as to future funding. I can also see why being released from state aid rules may be perceived as a benefit. On the other hand, I was struck when a Tory Member commented to me, while the right hon. Member for Tatton (Mr Osborne) was Chancellor of the Exchequer, “If it isn’t screwed down, sell it.” I am also struck by the fact that the Green Investment Bank does not expect to need to borrow until 2018-19. The report of the Environmental Audit Committee quotes evidence from E3G that
“the Government has failed to make a compelling case explaining the rationale behind, or consequences of its decision to sell a majority share of the GIB”.
So why now?
I would like the Minister to confirm whether any financial rewards will be given to the board, executive or senior team on a successful sale of the GIB. Will the chair, Lord Smith of Kelvin, remain in his post after the sale and, if so, for how long? The model of packaging up elements of a business for sale to release capital is well understood—I regard the use of the term “asset stripping” as somewhat emotive in this case—but the real point is that the UK taxpayer has provided the funds to bring it to where it is today, but it will not be the UK taxpayer who gets the return on investment.
It is clear from other privatisations that the UK taxpayer did not receive the value they should have done; I therefore question whether that can happen with the Green Investment Bank. The New Economics Foundation in its report “We Own It” notes concerns about future profits versus short-term cash in the continued great British sell-off, whether it is a question of losses incurred as a result of the Royal Mail privatisation or Eurostar. Can the Minister confirm whether full value will be obtained for the UK taxpayer on the sale?
I move on to some more specific considerations. The headquarters is currently located in Edinburgh, but it is not just the location of the brass plaque that marks the HQ—it is the functions of governance, legal services, risk and compliance, comms, finance and business development that really determine where that crucial control lies. The jobs associated with those functions tend to be higher quality. I will be monitoring closely to see whether jobs will be maintained and also whether the number will grow and their quality is maintained. Will the Minister confirm what guarantees he has obtained that the HQ will remain in Edinburgh? What assessment has he made of any proposed new structure and any potential impact on the quality of jobs and functions retained in Edinburgh?
State aid rules—the so-called additionality considerations —disallow projects that could be funded under conventional routes. That means that the projects funded tend to carry more risk but, if successful, more reward. I am concerned about the risk appetite of the bank after sale. A business that focuses purely on the bottom line will tend to gravitate towards more vanilla projects, which are easier to package and sell for financial churn but are a loss to the sort of research and innovation that, we are told, the UK Government want to ensure more of with their new industrial strategy Green Paper. The Minister notes in answers to written questions that the market failure that the inception of the GIB sought to address has now been corrected, but market failure in all areas will not be addressed if encouraging innovation is not at the heart of what the GIB does.
Scale is also a consideration. Will a privatised GIB support smaller projects, such as the specially designed loan to finance a switch to low-energy street lighting in Glasgow? Will Macquarie back that type of small-scale investment? It is only £6.3 million, but will save more than 18,000 tonnes of greenhouse gas emissions over the next 18 years.
What considerations have the UK Government given to an altered risk appetite after sale? Have the UK Government made any assessment of the potential impact?
I would like to consider the issue of protecting the green purpose of the bank. Responding to criticism, and acknowledging that criticism, the UK Government have put in place a so-called golden share with a worthy and notable set of trustees. In theory, that should give us a level of comfort, in that the trustees must agree to any change of purpose as defined by the five green purposes—but the very purposes themselves carry risk. They are extraordinarily high-level; the question has already been asked whether fracking—yes, fracking—could be carried out while still ostensibly meeting the green purpose tests.
I would now like to briefly consider UK control. The GIB has already undertaken a number of its transactions via private equity-type funds.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
Notwithstanding some of the excellent work that the GIB has undertaken, is the hon. Lady concerned, as I am, about the use and involvement of limited liability partnerships? They are currently the subject of a review and have been involved in criminality in many parts of the world. It is not only the GIB—there are some instances where it is alleged that Macquarie has been involved in projects that have used them.
Michelle Thomson
I am happy to support my hon. Friend on that point. I also note the valuable work he is doing around Scottish limited partnerships. I hope he has great success in that.
The limited liability partnerships used to date by the GIB may indeed be UK-domiciled and registered for tax purposes, but the point is—we cannot forget this—that if the underlying funds or owners are controlled offshore, the UK taxpayer loses the benefit of that tax take. What level of UK control and benefit will there be after sale? What will be UK-based in the wider supply chain? To what extent will the project management and/or technical experience be based in and benefit the UK?
Caroline Lucas (Brighton, Pavilion) (Green)
I congratulate the hon. Lady on securing this important debate. In the context of Brexit, and the very likely loss of funding from the European Investment Bank, would she agree that now it makes less sense than ever to be selling off the Green Investment Bank, because it is precisely that kind of bank that can give us the additional benefit of full UK control and fill the gap that will be left by the likely loss of EIB funding?
