Green recovery needs green bank
Bank lending and a Green Investment Bank (GIB) are crucial to green jobs and growth. This was one of the key messages at the first meeting of the new Green Economy Council this week. As Andy Reynolds-Smith – Divisional Chief Executive, GKN, said of the first GEC meeting: “If the economy is to grow sustainably out of recession, it is important that Government, businesses and their employees work together.” And part of that shared task is to speak truth to Government. The groundswell of support for a Green Investment Bank has left the Treasury alone in a corner.
Odd, because the independent GIB Commission, set up by George Osborne when shadow chancellor, reported in June 2010 that only a commercially independent bank with early government backing could help close the funding gap. The “funding gap” in question ranges from £110 billion for new energy infrastructure by 2020, to three or four times that sum by 2025 if high speed rail and other major capital projects are included.
In early February, more than 50 businesses, consultancies, utilities, the TUC and NGOs supporting full bank status for the GIB ran a press advertising campaign through umbrella campaign group TransformUK, in the hope of breaking the deadlock. Clearly, on their own, government’s plans for electricity market reform and a carbon floor price are not up to the task.
According to the ENDS Bulletin , a GIB meeting on 10 February was attended by deputy prime minister Nick Clegg and the BIS and DECC secretaries of state, Vince Cable and Chris Huhne. But the Treasury was represented by Justine Greening, economic secretary to the Treasury, rather than the chancellor Mr Osborne.
BIS, tasked with leading on creating the new financial institution, has said it will set out details of the GIB in May 2011 at the earliest and the bank will start backing projects in 2012. Without it, funding for Britain’s transition to a decarbonised electricity infrastructure by 2030 would seem out of reach.
But a decision must be made soon, in time for the Budget on March 23rd. The Treasury’s dilemma: whether the bank should be a powerful, autonomous public bank using government backing to deploy large amounts of private capital. Or something nearer to a government fund with very limited borrowing powers,
The Treasury is concerned that a wider GIB role in raising capital could count as increased government borrowing, when the priority is to reduce liabilities. In the event, the spending review announcement saw chancellor George Osborne committing only £1bn in public funds for the bank over the period up to 2014/15, with potentially £1bn more from sale of public assets. This was far lower than the £4-6bn capitalisation recommended by Ernst & Young. It’s clear from recent worries about bank bonuses and accountability that the GIB should operate as an accountable public body, ensuring transparency and that its investments are made in the national interest.