I congratulate my hon. Friend the Member for Wakefield (Mary Creagh), who chairs the Environmental Audit Committee, on her speech. I wholly agree with what she has said. I also congratulate her and her Committee on all the work that they have done to tease out the details of this sale.
In 2012, the Green Investment Bank was set up for a purpose. It was stated quite clearly that its purpose was to address specific market failures and investment barriers in a way that would achieve emission reductions at the lowest cost to taxpayers and consumers. It was going to achieve that by working within the framework of the Climate Change Act 2008 and by risk-sharing between the public and private sectors, identifying and addressing market failures and limiting private investment in low carbon infrastructure, thereby accelerating and delivering green investment on a large scale and with significantly lower capital costs. That was the whole point. The bank was set up precisely because there was a market failure. The private sector was not able to achieve this. It is not just me, an Opposition Member of Parliament, who is saying that. Labour supported the bank. Indeed, it was our idea in the first place when we were in government, and we were delighted when the coalition put it into place.
The coalition Government also set up the Green Investment Bank commission. It was an independent, non-partisan advisory group brought together by the Chancellor himself. It took three years and two official rounds of rigorous market testing and evidence gathering to establish that a green investment bank was needed. The commission collected evidence to inform the bank’s aims, its design and the operating model under which it would function. Let us compare the three years and two official rounds of market testing it took to set the bank up with the sudden shock decision to sell it off, which was taken with a complete lack of consultation.
1.45 pm
What did the commission find? It found that without a way of directly addressing market failure and risk-sharing between the public and private sectors through a green investment bank, higher levels of direct subsidy would be required to facilitate low carbon investment. That would mean higher costs to the consumer and the taxpayer. That is what the Chancellor’s own commission, with the hand-picked people he put on it, agreed. That rationale is now being undermined by this sale. Let us be absolutely clear that, according to the Government’s own commission, this sale will result in an increased cost to the consumer and the taxpayer.
The Chancellor has given himself something of a problem. By committing to achieve a public finance surplus every year in normal economic times, the Government have ruled out borrowing to fund public infrastructure. The exception is investments through the private finance initiative, which do not affect the headline public finance numbers. Since the financial crisis, there has been less private finance available to invest in either public-private or private infrastructure projects. At the same time, direct public investment has also decreased.
One of the concerns expressed by investors relates to the political risks that have manifested themselves as a result of potential changes in Government policies. Those changes have already been criticised and I will not go into them again today. However, the way in which the Government have chopped and changed the regulatory framework for low carbon investment has resulted in a decline in the UK’s attractiveness for investment, as the hon. Member for Brighton, Pavilion (Caroline Lucas) has commented from the Green Benches. According to the Ernst and Young rubric, we fell out of the top 10 best places for investment for the first time last year.
The way in which this issue has been tackled by the Chancellor has been twofold. The Pensions Infrastructure Platform has sourced less than £1 billion in total over its first four years of operation, despite its aim being £20 billion. Furthermore, instead of the projected £40 billion from the UK guarantees scheme, only £1.7 billion in guarantees was actually issued in the first two years. Let us contrast that dire financial performance with the performance of the Green Investment Bank. Having been set up with just £2.3 billion of public money, it has mobilised more than £10 billion of investment in British infrastructure in the past three years.
Actually, I wish the bank had had a few more failures. It adopted a very specific policy at the beginning, which was to go for safe projects. It went for those projects because it wanted to build up a track record of successful investment so that, at about this point, it could attract much more private sector capital and take on riskier projects. That is the point of a green investment bank. The point is not to do what the market is going to do anyway by investing in areas that will obviously attract a return on capital. The whole point of the Green Investment Bank was to take on those much more difficult technical projects that the market would not finance.
Three years in, we have reached precisely the point at which we should be thinking, “Great! The bank has a successful track record behind it. Now it needs to move into slightly riskier projects.” Some of those projects might have failed—that is the nature of banking and investment—but the overall balance of investment flowing into UK infrastructure would have been hugely enhanced. So what do the Government decide to do just at the point of lift-off of the Chancellor’s only successful lever to get money into infrastructure projects in this country, the performance of the other two having been quite dismal? They pull the plug. They throw it away—send it off into the private sector, the very place that could not manage this market failure in the first place.
The hon. Member for Beckenham (Bob Stewart) said earlier that the bank is a success so why can it not go on being a success in the private sector? That was the question that had to be posed by the Green Investment
Bank commission in the first place and the question that the bank was set up to answer. The former chair of the bank, Bob Wigley, pithily provided the best response to the hon. Gentleman’s question when he said that there was an “inherent tension” between the GIB’s continuing to invest in novel, more complex projects that are profitable over the long term and shareholder pressure to maximise short-term returns on high-value investments, given the focus on quarterly performance.
There you have it. There is a tension in the private sector. It is one that we all recognise. It is well-known. It is one that the Governor of the Bank of England has spoken about at great length over the past year. He called it the “tragedy of the horizon.” The investment horizon is so short that investors cannot see the payback in these sorts of projects. It is tragic that Government are privatising—neutering—one of the best things that they have established.