Michelle Thomson
I am extremely happy to acknowledge that point, and I agree; I suspect the hon. Lady may have read the next section of my speech. She has absolutely hit the nail on the head.
I was discussing what reinvestment would be made in the UK economy after any asset sales. How much influence fundamentally would the so-called golden share have if much of the activity is controlled outwith the UK? I am not expecting the Minister to answer all those questions, but they are part of wider consideration of what we are doing when we invest our UK taxpayers’ precious money and build the bank, then sell it without looking under the covers at what is happening as part of the commercial process.
Finally, on the preferred bidder, there are justifiable concerns about the company’s intentions. Concerns have been raised about its approach to refinancing and debt, particularly in former public companies such as Thames Water. Jonathan Maxwell, the chief executive of Sustainable Development Capital, makes a case for his consortium, which includes the state-backed Pension Protection Fund, as the best alternative to meet the Government’s goals for the GIB. Would that be a better fit for our wider concerns about the green agenda and to encourage the growth of green, particularly in the light of the threat that Brexit poses to the wider economy?
The UK Government have used a smokescreen of commercial confidentiality, so that proper scrutiny by this Parliament cannot take place. However, it is the UK taxpayer who provided the capital to set up the bank and who could lose out in a sale, without proper scrutiny. We, the UK taxpayers, currently own the GIB and we, the hon. Members from across the House who represent our constituencies, need to assure ourselves that the sale represents real value at present.
The concerns were succinctly summed up by Nils Pratley, writing for The Guardian:
“But what if Macquarie thinks GIB is worth more dead than alive? What if it pays £2bn for GIB, liquidates most of the assets at a handsome profit and then decides the capital is better deployed elsewhere?”
What assessment has the Minister made of a sale making it more likely for the UK to meet its Paris climate change obligations? If he has made that assessment, will he make it available?
Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con)
I congratulate the hon. Lady on securing the debate; her last point was key. Under the Paris climate change agreement, a pan-European solution was being looked at for this country to meet our climate change commitments and reduce our carbon footprint. Given the consequences of Brexit, is it not all the more important that we preserve the assets in this country that will help us independently to meet the commitments under the Paris and previous climate change agreements?
Michelle Thomson
I absolutely agree, and I sum up by asking: is this the right time for a sale to anybody in the light of Brexit, when the focus fundamentally must be on innovation and positioning ourselves to take advantage of key growth sectors?
Several hon. Members rose—
Albert Owen (in the Chair)
Order. Three Back Benchers have indicated that they wish to speak; I remind them that I will call the Front Benchers to speak at 5.21 pm, so that works out at about seven minutes each. I call Peter Aldous.
Peter Aldous (Waveney) (Con)
It is a pleasure to serve under your chairmanship, Mr Owen, and I congratulate the hon. Member for Edinburgh West (Michelle Thomson) on securing the debate; her timing is spot on. I entirely support the principle of privatising the Green Investment Bank, but that needs to take place on terms that are in the whole country’s best interests, and on a basis that will maximise the leveraging of investment in this very important sector.
The Green Investment Bank is a success story. Since its launch in 2013, it has leveraged £10 billion-worth of projects from a £2.8 billion public stake, playing a particularly important role in the offshore wind sector. It successfully kick-started the Galloper wind farm off the Suffolk coast, securing external investment for a project that will bring jobs both to Waveney and across East Anglia.
Since the sale process started a year ago, times have changed. We are now in a very different world and it is appropriate to pause and to consider whether the sale is taking place on terms that are in the best national interest. Brexit has led to a refocus on the UK’s industrial strategy, with the publication on Monday of the Government’s Green Paper. The pillars of the strategy include the need to upgrade infrastructure; to deliver affordable energy and clean growth; to drive growth throughout the country; and to rebalance the economy. The Green Investment Bank has played a leading role in all those areas, and it is important that it continues to do so, in particular as complementary investment from the European Investment Bank is, as we heard, almost certain to disappear completely.
When the Government circulated the bid documents last year, two possible options were suggested: a full privatisation and the retention of a 25% stake. The latter course should be pursued, because it would be more valuable for the bank, for UK plc and for the taxpayer. The stake would help to target important infrastructure spending; it would enable the Government to hold the bank to its mission of mobilising investment in the UK’s green economy and of maximising its green impacts; and, moreover, that sector of the economy is dynamic and entrepreneurial, so the stake is highly likely to increase in value. In summary—I have been very brief—in a short period of two years the Green Investment Bank has brought great benefits to the UK, and it is vital to the future of the country as a whole that it continues to do so.
