My Lords, it is a great pleasure to open this Second Reading. The UK Infrastructure Bank Bill is the final stage in establishing the UK Infrastructure Bank as an operationally independent and long-lasting institution.
Before I go into the provisions of the Bill, it may be helpful if I provide some context to the bank. In 2018, the National Infrastructure Commission produced the first national infrastructure assessment—NIA—which recommended that a new UK-wide infrastructure bank be established to manage the loss of funding from the European Investment Bank. In 2019, the Government undertook the infrastructure finance review—IFR—consultation, which found support for a new, enduring body to deliver infrastructure finance support tools in line with the NIC’s recommendation.
Responding to the national infrastructure assessment, the Government published the National Infrastructure Strategy in 2020, setting out their plans to bring forward a UK infrastructure bank. A policy design document was produced in spring 2021 and the bank was launched at pace in summer 2021. In the design and set-up of the bank, the Government have delivered three crucial requirements from the original National Infrastructure Commission recommendation.
The first recommendation from the NIC was that the bank should be operationally independent. This is something the Government take very seriously, and which is important to support the bank’s credibility in the market as a long-lasting institution. Respondents to the infrastructure finance review told the Treasury that independence increases efficiency and ensures commercial decision-making. However, the institution needs to operate in line with the Government’s overall infrastructure goals.
One of the reasons we have a Bill today is to protect that operational independence. Noble Lords will note that the bank is already operational but the Government cannot simply sell or dissolve the bank without further legislation. The Government are also unable to change the bank’s objectives without further primary legislation, or its activities or definition of infrastructure without further secondary legislation.
Finally, the Bill also gives the market a clear remit as to the extent of the Government’s powers over the bank. This builds on the bank’s existing operational independence, as set out in its framework document, which provides that the bank has authority to make its own investment decisions within its delegated limits without ministerial approval.
The second recommendation was that the bank should focus on addressing the market failure in economic infrastructure. An assessment from Vivid Economics for the National Infrastructure Commission showed that, in some cases, EIB activity crowded out private investment. Likewise, IFR respondents told us that the private sector would be able to fill some of the lending gap left by the EIB. Therefore, while the bank is designed to take on the role which the EIB previously filled in investing in new green technologies and development, it is not designed to replicate all the previous activities of the European Investment Bank. This is reflected in the two objectives the Government have set for the bank: to tackle climate change and support efforts to meet the net-zero target in 2050, and to support regional and local economic growth.
My Lords, I declare my interest as a trustee of the Green Purposes Company, which has custodianship of the green share in the Green Investment Bank. I suppose that takes me on to my first questions: what is the purpose of the Bill, and do we on these Benches welcome it? I suppose we sort of do. It is the right thing to do but what an irony, in a way, that it comes after the Green Investment Bank, from 10 years ago, was privatised a few years later and we somehow have to replace it with another bank that has as its major objective the green purposes that were in the Green Investment Bank, which was then in the public sector to deliver net zero by 2050. I correct myself —I think it was 80% at that time.
I am also interested that the Minister was able to say, without any hint of irony, that one of the reasons for the Bill was that the bank was enduring, as if there was a temptation there of Governments—particularly Conservative Governments—to privatise these institutions and they had to save themselves from doing so again and repeating the activity by making sure it was fully embedded in the Bill.
One of the reasons I think there is an opportunity missed here is that as Liberal Democrats we look across the channel at the KfW, the bank in Germany, which has a much broader remit and is so much more successful in that economy, from the Mittelstand of German companies right the way through to a global objective. This is a very small step. One of the things that came back from the Government in the past, when we were a member of the EU, was that we were not able to extend to that degree because of Commission and EU rules and regulations. Now that we are free of that, here we have a very constrained bank that looks at very specific areas. We welcome those areas, and I will take the argument on from there as it is, with its own restricted remit.
One of the things that comes out, and I am sure will be dominant in our conversations and debates in Committee and on Report, is the fact that the Bill rightly identifies climate change and net zero as objective 1. Clearly, we all welcome that. I accept that the Minister has tried to talk around this, but there is another equal emergency: biodiversity and the decline of nature in this country and globally. Although, as she correctly says, the climate change remit can cover certain things, such as nature-based solutions, it seems strange that in this world now we somehow deny the equal importance of the biodiversity emergency and the objective of improving that. That is one of the key things that must happen in the Bill. We need to have that biodiversity crisis of an equal stature. They are interrelated in all sorts of ways. We know and have seen in previous debates, particularly during the passage of the Environment Act here last year, that those two crises are interconnected. You cannot solve one without the other, and we need both to be present in the Bill.
My Lords, I declare my interests as set out in the register. I am, of course, a member of Peers for the Planet. It is a great pleasure to follow the noble Lord, Lord Teverson. We have been on the legislative barricades on the subject of Cornwall before, but I agree with much of what he said about the Bill, and I will go into that.
