I wish to make Members aware of the details of a proposed variant of the existing growth guarantee scheme that is designed to increase uptake by businesses of green assets that facilitate the transition to a low-carbon economy.
The GGS was launched on 1 July 2024 and is facilitated by the Government-owned British Business Bank and delivered through its delivery partners. Under the scheme, lenders offer facilities of up to £2 million to support businesses that would otherwise be unable to access the finance they need, or would only be able to do so on worse terms.
Green GGS uses the infrastructure of the existing GGS programme to help increase the supply of affordable finance for businesses investing in green technologies. Lenders face uncertainty over the future value of these green assets in the instance of borrower default, due to the pace of technological advances and a lack of observable track record or data in the relevant second-hand markets. As a result, lenders raise the up-front cost of financing green assets to mitigate this uncertainty, or simply choose not to finance the green asset. This in turn dampens business demand for green investment.
The BBB’s GGS variant is designed to address this uncertainty by setting a floor on losses that a lender would take if a borrower defaulted on the loan. This would give lenders the confidence to support finance for green assets or lower the up-front cost of that finance, increasing the supply of finance available to small and medium-sized enterprises to invest in green assets. The terms of the programme ensure that the benefit of the guarantee is passed to the business.
Initially, the British Business Bank will reallocate funding from the existing GGS to pilot this scheme with a single lender, facilitating an initial portfolio of £30 million of investment in green assets. There will be no change to the maximum lending facilitated across both GGS variants, which will remain at £2.2 billion, as notified to Parliament by means of a written ministerial statement made on 24 May 2024. Any future proposed increase in the capacity of green GGS will be notified as applicable.
I will be laying a departmental minute today containing a description of the liability undertaken.
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