Joanna Cherry (Edinburgh South West) (SNP)
It is a pleasure to serve under your chairmanship, Mr Owen.
I commend my hon. Friend the Member for Edinburgh West (Michelle Thomson) not only for securing the debate but for her sterling work on the Green Investment Bank, to which she has applied her usual business acumen and forensic skills. I rise to speak because the bank is headquartered in my constituency and, among other things, I am concerned about the 55 people employed there. The Minister has therefore kindly agreed to meet me to discuss the issue.
I want to say something about the background to the setting up of the Green Investment Bank which, across the group, employs more than 130 people, including renewables investment professionals and technical experts. The Business Secretary at the time, Vince Cable, chose Edinburgh as the headquarters for good reason. Edinburgh came top of a financial and technical assessment, as one might expect of the second most important financial centre in the United Kingdom and, when the bank was set up in 2012, he said:
“Edinburgh has a lot going for it, both in terms of its asset management and finance sectors…also its proximity to green energy activity”,
which—in my words, not Vince Cable’s—has been encouraged by the Scottish Government.
Interestingly, Vince Cable went on to say that choosing Edinburgh as the headquarters of the bank supported what he described as the “wider narrative” of binding Scotland into the United Kingdom in the run-up to the independence referendum. I am anxious therefore that the promises made by the Business Secretary in the coalition Government are delivered on for Edinburgh and that my constituents and those working in my constituency do not lose their jobs.
As my hon. Friend said, the Green Investment Bank is successful. In 2016 it started to make a profit. It is likely to deliver an annual return of 10%. The exercise of asset-stripping the bank, were that to happen, would result in a significant profit for any buyer at the expense of the United Kingdom taxpayer and of green investment throughout the United Kingdom.
The bank offers very real and attractive investment opportunities. It manages the world’s first offshore wind fund, with assets of more than £1.2 billion. Offshore wind is very much a huge part of Scotland’s future for energy production, and the fund attracts investors such as local authority pension fund managers, due to its long-term and stable investment. Five local government pension funds in the UK are investors in the fund, including Strathclyde Pension Fund, which is one of the two biggest local government pension funds. The chairman of Strathclyde Pension Fund has said:
“When you consider that when Pension Funds mature we are always looking to reduce our risk we do that by investing in our asset base with long term stable investments. We are convinced that”
the GIB
“invest in the right infrastructure assets which will lead to a stronger and greener UK economy.”
As I am sure the hon. Member for Brighton, Pavilion (Caroline Lucas) will discuss, the Green Investment Bank supports innovative energy efficacy projects in partnership with local authorities across the United Kingdom. It is a really useful bank, it is a modern bank, it is a successful bank and it is a bank that was established in Edinburgh as part of the project of binding Scotland into the United Kingdom. So let us make sure that it stays a successful bank, that we honour the UK taxpayers’ investment that has been made in it and that we protect the jobs it supports.
Caroline Lucas (Brighton, Pavilion) (Green)
It is a pleasure to serve under your chairmanship, Mr Owen. I thank the hon. Member for Edinburgh West (Michelle Thomson) for securing this important debate. Like her, I am deeply concerned by the way in which the Government are proposing to sell off the Green Investment Bank. It is widely known that the Government’s preferred bidder is the Australia-based firm Macquarie. As has now been well documented, there are serious concerns about Macquarie’s corporate record and its commitment to the GIB’s environmental goals.
Macquarie has admitted rigging the Malaysian foreign exchange markets. It has settled charges in the US for violating underwriting laws related to a China-based coal company. It is currently facing legal action in the US for rigging Australian interest rates. In a separate investigation, it was found to have breached market integrity rules in Australia and to have “systemic deficiencies” in its compliance with financial services laws. Closer to home, its ownership of Thames Water has also been deeply controversial, with £10 billion of offshore debt loaded on the company and a £250 million pension deficit allowed to accumulate while profits were extracted.
Macquarie also has an appalling environmental record, funding fossil fuel extraction projects across the world. From open-cast coal mines in China to fracking here in the UK, it has a track record of supporting climate-wrecking projects. By any measure, Macquarie is unfit to be custodian of the UK Green Investment Bank; if anything, there is a very clear risk that it will destroy it.
The Government have so far refused to respond to those concerns. Instead, we see ample evidence that the Government are not only willing to allow an asset strip, but may have actually helped to facilitate it. With the support of Treasury-owned UK Government investment, 11 subsidiary companies of the GIB were set up presumably to allow Macquarie to asset-strip the UK’s Green Investment Bank. The Minister passed on the opportunity to deny Macquarie’s involvement in those changes in response to a written question I tabled last week.
