With infrastructure at the heart of last week's spending review, Government moves to sell-off the country's only infrastructure investment bank become curiouser and curiouser.
The Green Investment Bank (GIB) has been a huge success story. For every £1 of public investment, the GIB has mobilised a further £3 of private investment. As constituted, it had and continues to have wide cross-party support, support from civil society and most importantly support from the private sector. This broad based consensus came following three years and two official rounds of rigorous market testing and evidence gathering to establish whether a green investment bank was needed, and to collect evidence to inform its aims, design and operating model.
Plans to privatise the GIB after only three years of existence have therefore come as a shock. They did not feature in the Conservative Party manifesto and have not been subject to any consultation with industry, civil society or the Devolved Administrations.
Despite this, Government seeks to include clauses in the Enterprise Bill, now in the House of Lords, which pave the way for GIB privatisation and remove legally binding green purposes for the Bank.
The risk of removing legal protection of the GIB's green purposes has already raised deep concern among many Lords, who forced the Government to withdraw its amendment three weeks ago. However the Government has reintroduced this amendment, which is set to be considered by Peers on Monday.
So what should the Lords be pressing the Government on? Here are 6 questions the Government has conveniently left unanswered...
1. How will the Government ensure the GIB won't invest in Fracking?
In an extraordinary revelation at last weeks' Environmental Audit Committee evidence session, the Government admitted that a privatised GIB could invest in Fracking.
The controversial comment, providing further evidence that a privatised GIB could abandon its green focus, comes as the Government seeks to repeal legally binding provisions which secure the banks green purposes.
2. What impact will GIB privatisation have on costs to consumers and taxpayers?
It is vital that any plans for the future of the Green Investment Bank (GIB) be tested against the purposes for which it was set up. Despite the Government's recent repeated framing, the purpose of the GIB is not to 'prove that green is profitable'. That has long been proven.
The GIB was set up to "address specific market failures and investment barriers in a way that will achieve emission reductions at least cost to taxpayers and consumers." Market testing showed that without a way of directly addressing market failures and risk-sharing between the public and private sector through a GIB, higher levels of direct subsidy would be required to facilitate investment which would therefore mean higher costs to the consumer and taxpayer. The Government has not provided evidence on the impact of GIB privatisation on costs to energy consumers and taxpayers.
3. Given the dip in investor confidence, how will sale at this time achieve best value for money for the taxpayer?
The Government has stated that it will only proceed with sale of the GIB when it is able to achieve best value for money for the taxpayer. The evidence suggests that sale of the GIB at this time will not achieve best value for money: recent changes in policy have seen investor confidence in the UK green economy dip to an all time low; the Energy and Climate Change Secretary's 'energy policy reset' speech has confirmed that policy uncertainty in the sector will continue as key decisions are delayed into next year, and this week's spending review has served to further undermine the green economy.
A rushed privatisation of either a minority or a majority share of the GIB in the current climate is highly unlikely to deliver best value for money for the taxpayer.
4. What does the Government mean by GIB 'privatisation', and how would different models of privatisation contribute to, or negate, the GIB's aims and purposes?
The Government has not clarified what form GIB privatisation could or will take and why. Many questions remain outstanding. Is the Government selling the team? Is it selling the assets? Will GIB be sold as a bank? Will it be sold as funds? What evidence has or will inform these decisions? What options have been considered, dismissed and why? The answers to these questions will have a substantial bearing on whether a future GIB can fulfil its original aims and purposes.
5. Where is the evidence?
Plans to privatise the GIB did not appear in the Conservative Party manifesto nor have they been consulted on. It is extraordinary that an institution born of very detailed and rigorous consultation, evidence gathering and market testing could, at a whim, be so fundamentally undermined.
Given the vast amount of evidence that supported GIB creation, where is the evidence that supports, what at the moment, are merely Government assertions that:
- a publicly owned GIB is no longer needed;
- a privatised GIB will continue to fulfil its purpose of addressing market failures in the green economy and thereby deliver the scale of investment required;
- a privatised GIB will not crowd out private investors; and
- removal of all GIB legislative provisions are necessary to achieve balance sheet reclassification.
6. How seriously has the Government pursued alternative ways to recapitalise the GIB?
The GIB does need access to a larger capital base in order to increase its impact. While the Government has framed privatisation as the only route to achieving this, there exist a whole host of other options which must be effectively explored.
For example the GIB could proactively focus on accessing the European Fund for Strategic Investment (EFSI) for British Infrastructure projects while exploring different models of recapitalisation that are a good fit with continuing to deliver on the Bank's original aim and purpose. These could include investment by UK pension funds, green ISAs, and EIB investment amongst others. In this way there could be a phased approach to recapitalisation.
For more detail, please see our written evidence to the Environmental Audit Committee.