Peter Aldous is a member of the Environmental Audit Select Committee, and is MP for Waveney.
This year will see our Government’s first privatisation since the 2015 election. It hopes to realise £1 to 2 billion from the sale of the Green Investment Bank. It is crucial that this privatisation is done well and, as such, there is a good case for the government retaining a stake in the bank.
The Green Investment Bank is one of the major success stories of the last government, and a stick with which to beat anyone who suggests the Conservative Party is not an environmentalist party. Our 2010 manifesto promised it, and in government Greg Barker, George Osborne and others delivered it. It launched in 2013. It started to deliver a profit the following year. It leveraged £10 billion worth of projects from a £2.8 billion public stake, and it helped to make Britain a world leader in innovative, resource efficient, non-polluting technologies.
It is entirely right that it should be privatised. As ever, the private sector brings talent, discipline and privatisation will likely leverage more investment into this important sector.
However, when the Government circulated the bid documents last year, it mooted two possible options – a full privatisation on the one hand, and retaining a 25 per cent stake on the other. The latter course will be more valuable for the bank, for UK plc, and ultimately for the taxpayer.
There are several reasons for this.
- The Government is likely to add value to the bank. Not only will a government stake give confidence to the market, but the Government also brings a convening power which can drive higher value deals. For example, resource-efficient infrastructure is a key demand in the emerging economies with whom we are building relationships. A Government stake would help investors join the dots
- The Government may find that a stake is useful. With the Industrial Strategy published, and the Emissions Reduction Plan coming, the government will need some targeted infrastructure spending, and the GIB could be a useful vehicle for that. Germany has used its publicly owned bank, Kreditanstalt für Wiederaufbau, to drive valuable investment in energy efficiency from small firms and households. For every Euro of public money spent on the KfW programme, €4 is earned by the German Treasury in taxes and reduced welfare spending.
- The Government is likely to find the stake is valuable. This is a dynamic, entrepreneurial section of the economy in the UK. Internationally, the International Energy Agency reckon on £650 billion spend to 2020, and up to £1,500 billion by 2030.
- A significant stake would mean the Government holding the bank to its ambitious mission to ‘mobilise investment in the UK’s green economy [and] maximise our green impact’, and its five ‘Green Purposes’: reducing greenhouse gas emissions, increasing the efficiency of the use of natural products, protecting the natural environment or biodiversity and promoting environmental sustainability.
Macquarie, the lead bidder, is looking to diversify away from its coal, oil and gas assets into future infrastructure, and is eyeing the bank for that reason. However, recent reports have suggested that the GIB is attractive because the highly profitable offshore wind investments could be hived off from the slower-burn sectors: energy-efficiency, waste & bioenergy, and onshore renewables (such as hydro). However, these sectors will be crucial for driving the warm homes, low energy bills and resource-efficient economy that we want to see.
The benefits of any privatisation are that the Government gets the cash, while the public still gets the (often enhanced) service. If the service is not going to persist, the Government is likely to have to re-invent the asset, wasting time and money in the process. It is important that a privatised GIB continues to fill the financing gap in the economy.
There is one final, and rightly political, reason for retaining the stake to drive an ambitious, disruptive, bold financial institution. The bank is one of the crown jewels of the 2010 Conservative-led Government. It was a success in its own right, let alone anything to do with the green agenda. It showed that an effective environmental policy is not primarily based on regulation and subsidy, but on financing disruptive technologies and businesses. It stands as a solid reproof to those who suggest ours is not an environmental party. That legacy is worth safeguarding.