Meanwhile, the Government continue to point to the creation of a special share as the answer to all our concerns. That is simply not true, as the hon. Member for Edinburgh West set out—we know that the special share will not protect the green purposes of the GIB under an owner such as Macquarie. In response to another written question I tabled, the Government made it clear that the special share will not ensure that individual investments are low-carbon. The special share will not stop asset stripping, will not ensure adequate capital is available for future investment and will not ensure an investment focus here in the UK. To protect the GIB as an enduring institution that is investing here in the UK, we ultimately and simply need the Government to stop this sell-off.
Callum McCaig (Aberdeen South) (SNP)
I thank the hon. Lady for giving way, and add my thanks to my hon. Friend the Member for Edinburgh West (Michelle Thomson) for her contribution in securing this debate. The whole basis behind the privatisation is that the market failure has been corrected. I simply do not agree with that. We may have seen progress in the power sector, but in transport and heat we are lagging way behind what we need to be doing to meet our carbon reduction targets. Does the hon. Lady agree that the Green Investment Bank can play a critical role in addressing the market failure that continues to exist in those sectors?
Caroline Lucas
I thank the hon. Gentleman for his very informed contribution. He will not be surprised to hear that I entirely agree with him. Anybody who thinks that market failures have been corrected is being extraordinarily complacent. Just a quick scan of the way in which we are not meeting the targets that we have—our climate, environmental and energy-efficiency commitments—would lead people to conclude that market failure remains, and therefore that the need for the Green Investment Bank to be in the public domain remains.
I believe that Ministers have it within their power to cancel the sale and pursue a different path. For the GIB to be properly protected, it should remain wholly owned by the UK Government. That is my bottom line, but if Ministers refuse to do that, various other options are available to them. We know that there was and still is on the table an alternative bid—it is the one that lost out to Macquarie. That bid would help to keep the GIB British, green and growing, so why are Ministers not pursuing it if they do not want to keep the GIB in the public domain?
Roger Mullin
Is the hon. Lady aware of, and as concerned as I am about, potential conflicts of interest involved in the Macquarie bid? Macquarie has used PricewaterhouseCoopers both as advisers and as auditors for many years. The senior independent director of the GIB is Tony Poulter, who at the same time is a partner at PWC and the head of PWC’s global infrastructure advisory unit. Does she agree that that is an obvious conflict of interest?
Caroline Lucas
I am grateful to the hon. Gentleman for that intervention. I was not aware of that, but as he has now put it on the table, I find yet another reason to be deeply concerned about the Government’s proposals. I thank him for adding that piece to the jigsaw.
There were plenty of options for the Government other than going down the route of flogging the GIB off to Macquarie. I mentioned the other bidder, but the Government could also allow citizens to buy into the Green Investment Bank through green bonds—allowing people up and down the country to own part of this important and dynamic institution. Indeed, there were press reports over the weekend, as the hon. Gentleman will know, about the possibility of an initial public offering. That would at least offer greater protection to the aims of the GIB than the Government’s current plan. Any sense that the sale is the only option on the table must be challenged. There is a range of options on the table. The overriding question has to be why the Government would choose such a damaging option when there are clearly much better ones available.
The launch of the Government’s industrial strategy on Monday gives Ministers another reason to halt the sale. This was the point made very clearly by the hon. Member for Waveney (Peter Aldous). With the UK set to miss its climate targets from the mid-2020s onwards, and renewables investment in the UK set to fall by a dramatic 95% over the next three years, the low-carbon economy should be at the heart of the industrial strategy.
The Department’s welcome new focus on battery technology, energy storage and grid technology could all be supported through finance from the Green Investment Bank. That finance is more important now than ever. We have already discussed briefly how the likely loss of access to funds from the European Investment Bank makes that an even more important role that the GIB can play.
Together, the emissions reduction plan due later this year and the Government’s more active approach to supporting the UK economy mean that it is time for Ministers to ditch the sale and embrace the Green Investment Bank as an important ally in a green industrial strategy. Ministers have rightly been applauded for passing into law the fifth carbon budget and for ratifying the Paris agreement. They would be similarly congratulated and applauded for putting an end to the flogging off of the Green Investment Bank.
Albert Owen (in the Chair)
We are in the unusual position of having run out of Back Benchers when I thought that we were going to run over our time. That gives the—
Albert Owen (in the Chair)
Order. That would be really pushing it. I say to the Front Benchers that they can divvy up the time and, if they wish to take an intervention from the hon. Lady, I will allow that.
