UK Infrastructure Bank Bill [HL] — House of Lords, 2022-05-24
Topic: Macroeconomics
Sheila Masters (Conservative, Centre-right): 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 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.