Lord Adonis, Labour’s infrastructure and growth spokesman in the House of Lords, writes about the government’s failure to get the green economy going
“Ducks quack, and banks borrow as well as lend.” So said Chris Huhne when he was Secretary of State for Energy and Climate Change. The Green Investment Bank (GIB) is not quacking.
Labour supports the GIB. It was, after all, our idea. Where there is political risk, we need to support the private sector to provide the financing necessary for the transition to a green economy. But the government has ducked some of the big issues.
We are now pressing for improvements to the GIB. Its purposes are not linked to the targets in the Climate Change Act. The standards of transparency and accountability could be improved. But the elephant in the duck pond is the ability of the GIB to leverage the public investment to borrow additional money from the private sector.
The biggest issue is the fact that, as currently proposed, all we have is a publicly-financed Green Investment Fund. It is £3 billion set aside for green projects but none of this capital can be leveraged to bring in additional capital from the capital markets. Without such borrowing powers, the GIB is not a bank.
IPPR published a useful report (pdf) on the issue entitled ‘The Green Investment Bank: Do it now, make it big’. In it they highlight the German Landesbanken as an example of what can be achieved. Using this model they conclude the £3bn of public money being put into the GIB “would be best-employed not to make loans but as the reserve to back a guarantee”.
Given the weakness of the public finances, it is understandable there is hesitancy about allowing a public bank to have borrowing powers. That is why we propose such powers should be granted from 2015, by when the bank ought to have established a good track record, unless the government wishes to set a different date after consulting the Office for Budget Responsibility. The key point is that a firm (and not too distant) date should be set soon.
Dither and delay is costing the British economy. What private companies and investors require is certainty.
The managing director of General Electric Energy said:
“Our investment is on hold until we have certainty and clarity regarding the policy environment that we are in. One of the most important things for us is political certainty, so we can justify the business and investment case for a facility in the UK.”
Or there is the CEO of Vestas, the world’s largest maker of wind turbines, who said:
“The most important issue that our customers have is a long-term policy framework that is required to put in these investments, which are huge… [But] we have not had reassurance from the government.”
With George Osborne’s admission that the government’s debt reduction target is likely to be missed, making borrowing powers conditional upon such a target being hit would do nothing to reassure the private sector. If the government is serious about promoting green growth, they need to get quacking!
This article was first published at the Labour Lords blog.
• Graph: UK energy consumption by sector – November 29th, 2011
• Friends of the Earth: Labour is right to say we’re better off building a green economy – November 27th, 2012
• Yeo attacks “Thick of It” energyshambles and warns about uncertainty – November 19th, 2012
• Energy companies warn Osborne: Go green and provide certainty or we’ll leave Britain – October 8th, 2012
• Friends of the Earth: “Green needs to be at the heart of Labour’s election strategy” – October 5th, 2012