George Kerevan (East Lothian) (SNP)
It is, as ever, a pleasure to serve under your chairmanship, Mr Owen. I join colleagues on both sides of the Chamber in commending the hon. Member for Edinburgh West (Michelle Thomson) for securing the debate. I underline the fact that she is a well known entrepreneur in Scotland. She speaks not as someone who is simply anti-market, but as someone who has worked very hard in her own right to make markets work in Scotland. It is on that basis that I wish to ask some questions of the Minister.
I agree with most of what has been said so far, but there is one issue we need to take a bit further. Perhaps the Minister in his summing up could explain a bit more the Government’s reasoning. The Green Investment Bank was set up to deal with a very specific form of market failure. I am interested in the subject because when a green investment bank was first mooted, I was a senior journalist on The Scotsman in Edinburgh, which is celebrating its 200th birthday today. We organised a campaign, which I was very much involved in, to bring the headquarters of the Green Investment Bank to Edinburgh, and we were successful.
The perceived market failure is obviously to do with the funding of environmental projects. Some of us, though—I do not say this to make a cheap point—believe that the rush to sell the Green Investment Bank, only two years after it really started being in operation, was a product of the wish of the previous Chancellor to raise capital to meet his target to balance the books and abolish the deficit. That is understood. Now that the Government have given way on the ex-Chancellor’s 2020 target to get into surplus, and given that in some sense his colleagues seem less happy with his activities, so much so that he is not the Chancellor any more, it might be a chance to look more at the nuts and bolts of whether market failure is being addressed, rather than simply to try to raise capital.
The market failure being addressed was not a lack of capital in general, but a much more specific form of market failure. Most large infrastructure projects are funded by consortiums of banks and investment houses, because the projects are usually too large for any one undertaking to take all the risk. The failure in the past decade in the UK has been getting the consortiums together. That was partly exacerbated by the fall in investment appetite and risk appetite after the 2008 banking crisis.
The Green Investment Bank does not put its own money in per se; it puts together the consortium of the banks. It puts up a little money to underwrite some of the risk and show that the risks have been properly looked at, and it brings other people in. That model is growing and has proved successful on a small scale. It would be worth while leaving the model in place until we see at the end of a decade whether it has enabled significant consortiums to be put together for major projects, rather than simply considering the small projects that the Green Investment Bank has been involved in to date. If the Government abandon the GIB now, they have to prove that it will continue under private ownership to address that specific market failure.
When the Minister responded to the urgent question tabled by the hon. Member for Brighton, Pavilion (Caroline Lucas), he seemed to suggest that the proof that market failure had now been addressed systemically was that private sector interests were prepared to buy the bank. I challenge that assertion. I know the Minister will not mention Macquarie, but I will. I do not do that to stand by some of the criticisms of Macquarie. I want to address Macquarie’s business model, because it or a company like it may become the owner of the Green Investment Bank.
Macquarie puts together consortiums of investors, but it does that to buy existing infrastructure projects that earn a capital return. In December, it put together a consortium and bought the gas pipeline business of the National Grid. That is understood. It is a very sensible long-term model, and it is very profitable for Macquarie, which might explain why it is known in Australia as the billionaires’ bank—it has made many billionaires. The problem is that buying existing assets is easy, but that is not where the market failure is. The UK capital market is more than able to address that problem. The market failure is in building new asset classes. The Government have admitted in their new industrial strategy that the problem is that we somehow under-invest in infrastructure, despite having a huge capital market in comparison with other countries.
The Treasury Committee is undertaking an investigation and we have uncovered one of the major issues. When an infrastructure project is built, it is not retained in ownership by the people who built it. It is passed on ultimately to the ownership of pension funds and insurance companies. They use it as a long-term investment to pay annuities and long-term pensions. The insurance companies are crying out for regulatory change because they say they are unable—my second question to the Minister is to ask him to look at this—to invest capital in new infrastructure, and the new environmental projects they are desperate to invest in and own, because the regulatory and capital requirements are too onerous. The result is that British insurance companies find it easier to buy into American new infrastructure projects than into British ones. If Donald Trump turns on the spending tap in the United States and spends $1 trillion on investment in new infrastructure in America, inevitably in the present regulated climate, British pension funds and insurance companies will underwrite that investment rather than investing here.
My point for the Minister is that the market failure is still there. Using the sale of the Green Investment Bank to Macquarie or any company like it will simply be using it as a cash cow rather than underwriting risk for a future infrastructure investment. That will not resolve the problem. The Government must prove to Members on both sides of the House that the sale to any company will solve the underlying market failure. The sale to Macquarie, given its business model, will not solve that problem.
