Green Investment Bank

Debate between Graham Stuart and George Kerevan

Thursday 29th October 2015 Westminster Hall

[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 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.

--- Later in debate ---

[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 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.

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.