First, however, I very much welcome the Bill, although I think it can be strengthened, and I shall be setting out some questions for the Minister. The Bill’s aim, as stated, is to put the infrastructure bank on a statutory footing and to ensure that it is an independent institution. I shall have something to say about that, too. It is a company wholly owned by the Government—a registered company under the Companies Act 2006. It has a dual-track approach, to be entirely fair: it is not just about tackling climate change, although that is central; it is also about supporting local and regional growth. I agree with both aims, which are key. Net zero by 2050 is central to everything we need to do as a Government and a country, and for the bank to have a leadership role in that it is important, as it is on levelling up. To have public sector finance with leverage-in of private sector finance is very valuable.
I very much agree with what the noble Lord, Lord Teverson, said, about the need to address the climate change goal on a broader front—by addressing nature challenges. The Climate Change Committee set those out very clearly in its independent assessment in 2021. We are near an ecological tipping point and we need a nature-positive economy. The report of the Dasgupta review, which the Treasury asked for, is seminal in that regard and much of the principle contained there should be in the Bill, front and centre. A basic difficulty I have with the legislation is that, on the one hand, there is not enough at the front of the Bill and, on the other, we are told that directions are coming forward under Clause 4 from the Treasury, independently of Parliament. We seem to be getting the balance wrong there and I should be interested to hear what the Minister has to say about that.
My Lords, I too welcome this Bill and agree with much of what has been said by the noble Lords, Lord Bourne and Lord Teverson, on two issues: first, the need to clarify the relationship on devolution and, secondly, the broadening of the objectives so that they really do cover environmental aspects beyond climate change. However, other noble Lords are much more expert than me on those matters, so I want to direct my observations to three specific points.
First, to take up a point made by the noble Lord, Lord Bourne, it is very important that we clarify what is meant by “directions” under Clause 4. I welcome the idea of the Bank’s independence. If you are looking after future generations, you must have a body not subject to political pressures. The Climate Change Act, in its balance, has at least provided a mechanism for doing that. What is meant by “directions” and, more specifically, what is meant by a “specific” direction? Does this mean that when the bank wants to invest in a project, it can be told that it must not do it by the Treasury? I very much hope, therefore, that the Minister can clarify this; otherwise one will have to look for some means of defining what is meant by “specific”.
The second point, which again has been touched on, relates to the appointment of directors. I am delighted to see that the Government accept that this Bill, when enacted, will be part of environmental law. The Treasury loves to appoint people with complete discretion—one can see that in the lack of restrictions on whom it can appoint to various boards—but now that we are dealing with environmental law, can Her Majesty’s Treasury not look at the Climate Change Act and the Environment Act and see that the board as a whole needs a range of qualifications? I particularly urge the Minister to have regard to Schedule 1 to the Climate Change Act and Schedule 1 to the Environment Act—I do not want to take up time reading them out —which require the board as a whole to have certain of the qualifications necessary to ensure that it has the expertise to carry out its functions. I do not see how a board that has the twin objectives of dealing with climate change and perhaps broader environmental issues, and the development of regional infrastructure—within that I include development in the devolved nations—can do that without people with specific expertise. It plainly needs financial expertise, but in the case of the non-executive directors, in particular, whom the Treasury can appoint, there should be a model that is consistent with environmental law, not with the Treasury’s general attitude, which is that it loves to control everything. I think it ought to realise that there is now a greater force than it.
My Lords, it is a pleasure to take part in this Second Reading debate and I congratulate the Minister on the manner in which she introduced it.
It is often more helpful to look at the practical to see how something works, rather than what is potentially set out on paper. To that end, I ask my noble friend to give the House some details on the offshore wind deal that the bank did recently. What made this deal unattractive to the market and applicable to the UK Infrastructure Bank? Similarly, what analysis sits behind the proposed crowd-in figure of £18 billion. In many ways, it strikes me as somewhat conservative. Also, what analysis sits behind 20 basis points in terms of advantageous lending? Why is 20 basis points considered the sweet spot to attract people to this vehicle rather than others?
The noble Lord, Lord Teverson, rightly alighted on the question of risk. As other noble Lords have commented, this will be critical to how the bank operates, succeeds and is seen in broader circles. So I ask my noble friend to set out some commentary on the risk appetite of the bank; how will it differ from other existing lenders?
On crowding in, how will the bank enable angel investors and other sources of investment to be drawn into this model, as set against existing models? Similarly, what analysis has been done to ensure that crowding out will not be a feature of this approach?
On operational independence, I ask my noble friend to clarify whether the bank is free to lend and conduct other activities, such as guarantees, at any level and that there will be no Treasury involvement in the quantum of any business or deals the bank does.
As other noble Lords have commented, there is a lot to be said on definitions. Would the Minister not agree that having nature-based solutions in the definitions of infrastructure in the Bill would be a thoroughly good thing, not just in light of Dasgupta and COP, but closer to home? I gently direct her to the recent report on nature-based solutions of your Lordships’ Science and Technology Committee, on which I was privileged to serve.
My Lords, this Bill is about an organisation which has the Treasury’s fingerprints all over it. The Treasury will control almost every aspect of what the UK Infrastructure Bank will do. It may well have operational independence, whatever that means, but its whole existence is circumscribed by what the Treasury tells it to do. The Bill features a statement of strategic priorities under Clause 3, and directions issued by the Treasury under Clause 5. Outside the Bill, there are already many documents, including an extensive framework document and a strategic steer letter from the Chancellor. The Treasury will appoint most of the board and will have, as one of those non-executive directors, its own representative on the board, who is to be given significant rights beyond those of a normal non-executive director. We should be in no doubt that this body will be the plaything of the Treasury, and it is surprising that its new chairman, for whom I have very high regard, would agree to be its front man.