One question is whether Macquarie is a fit and proper company to own the Green Investment Bank. The Minister will probably avoid answering that question and will not mention the Macquarie name but, in the most systemic way, can he prove to us that the sale of the Green Investment Bank in such a short period to another owner will resolve the market risk of having a player—the Green Investment Bank—as the referee that brings the consortium together from the rest of the capital market? In the absence of that, the Green Investment Bank must be left in place and we must question why the British capital markets as a whole do not fund infrastructure investment and have not done so successfully for several decades. That is a regulatory issue and the ball is in the Government’s court.
Dr Alan Whitehead (Southampton, Test) (Lab)
The Opposition’s position on the sale of the Green Investment Bank is that it should not be sold. The reason for that is at the heart of what the Green Investment Bank is. It is, of course, not a bank. It does not have the full lending and borrowing facilities we would expect in a bank. Indeed, hon. Members may remember that after it was formed the Chancellor imposed conditions on when it might become a bank. It is not a bank: it can be better described as a public policy instrument. That is what it has always been. It is a public policy instrument that, as hon. Members have said, has a particular purpose of using state-backed intervention to overcome market failure, particularly in green investment.
We know that the market failure issue has not been resolved and that green investment, particularly because of the requirement for patient capital and long-term investment as it attempts to ride a number of waves at the same time, continues to be difficult as we hear from reports coming into this country. We also know that investment is essential if we are to move to the next stage of low-carbon investment. The Green Investment Bank, as the public policy instrument to ensure that happens, has been a remarkable success. It continues to be a remarkable success and to do very well what it originally set out to do, which, as hon. Members have said, is not to give grants out to anybody or take companies over but to pull capital in from elsewhere with the back-up of capital from the Green Investment Bank, which is backed in the first place by Government, to immensely enhance the value of the investments that have been secured. In so doing, the Green Investment Bank has, as we know, secured more than £10 billion of capital investment with an input of just over £2 billion of Government-backed money via the Green Investment Bank’s instruments. It does not seem a very wise course of action to sell that public policy instrument, with all the consequences that may arise from that now and for the strategy that we need to adopt for green investment.
The Government have not only decided to sell the Green Investment Bank, but they have decided to make the preferred bidder for the bank a company that does not have anything like that model in its investment arrangements. As hon. Members have mentioned, that particular company appears to have been involved in specific amendments to the arrangements of the Green Investment Bank so that it would be possible to make that bank work in an entirely different way—setting up, in November and December, 10 companies, which would fit neatly in at least four of the major investments that the Green Investment Bank has been involved in—the Galloper, Rampion and Westermost Rough fields, and GIB offshore wind collectively, amounting to a Green Investment Bank total investment of about £1 billion. It would not be a bad start—to be able to take the Green Investment Bank over, flog off half of the assets that have been taken over, get £1 billion back and then move on to the next stage. To the casual observer, that has the potential to be a pretty scandalous forward move to do to the Green Investment Bank exactly what we fear would happen were it to be privatised in that way.
I personally do not go along with Donald Trump’s view of the press, particularly the quality press and the Financial Times and The Sunday Times. This weekend, the statement in The Sunday Times was simply this:
“Ministers are poised to scrap a planned sale of the Green Investment Bank…to Australian investment firm Macquarie, pushing instead for a £3.8bn stock market listing.”
I understand that the Minister cannot and will not mention the word Macquarie, but I wonder whether he would enlighten us by using a different formulation, such as, “No, the Government are not poised to scrap a planned sale of the Green Investment Bank to a preferred bidder, and no, they are not pushing instead for a £3.8 billion stock market listing.” That would be a suitable statement for the Minister to make this afternoon in response to speculation in the press. I would take silence on that formulation as an indication that the Government may be having second thoughts. If they are, I would fully support them, because they would start to be coming into line with the issues that hon. Members have raised this afternoon and at other times.
If those second thoughts included, for example, an initial public offering that was a minority sale of shares, or even a majority sale of shares with a controlling share retained by Government, that would easily overcome the issue that hon. Members have also raised—the arrangements that we know will be inadequate to stop asset-stripping in the way that appears to be lined up for the bank at the moment. Those arrangements are very narrowly based on the memorandum and articles of association of the company, not on the asset possessions of the company, and would have no real effect in the way that I think hon. Members would want.
If the Government were to decide to float shares in an IPO, I guess that would take about two years. That would give the bank a substantial amount of time to do its work, particularly in view of the likely withdrawal of the European Investment Bank, which other hon. Members have mentioned. We ought to remember that the European Investment Bank has actually invested twice as much as the Green Investment Bank over the past few years in green projects that are difficult to invest in. Upon Brexit, the EIB’s investment is likely to fall to between 10% and 0% of its current investment. That is a further reason why the Green Investment Bank is so important to making investments right now.
I have on previous occasions asked the Minister to wink in the Opposition’s direction if he has had a change of heart. Perhaps nothing as flamboyant as that is necessary today, but it would be helpful if he could indicate whether a different route is being considered for the Green Investment Bank so we can discuss its future in a rather less negative way.