Noble Lords will know that I am not in favour of a big state. We should not create new public bodies unless there is a clear problem to which existing institutions, both public sector and private sector, could not provide solutions. I am not convinced that this test has been met. I acknowledge that the Treasury has consulted on the creation of the UK Infrastructure Bank but there are always lots of people who want access to money on soft terms, or to pursue their obsessions. They will be the same people telling the Government that £22 billion is not enough.
The green lobby can be relied on to say that the transition to net zero will cost a very large amount of money. Those who used to access the European Investment Bank want similar access to cheap long-term money and they will doubtless say that it is not enough to compensate for what they used to get from the EIB. The mere mention of levelling up is always accompanied by a begging bowl. We should be very wary of those who just want more access to taxpayers’ money. At the end of the day, it is just government expenditure in different clothes.
My Lords, I always like following the noble Baroness, Lady Noakes, who I have disagreed with—I was just working it out on the back of an envelope—for 44 years. I declare my interests as chair, vice-president or commissioner of a range of conservation and environmental charities as listed in the register.
I welcome the establishment of the UK Infrastructure Bank and the opportunities it provides for building back better across the UK regions. As many noble Lords have said, the dual mission to enable investment for net zero and for the levelling-up process is good, but I agree entirely with the noble Lord, Lord Teverson, and others that the Bill is lacking, since it fails to task the bank with supporting wider environmental goals, specifically the Government’s environmental flagship target of recovering species by 2030. I call on the Government to add this vital third objective of species recovery to the bank’s objectives in the Bill and to ensure that it is strategically equipped to help deliver the Government’s nature recovery objectives.
Giving the bank a role in broader environmental delivery would also help support the other two objectives that it already has. It is universally recognised internationally and in the UK that climate change and biodiversity decline are two sides of the same coin and need to be tackled in an integrated way; net zero cannot be achieved without fixing biodiversity decline and biodiversity decline cannot be reversed without fixing net zero. Investment in both net zero and biodiversity recovery projects delivers jobs and improvements in the quality of place that are necessary for the levelling-up agenda. The whole thing is inextricably linked, and we need these three objectives to work together.
I will give noble Lords some examples of where biodiversity improvement and climate change action help with the levelling-up agenda. Projects to improve woodland, peatland and parks could not only deliver climate change and biodiversity benefits but support over 16,000 jobs in the 20% of UK constituencies with the worst labour market outcomes, such as Copeland, County Durham, Wolverhampton and Ashfield. Restoring the UK’s coastal environment could result in benefits, both in adaptation and mitigation, worth £50 billion by 2050 and create over 100,000 new jobs. We need all those objectives to be part of the bank’s role. The Bill’s Explanatory Notes mention opportunities for investing in nature, but Explanatory Notes are not enough. This needs to be not just in the background as a hope but in the foreground as a third statutory objective.
My Lords, it is a pleasure to follow the noble Baroness, Lady Young of Old Scone, and to speak in this debate. I declare my interests as co-chair and a director of Peers for the Planet.
It is also a welcome change to be discussing legislation where we do not have to argue the need to put net zero and the Climate Change Act on the face of the Bill. This is an innovation, and one that I hope will be repeated, but, as the Minister will have understood from the speeches made already today, there is another front opening up: the front of nature recovery and the importance of that being in the Bill. This bank is a central part of the UK’s infrastructure ecosystem and represents an important delivery tool for both levelling up and decarbonising the economy; for helping to scale up the markets for much-needed technology such as battery storage; for supporting new jobs through the circular economy; and, I hope, as others have said, for turbocharging the energy efficiency and retrofit measures that are so necessary, given the dire state of our building stock.
The current objectives set out in the Bill of helping to tackle climate change and promoting regional and economic growth underpin its strategic direction, and the bank’s background documents recognise the “huge potential synergies” between these objectives. But there is, as others have said, another synergy that is not spelled out in the Bill: the key opportunity the bank has to deliver for nature recovery and for the UK to be a world leader in nature-based investment. That investment could be for natural flood management, peatland restoration and repairing coastal habitats; and it could be for projects which protect and enrich our biodiversity, improve our resilience to climate change and provide opportunities, through the employment they give, to address regional inequalities. Ensuring alignment between the objectives of levelling up, tackling climate change and aiding nature recovery would in fact make it easier to achieve the economic growth we all seek.
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With regard to the climate change objective, significant public and private investment will be needed to achieve the UK’s infrastructure policy goals, and low-carbon investment will need to be significantly scaled up to deliver net zero. This is highlighted by the fact that the UK’s core infrastructure—power, heat and transport networks—accounts for over two-thirds of UK emissions. Without the bank, the private sector is likely to focus its investment on lower-risk technologies and sectors. The bank can play an important role by crowding in private finance to invest in higher-risk and nascent technologies, and in scaling subsidy-free business models —both of which will be key to transitioning to net zero. Linked to this, the bank’s focus on rapid progress on its net-zero goals overlaps with the Government’s renewed focus on energy security.
On the second objective, to support regional and local economic growth, disparity in infrastructure across the country has been identified as a key driver of economic inequalities. Central to the Government’s ambitions to level up is setting up new institutions boosting productivity, pay, jobs and living standards by growing the private sector and supporting it to deliver opportunities in parts of the country where they are lacking. Without intervention, the private sector is likely to continue to target geographic areas that have historically received higher levels of private capital. Respondents to the IFR highlighted that any government institution in replacement to the EIB should seek to consider regional balance. The bank aims to remedy geographic inequality and drive improvement in long-term productivity across the country by crowding in private capital to areas that have been left behind, strengthening regional and local economies.
Further, the bank responds to the need identified in the levelling up White Paper to boost local decision-making to allow communities to make the improvements that are most needed. An additional source of government-backed finance for local authorities will give local decision-makers increased power in deciding which investments in infrastructure will have the most impact on their local economy.
Finally, on the recommendation to set up the bank at pace, noble Lords will note that the bank was launched in summer last year, less than a year after the Government announced plans for the bank in the National Infrastructure Strategy. Since its launch, the bank has already completed six deals, including financing the UK’s largest operational solar farm in south Wales. The bank has also invested in Teesworks, a £107 million investment in Tees Valley Combined Authority’s project to transform the former Redcar steelworks site to service the offshore wind sector and support around 800 high-quality jobs. The bank will work towards achieving a double bottom line, whereby investments help to achieve its core policy objectives while generating a positive financial return to ensure the financial sustainability of the institution and reduce the burden on the taxpayer.
On the provisions in the Bill itself, we are legislating for the bank to complete its set-up as an operationally independent institution. The Bill is broadly split across three areas: enshrining the bank’s objectives and activities in legislation to provide clarity for the bank and the market as to the bank’s long-term purpose as an enduring institution; providing for financial assistance, including, crucially, giving the bank the power to lend directly to local authorities and the Northern Ireland Executive; and, finally, supporting the bank’s operational independence by setting out clear accountability for how it is to be run, including reporting and board requirements.
First, on the bank’s objectives and functions, Clause 2 sets out in statute the bank’s objectives of tackling climate change and regional and local economic growth, and in doing so provides clarity to the market as to the bank’s policy objectives. I have already set out the rationale for the bank’s two objectives, but it may be worth elaborating slightly when it comes to climate change. I know that questions have been asked as to whether the bank’s objectives allow for investment to improve the UK’s natural capital. The Government undertook a review of the bank’s environmental objectives, which concluded that there is significant scope for the bank to invest in nature-based solutions while achieving the bank’s existing objectives. This was further emphasised in the Treasury’s strategic steer to the bank, which I will come to shortly.
Clause 2 also sets out three activities that the bank can perform to deliver its two objectives. The bank’s activities are: providing a range of financing tools for private sector investment; financing local and mayoral authorities across the UK; and providing an expert advisory service to help local authorities. The bank’s activities also allow for it to invest in mixed-infrastructure projects, such as a transport hub that includes some housing.
Finally, Clause 2 also sets out the definition of “infrastructure” for the bank. The bank has been set up to invest in economic infrastructure, as per the recommendation of the National Infrastructure Commission, as this was where there was greatest need for government-backed lending. The definition of infrastructure has been adapted from that used in previous legislation, but with the social infrastructure aspects of previous definitions removed and the addition of climate change technologies and facilities. This ensures that the bank will be able to invest in a range of economic infrastructure sectors and in emerging new green infrastructure technologies to deliver on its objectives.
Although the bank’s objectives will be able to be amended only through future changes to primary legislation, Clause 2(6) allows for the bank’s activities and definition of infrastructure to be amended via secondary legislation. The Government believe that this strikes the right balance between ensuring long-term clarity on the objectives of the bank while allowing for the possibility that a future Government may wish to change the emphasis of the bank’s activities for policy reasons and may desire to alter the definition of infrastructure to support this change. It also allows for the fact that the bank’s approach may need to evolve to reflect changes in the market for infrastructure. Both these powers are taken under the affirmative procedure, in line with the Delegated Powers and Regulatory Reform Committee’s guidelines, and to allow for parliamentary scrutiny.
Turning to the financial assistance provisions, Clause 5 allows the Treasury to put the bank into funds, including through the National Loans Fund. As I mentioned previously, the bank has been funded with £22 billion of capital initially, and the level of financing for the bank will be reviewed ahead of spring 2024 to ensure that it continues to meet its objectives in the most affordable way. Within the definition of the bank’s activities, the Bill will also, crucially, remove the existing legal barriers that currently prevent the bank lending directly to local authorities.
Finally, I turn to the governance measures in the Bill. Clauses 3 and 4 allow the Treasury to issue a strategic steer and a power of direction respectively. Given that the Government remain accountable to Parliament for the bank and for any element of risk that the activities take, it is right that the Government have some degree of influence over the bank. The Government recently issued their first strategic steer to the bank, in which they set out the expectation that the bank should develop strong relationships with the devolved Administrations and their institutions, for example the Scottish National Investment Bank.