Albert Owen (in the Chair)
The Minister has a little extra time to respond to the debate. I remind him that if he wishes, he can leave Ms Thomson a couple of minutes to sum up.
The Minister for Climate Change and Industry (Mr Nick Hurd)
It is a great pleasure to serve under your chairmanship, Mr Owen. I sincerely congratulate the hon. Member for Edinburgh West (Michelle Thomson), who represents her constituency in a robustly independent way, on securing the debate. She drew on her clear business experience to frame the debate, set it up in the right way and built on the exchange that we had on the urgent question last week.
However, I must say that when the hon. Lady dismisses commercial confidentiality as a smokescreen, she lapses into political rather than business matters. She knows the reality of the situation, however frustrating that is for the House—and, frankly, for me. I will not be drawn into any discussion about the character or values of any potential preferred bidder, or any of the more sensitive aspects of what is a commercial negotiation that has not concluded. I think she knows that, but let me make that quite clear.
Mr Hurd
May I make a little more progress?
This has been a good, well informed debate. There is clearly disagreement about whether it is right to sell the GIB, and I respect that, but there is clearly common ground—this is worth restating—that the GIB has been a fantastic success story. In fact, exactly that language has been used by Members on both sides of the House. That success has been achieved in very short order by a relatively small group of people who were given a very challenging mandate. That is genuinely impressive. The Government are therefore keen, as I am sure the House is, to place on the record our appreciation of the work of not just the GIB’s senior management team but everyone who works in that organisation. It is particularly important to show our appreciation for the professional approach of the GIB’s staff, because as those who have been in the commercial world know, these kinds of transactions drag on and create uncertainty and anxiety.
The GIB has been a success story. It was set up to accelerate private investment in green infrastructure. It has a fantastic success record of turning every £1 of public money committed into £3 of matched private sector commitments. It has achieved a series of firsts—not least the first ever offshore wind fund, which has now reached final close having raised more than £1 billion of capital, making it the UK’s largest renewable energy fund. There is also agreement that if we do sell the bank—there is disagreement about that—the Government will be responsible for securing best value for taxpayers and getting a deal that we can justify to the public, whose money has been invested in this institution. It is important that Parliament holds the Government firmly to account for that.
I think something has been missed in this debate. There has been a lot of assertion about the motives of any potential preferred bidder or even the motivations of the Government. There has even been the suggestion that this sale represents a sapping of green ambition on the part of the UK Government, but that could not be further from the truth. I meant what I said on the Floor of the House yesterday.
I will come on to the criteria, which we will be very robust in sticking to when it comes to reviewing any proposal before us. However, one of the things that we are looking at most closely when considering a proposal from a preferred bidder is their forward commitment, not only to people—particularly in Edinburgh, which I hope will reassure the hon. and learned Member for Edinburgh South West (Joanna Cherry), in whose constituency the HQ of the bank is located—and to an ongoing institution with a clear identity in the future, but, critically, to forward investment. That is because hon. Members are right: we need more funding and we need more private capital coming into our green infrastructure. That is obvious; every country needs that.
Part of our starting premise, which has not been reflected in this debate at all, and part of the motive for privatisation, is to confront the reality that the GIB, however successful it has been, is constrained at the moment by the framework in which it operates. I do not think that people get up in the morning thinking, “Thank God I’m working for an instrument of public policy”—I do not think that is quite how people see things—but they are constrained in what they can do by state aid rules and the number of restrictions that come from being a public sector organisation. We feel that this organisation, when liberated from all that, can do more and we want it to do more. We need to be reassured by any future owner that they share that vision, are committed to it and are prepared to back up that commitment. That will not be just the evaluation of Ministers or officials in Government—
Mr Hurd
I will just finish this point. I want to reassure Scottish Members of Parliament, and I have already told the hon. and learned Member for Edinburgh South West this in our meeting, that when it comes to making any final judgment we will be led by the judgment of the chairman—Lord Smith of Kelvin, who is highly respected—and the board about the credibility and integrity of future commitments made by a bidder, and the degree to which they can be bound into contractual arrangements.
Mary Creagh
I thank the Minister for his generosity in giving way and I apologise to colleagues and to you, Mr Owen, for turning up late; I was anxious to listen to the opening speeches in the education debate.
I echo what the Minister has said about the patience of the staff, who have been undergoing this process for 18 months amid considerable uncertainty. Am I right to infer from the point that he has just made about the good will of the potential purchaser that there are potentially some issues around that? Can he say when he became aware of the fact that these various other new companies had been set up by the GIB just before Christmas? There has been a little bit of confusion, with Ministers first saying that they did not know about those new companies and then saying that they had been established to “facilitate the privatisation” of the bank. Is that normal behaviour? It does not strike me as normal at all.