A power of direction is not uncommon in arm’s-length bodies and is not designed to be used often. Where the power is used, statute will require that it follows consultation with the bank’s directors and is published to ensure ministerial accountability for the content of the direction. The legislation for the Bank of England, in the Bank of England Act 1946, and Her Majesty’s Revenue & Customs, in the Commissioners for Revenue and Customs Act 2005, both include a power of direction. This will not interfere with the bank’s day-to-day operations or investment decisions.
With a body in statute, it is important to set out how the governance of the bank will work in practice to ensure transparency and accountability to Parliament. As is usual practice, Clause 6 will ensure that the bank’s annual reports and accounts are published in Parliament. Clause 7 sets out the process for appointing directors and other practical aspects such as the size of the board, which is consistent with similar bodies such as the Bank of England. We also think that it is appropriate to have a statutory review after 10 years, and subsequently at least every seven years, to ensure that the bank is still meeting its objectives. This is set out in Clause 9.
I greatly look forward to the debate we shall now have on Second Reading and hearing the expertise of noble Lords in the Chamber. I beg to move.
From a much more economic point of view, which I know the Bill is about as well because it is about private as well as public investment, we should not forget the circular economy. I would be very upset and find it strange if the bank did not see as one of its objectives to move the UK from a linear economy to a circular one. It seems clear to me that this ought to be an objective that we have nationally and that the infrastructure bank is able to help to deliver, whether it be local authorities or private companies.
One of the biggest challenges in net zero is energy efficiency—making our economy, from households through to commercial properties and infrastructure, much more energy efficient as time goes on, so that we do not need to build more and more energy generation and can manage demand. I would be interested to understand from the Minister how the bank can be involved in that process in particular. It seems to me to exclude building efficiency, which is one of the malaises of the British economy and our built infrastructure. How can we meet that as well?
Although the Minister mentioned the institution, the National Infrastructure Commission is not mentioned in the four pages of the Bill—it is one of the exclusions. I readily accept that the UK Infrastructure Bank comes out of recommendations from that commission, but it seems very strange to me that the Government have this commission, which I think reports to the Treasury, yet somehow this bank’s direction is driven purely by the Treasury and there seems to be no connection at all with the National Infrastructure Commission. Surely there needs to be some pathway that is obvious and transparent from the recommendations of those reports, which are high quality and well put together, and should be a long-term way of improving our infrastructure investment in this country. There should be a connection somewhere there as well.
The other major issue is risk appetite. One of the things we learned from the Green Investment Bank—which was not perfect—was that, because there was such pressure from the Treasury that it should, if you like, turn a profit and build up its own reserves in the early years, its actual investment was quite conservative. In fact, you could question how much, in its very early days, it substituted the private sector or found the capacity where the private sector would not come in—providing additionality. I am not sure that it did.
Here too, I am far from convinced that the UK Infrastructure Bank will have a motivation to fill the areas that the private sector is not willing to or, indeed—perhaps more importantly—drive forward slightly more risky innovation in infrastructure, zero carbon and nature-based solutions. I think it will be risk-averse, and I would like the Minister to assure me that there will be a reasonable risk appetite. None of us expects the UK Infrastructure Bank to throw money away and be in debt, but we surely want it to be a leader in stimulating innovation moving forward, not just replacing private capital. I would be very interested to hear that. All the Treasury controls will mean that this bank is cautious.
Lastly, I will talk about supervisory boards. I was quite shocked that there was going to be a 10-year review; I cannot imagine that there will not be amendments tabled on that. Reviewing an institution after 10 years is ridiculous; it is two Parliaments and is probably beyond the life of half the Members here in the Chamber —I do not know. I am sorry, I should not have said that—but it is not satisfactory.
One of the things I have since learned through my work with the Green Investment Group, which I congratulate on everything it has achieved recently, is that you need some sort of supervisory board or independent body to check, post investment—I am not talking about investment at committee level—that the bank has met its objectives and remit. It is important that there is scrutiny beyond the Treasury and, of course, very loose scrutiny from Parliament, which does not really work. We will certainly bring that forward as one of our amendments, to make sure that the bank meets its objectives.
In 2012, the Green Investment Bank was legislated for, and 10 years later we are starting again. We on these Benches wish the bank good luck. I would like to understand, as my noble friend Lord Bruce asks, how it ties up with things such as the Scottish investment equivalent. We would be interested to hear that, but we wish it well. It is limited—we hope that it can broaden its remit—but we start again for success, we hope, in infrastructure and for net zero.
Moving on, the Bill’s definition of infrastructure under Clause 2(5) is not exclusive but, I think, needs to be more all-encompassing. For example, it includes gas and sewerage but not energy efficiency. Why not? It would be simple to include it and I think we should. We need to accelerate what we are doing on energy efficiency to be anywhere near getting to the net-zero goal in 2050 and I cannot see any compelling argument why it should not be in Clause 2(5). We need more detail on that.
I also press the Minister on the nature of the bank’s objectives and activities. I understand that the objects are set out in the company’s constitution and that can be altered only by primary legislation, as the Bill makes clear—that is absolutely right—and infrastructure can be altered only by an affirmative piece of secondary legislation. I go along with that as well. So far, so good, but Clause 4 allows the Treasury to give a specific or general direction to the bank about how to deliver its objectives. If that were limited to the issue of devolution, to which I will come shortly, all well and good, but I do not think it is. It does not appear to be under the legislation.
What is the interaction between objects, which can be altered only by primary legislation, and directions under Clause 4, which can be altered by the Minister—the Minister, incidentally, who also appoints all the directors? There is double control there, and it seems to me to get the balance wrong, particularly if we are stressing the importance of the bank’s independence, as the Minister rightly did. At the same time, Clause 4 says:
“The Treasury may give a specific or general direction to the Bank about how it is to deliver its objectives.”
As I said, that is the same person who was appointing all its directors. It does not look that independent to me.
I will also ask about the financial capacity. Twenty-two billion pounds sounds like a lot of money; it is made up of equity, debt and guarantees. it is a lot of money, but it does not seem as much when compared with other countries, such as Germany. Are we convinced that £22 billion is sufficient? I am also interested in hearing how that sum was arrived at, what evidence was taken and how that was assessed.
As I said, I am also interested—I am sure other noble Lords will be too—in the territorial extent and application, and the interaction with Wales, Scotland and Northern Ireland. I am pleased that the Government are quite clear that there is a devolved aspect to be dealt with. In fairness, Annexe A in the Explanatory Notes is helpful in that regard, indicating which matters are reserved and which are devolved. Of course, there is inevitably a grey area. This is the physics of it. What is also important is its chemistry: what provision are we making for discussion with the Welsh Government in the Senedd, the Scottish Government in Holyrood and the Northern Ireland Executive in Stormont? I hope that there are some measures which will be taken to ensure that, as a union, we protect all parts of the country in relation, not least, to the levelling-up part of the aims of the bank. I would be grateful if the Minister could indicate how she expects the interplay between the four parts of the United Kingdom to play out.
I have just two more points. First, on any potential conflict between aims, the Government have said—understandably and rightly—that energy security is important. We must look at energy security in terms of the operation of the bank. How does that interplay, though, with the need to ensure that we protect against high-carbon projects? Again, this perhaps comes back to the point of needing something in the legislation about a “do no harm” principle so that we can ensure that both aims are protected and one does not prevail over the other—otherwise, there is danger there.
Finally, I very much approve of the levelling-up part of the agenda in relation to the bank. The headquarters in Leeds is very welcome. It is a much more constructive move than the somewhat childish suggestion that the House of Lords goes to Stoke-on-Trent; it seems much more realistic and in line with what we should be doing. I am pleased about some of the earlier decisions on investment, which seem to be spread in south Wales, Teesside and so on—that, too, is valuable.
I am sure there will be many more points as we go through Committee and Report, but that was an overall view of the objectives and some general questions to my noble friend the Minister.
Finally, I turn to Clause 8. The Explanatory Notes dryly explain that:
“This clause is intended to ensure that the duties imposed upon the Bank by the Bill are technically enforceable as a matter of law.”
In looking at environmental legislation—this is true in every country in the world—we have long learned that there is an inherent conflict of interest between the short-term and the long-term, and plainly in this Bill there is also a potential conflict of interest between economic development, and climate change and environmental protection. Indeed, this is recognised in paragraph 4.2 of the framework document:
“The Company’s dual objectives of investing in projects to help mitigate and adapt to climate change, and to support regional economic growth across the UK have huge potential synergies. But occasionally these objectives will be in tension with each other, especially in the near term”,
which is a way of the Government conceding, in careful language, that there is an inherent tension in what is to be done by this bank.
Therefore, I return to the point raised by the noble Lord, Lord Teverson: how do we ensure that the bank meets its legal duties? The Explanatory Notes explain that Clause 8 is to do with ensuring that the articles of the company are consistent with what the Bill provides. I find it astonishing that we need a clause for that purpose, bearing in mind the control the Treasury has over the bank, but that is conceded when the notes state:
“It is not envisaged that these provisions will be needed in practice.”
However, we do need these provisions in practice: we need something to ensure that the duties of the bank are not merely aspirational, which is so much of what is said these days, but enforceable.
There are various mechanisms of enforcement. The Climate Change Act contains one; a legal duty enforceable in the courts is another. For example, one could think of giving the Office for Environmental Protection some role in enforcing the obligations of the bank. However, one cannot buy a share in this bank and go to a shareholders’ meeting, and one cannot bring an action as a shareholder against the directors, because there will not be any shareholders. The only people who can enforce this are Parliament—and I shall not make any observations about that—or the Treasury, which has an inherent conflict of interest: the short-term and long-term considerations.
Therefore, I very much hope that we look particularly at Clause 8. It is a very good clause in one sense, but we need to put something in the Bill to ensure that the bank’s duties are not simply aspirational but are actual duties in a legal sense and can be enforced by someone with a motivation to enforce them.
Finally, could my noble friend confirm that, if the plan is not clear, there is certainly a possibility that the route to privatisation is already seeded in this legislation? To that end, what is the proposed timeline and what would the bank’s book look like at that stage?