Mr Hurd
Regarding the first point, the conversations with the preferred bidder about their future commitment are ongoing. That just reflects the fact that we take that matter very seriously. This is not a case, as I think was suggested, of the Government simply wanting to raise some money, getting the bank off the balance sheet and then off into the hills we go. The issue of the future commitment of any new owner to future investment that will help us to move further and faster along in the transition to the low-carbon economy—a transition that is central to the industrial strategy—is a very important part of the consideration of the bid. That is why, working through Lord Smith and the board, we are taking time to look each other in the eye and say, “Is this enough?” That is the situation we are in.
On restructuring, I think I was pretty clear when answering the last parliamentary question. We agreed some reorganisation in partnership with the GIB to facilitate private capital into certain assets. I make the point—which, again, is a point of principle and needs to be asserted—that there was almost a suggestion during the urgent question debate that the GIB should somehow not be free to sell anything or to bring in private capital. That is completely wrong, particularly when the evidence is that there are buyers for assets that are reaching some maturity. Given what the GIB was set up to do, I do not think that it should be in the business of competing with private capital to invest in assets. It serves no policy purpose to hold on to assets that are valuable to others if that money can be recycled into new investments. That is the critical thing.
Lots of assertions have been made about asset stripping. The Government have no interest in selling to an asset stripper. We want to know about investment in the future; it is okay to sell, so long as there is a commitment to reinvest in future. The GIB portfolio—under any ownership, including public ownership—should not be preserved in aspic forever. It has to be a dynamic organisation, and it should be free to realise capital from packaging assets and to do things that a nimble entrepreneurial organisation, which is what it is, should be free to do.
Michelle Thomson
I thank the Minister for his comments, but I need to press him on my specific comment about the risk appetite and the nature and type of projects. I fully accept and understand increased access to capital, but I made a specific point about the risk appetite that I hope the Minister will move on to.
Albert Owen (in the Chair)
Order. Before the Minister responds, I should say that we only have a few minutes remaining. If interventions are long, we will not get as much as we want out of the Minister.
Mr Hurd
I am happy to address that point, because it is important. The hon. Lady needs to reflect on the motivation of anyone wanting to buy the GIB. It is a special organisation; there are other vehicles that people can buy if they simply want to invest in clean energy or strip assets. The GIB was set up for a special purpose. We put in place governance frameworks—the hon. Lady calls it the golden share; we call it the green share—that we think are robust and that Parliament approved.
Why bother if the only intention is to do easy stuff? The GIB has proven that it can do difficult stuff and make a return. We therefore come back to the motivation of a bidder, and to our doing our job in making sure that we test any proposal against the criteria we have set. One of those criteria is about not just the volume of future investment commitment to the UK, but the degree to which any buyer buys into the ethos and purpose of the organisation.
To draw things to a close, the central point is that the Government set out our case for privatisation and set out the criteria—value for money, declassification, but also a desire to see a credible commitment to the ongoing organisation and to increased levels of investment in the UK’s low carbon economy. We ran a competitive process, we received a proposal from a preferred bidder and we are now evaluating that against those criteria. No decision has yet been taken, because this is a very serious decision.
The debate, and the urgent question debate, have been very helpful—not only in sending a message about the importance of getting this right, which had already been received by Government, but, critically, in sending a message to anyone looking to buy the organisation about the importance that Members from both sides attach to getting the transaction right: it must be seen to deliver value for money, but also show a commitment to the ongoing organisation.
Dr Whitehead
The Minister has been very generous in giving way. Before he concludes, will he briefly categorically deny that the story in the Financial Times has any truth in it at all?
Albert Owen (in the Chair)
The hon. Member for Edinburgh West (Michelle Thomson) has one minute to sum up.
Michelle Thomson
I can do that quickly, Mr Owen. I thank hon. Members for their contributions, including the hon. and learned Member for Edinburgh South West (Joanna Cherry) and the hon. Member for Brighton, Pavilion (Caroline Lucas), who always adds depth to our debates. I also thank the hon. Member for Southampton, Test (Dr Whitehead) . I make particular reference to the hon. Member for East Lothian (George Kerevan) and his key points—I gently suggest they have not been addressed—on dealing with market failure and systemic issues with infrastructure investment. He made a very clear and compelling point.
I also note that the Minister conceded that he is being led by Lord Smith, who is a worthy gentleman and chair of the board. The Minister, however, is ultimately responsible and accountable for ensuring value for the UK taxpayer and the wider framework of the all-important green agenda—