We clearly have an infrastructure challenge, and thus opportunity, in this country. If the bank can play a positive role in that, it is all to the good. But does my noble friend not agree that, while economic infrastructure is critical, it fails to achieve a significant part of its objective and transform our nation in the way it might if it is not also firmly and fully tied to social infrastructure?
Noble Lords might have gathered that I do not like this Bill very much, but I am nothing if not a realist. To that end, I will focus on some specific concerns. First, the intention, as set out in the framework document but not in the Bill, is that this so-called bank should achieve additionality, which is expressed in the framework document as prioritising
“investments where there is an undersupply of private sector financing and, by reducing barriers to investment, crowd-in private capital”.
It will not be difficult to crowd in private capital. The UK Infrastructure Bank will sit there with a bit over 40% of its capital in equity form and it will also have access to National Loans Fund debt. That will give it a very low cost of capital compared with proper banks and it would be very surprising if it failed to attract private money to ride in on the back of that. The bigger issue, which has been mentioned by my noble friend Lord Holmes of Richmond, is whether private capital will be crowded out. This is not even mentioned in the various documents that I have seen.
The arbiter of whether there is an undersupply of private sector financing will be the company itself. If the UK Infrastructure Bank gets that judgment wrong, it will take risks and fund propositions which could as easily be delivered by wholly private sector investment. The Economic Affairs Committee, on which I sit with the noble Baroness, Lady Kramer, is conducting an inquiry into the investment required for the transition to net zero. We have had evidence that there is a lot of investment money out there and that the barriers are more about clarity on government policy and on market models. The danger of crowding out is a very real one.
What will the Government do to ensure that the company does not crowd out the private sector? There appears to be no mechanism whereby the private sector can raise issues if they feel that the financial muscle of the UK Infrastructure Bank has been used inappropriately. My noble friend will be aware that if private sector companies want to be crowded into attractive deals, they will be very cautious about complaining too loudly about being crowded out. How will the Government ensure that the private sector is not steamrollered by this new pseudo-bank?
My second concern is the periodic review set out in Clause 9—the noble Lord, Lord Teverson, has already referred to this. I support the need for a review, but the Treasury should not undertake it because, given its very close involvement with the UK Infrastructure Bank, it comes very close to marking its own homework. As the noble Lord suggested, 10 years is just far too long before the first review.
In addition, the review’s scope deals with effectiveness in delivering objectives, but additionality, which I referred to a few minutes ago, is described in the framework document only as an operating principle and not as an objective. That implies that crowding in or out of the private sector will not be covered in a review under Clause 9. We will need to look at Clause 9 in some detail in Committee.
I have two specific questions for my noble friend the Minister. The first concerns the role of the Comptroller and Auditor-General and the National Audit Office. As I understand it, the C&AG has been appointed as the company’s current auditor. The framework agreement is silent as to whether this will continue or, if a commercial audit firm is appointed as the company’s auditor, whether the NAO will continue to have access rights to the company. It is important that the needs of parliamentary scrutiny and accountability are properly set up for all public bodies when they are created, and we have to ensure that the C&AG can examine the economy, efficiency and effectiveness of the way the UK Infrastructure Bank operates at any time. I hope my noble friend will confirm that that is indeed the case for the UK Infrastructure Bank.
My second question is on the interaction between the UK Infrastructure Bank and financial regulators. The framework document refers to the possibility that the company’s activities will be within the scope of the PRA and the FCA. Can my noble friend explain what in practice this is likely to mean? What activities are likely to engage the financial regulators and what are the implications of that? For example, will the company be subject to the rulebooks of the PRA and the FCA?
The Green Investment Bank lasted only a few years before it was sold off to Macquarie. That reflected a sound Conservative principle that the state should not do what the private sector can do equally well or better. In that light, I wish the UK Infrastructure Bank success so that a future Chancellor of the Exchequer can privatise it.
The Minister kindly arranged a briefing with the chief executive officer and staff of the bank yesterday, for which I thank her, although I took part from a Costa café at Blackfriars, which was slightly unsatisfactory. At the briefing, we were told that the Treasury did not want to give the bank such a third objective on the grounds that the bank’s task was to fill gaps in the market and at the moment there is no established market in biodiversity delivery. The Minister said there might be a reconsideration of objectives if natural capital markets emerged, but she has just told us that that would require primary legislation—so I put that in the “too difficult” box. We need the objective now. The Bill is clear that the bank will have a role in crowding in private funding, developing markets where they are insufficient and applying covenants and conditions in its lending to help drive markets, so I believe that it should have a statutory role in market development in tackling biodiversity decline as well as climate change.
We also heard about the Treasury’s strategic steer. I must admit that I am slightly nervous about strategic steers from the Treasury. It mentions natural capital and biodiversity, but, if that is important enough to be in a strategic steer, why is it not important enough to be a statutory objective? It is intended that the strategic steer will be revised approximately once per Parliament and will be used by the bank to inform its strategic plan. Steers can alter from time to time and from Government to Government, while statutory objectives are less easy to quietly lose sight of. The bank is due to publish its strategy next month. We will be able to judge from that strategy the proof of the bank’s reflection on the Treasury steer in its commitment to biodiversity. Can the Minister gee up the publication of the strategy a bit to allow the House to judge the effectiveness of the steer process so far, before the House needs to reach a final view on whether such a third statutory objective is vital, as I believe it is? Let us see the strategy and what it says about biodiversity.
We also heard at yesterday’s briefing that the bank already has a principle of doing no net harm to climate change objectives in fulfilling its levelling-up objective. That is another reason why having biodiversity under broader environmental objectives is important. Can the Minister assure us that the bank will have a principle of doing no net harm to biodiversity and the broader environment in pursuing its statutory objectives? It must not fund projects which impede the delivery of the Government’s climate change or biodiversity targets, as enshrined in the Climate Change Act and the Environment Act. I believe that these no net harm principles should be statutory rather than just reliant on Treasury guidance or the bank’s sense of duty, which could evaporate. In the light of all this, should the Bill’s definition of “infrastructure” also be reviewed, as other noble Lords have said, to include nature-based solutions and enable the bank to consider these types of investments as part of its strategy to meet climate change and adaptation goals?
The Bill also raises other questions in my mind. It has already been raised that there is a big hole in the Government’s energy policy and energy security strategy, in the lack of focus and funding on energy efficiency measures, especially the retrofitting of the current housing stock. This is a vital element in meeting the net-zero challenge, but the Bill is absolutely silent on whether the bank will be able to focus on energy efficiency. Can I urge that the bank has a clear role in developing the market and funding for this major retrofit programme, with its significant contribution to jobs and warmer homes, which are also vital for the levelling-up agenda?
Lastly, the Bill requires periodic reviews of the bank, as other noble Lords have said. but the first one is required only
“within 10 years of the Act coming into force”.
That is too long. I would not go as far as the noble Lord, Lord Teverson, and say that I want it reviewed before I die, but noble Lords will kind of get the gist. I know that the bank will need a little time to establish itself and demonstrate impact, but 10 years is a bit of a stretch of the imagination.
I was very interested in the concerns of the noble and learned Lord, Lord Thomas, about the appointment of directors. I must admit that I was a bit concerned that, as far as I can see, none of the current non-executive directors of the bank has an environment or climate change background whatever—so the noble and learned Lord has a point.
In summary, the Government have elsewhere committed to clear objectives for net zero and halting biodiversity decline, as well as to the levelling-up programme. The three are interlinked, with natural capital projects, ecosystem services markets and nature-based solutions all capable of contributing to jobs, improvement in place and social justice. It is illogical that this important bank is tasked with only two of these three interlinked objectives. We should have a greater ambition for it.
There have been estimates that agriculture and nature-based investments could generate financial returns of £4 billion a year by 2050. Investors are starting to seize these opportunities, but there is a huge funding gap, estimated by the Green Finance Institute at £56 billion over the next 10 years. This is referenced in the “strategic steer”—a phrase to which I think we will return during the course of the Bill—given to the bank by the Chancellor, which also identifies
“several barriers to finance that need to be addressed for a mature commercial market to develop”.
To bridge this gap, it notes:
“Private sector involvement in the market will need to scale up significantly”.
I hope that UKIB can be part of and help to drive the development of this crucial market, because the work that government has already undertaken firmly underpins the argument that nature should be more clearly embedded within the Bill. In 2020, the Natural Capital Committee called for
“all publicly-funded infrastructure … to invest in maintaining and enhancing natural capital.”
The Treasury-commissioned Dasgupta review echoed this, and the Government’s response committed to embedding environmental considerations and a “nature-positive approach” across infrastructure portfolios. Similarly, there is strong evidence that accelerating the development of nature-based projects through UKIB would make a meaningful difference to economic growth and levelling up, as well as climate adaptation. We have an opportunity to secure greater ambition on nature now by including it on the face of the Bill. We need to recognise the urgent need to respond, most recently articulated by the first monitoring report of the Office for Environmental Protection, which advised the Government:
“Do not delay in making the changes necessary to protect, restore and improve our environment.”
Setting natural capital alongside the existing objectives of climate change action and supporting local economic growth—as well as ensuring a robust approach to these objectives in the operational, transparency and governance provisions of the Bill—would not only serve to implement the recommendations of the Government’s experts; it would set a clear trajectory for the bank and a strong example both domestically and globally that infrastructure can help to deliver a nature-positive future, and in so doing contribute to net-zero targets and the regeneration of UK regions, and bring economic growth to the UK.
The Minister set out in her opening remarks the Treasury’s view that support for nature-based solutions can be delivered through the bank’s existing policy framework without the addition of a specific third objective. Like others who have spoken, I am far from convinced that this is correct, so I look forward to exploring at further stages in the passage of the Bill how we can include tackling biodiversity loss and nature recovery as a clear, mandated objective for the bank. Having listened to other noble Lords, I also look forward to the debates that we shall have on the governance of the bank and the role of the Treasury in ensuring its independence.
We have an opportunity to ensure that the UK Infrastructure Bank will be a world leader in supporting nature’s recovery, a subject on which I heard the Minister’s colleague the noble Lord, Lord Goldsmith, speak eloquently at an event only today. I hope that we will grasp that opportunity; I look forward to future debates, and to strengthening the Bill as it proceeds through the House.