Vince Cable delivers oral statement to the House of Commons: 24 May 2011
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Business Secretary Vince Cable:
Today, I am publishing detailed plans for a green investment bank, building on the announcements the Deputy Prime Minister made yesterday. Copies of the document will be placed in the Libraries of the House and will be available to download on the BIS website. I would like to take the opportunity to inform the House of these proposals.
The UK will be the first country in the world to create a bank dedicated to the greening of our economy.
This Government is committed to ensuring that the UK makes a successful transition to a low carbon economy. This will be a big challenge. The UK is committed, in law, to a50% reduction in carbon emissions by 2025. Over the coming decades, much of the UK’s energy, transport and waste infrastructure will have to be revolutionised or even rebuilt in order to achieve the ambition of decarbonised electricity, low emission cars and an end to landfill.
This transition will involve considerable costs but also considerable benefits if new enterprises can seize the opportunities presented by a green economy. The task for Government is to ensure that these benefits exceed the costs.
Vital to achieving a successful transition is the development of well designed, long term and stable policies. They are needed to provide the incentives for businesses to invest in new, green infrastructure, which by its very nature often only repays the investment over many years.
To this end this government has introduced a carbon price floor, proposals on electricity market reform, the Green Deal for energy efficiency in buildings, a major waste policy review and new initiatives to encourage the roll out of electric vehicles.
However the lack of available finance could be a limiting factor. Detailed research and market analysis has established the need for an institution to address market failures which are constraining the flow of finance The proposals published today set out a vision for a new and enduring institution - the world’s first dedicated national green investment bank - to complement the existing policy landscape.
The green investment bank’s mission will be to accelerate private sector investment with an initial remit to focus on relatively high risk projects which are otherwise likely to proceed slowly or not at all. It will work to a ‘double bottom line’ of both achieving significant environmental impact and making financial returns delivering value for money.
It will also operate independently and at arm’s length from Government, which will agree its strategic long term priorities. Initial market analysis suggests that early contenders to be priority sectors for the bank are offshore wind, industrial energy efficiency and waste. But a wider range of energy and other activities could become relevant over time.
The new institution will need to comply with state aid rules. Therefore, the proposals that I am publishing today will need to be approved by the European Commission before we can establish the bank.
But the time to act is now and so, in order to make rapid progress, from April 2012 my department, the Department for Business, will start to make direct, state-aid compliant investments in green infrastructure projects. Investments could be in the form of equity, subordinated debt or senior debt on a pari passu basis. In due course, we will transfer these investments to the new institution.
I am also creating a green bank advisory group, comprising independent finance experts, which will advise Government on the setting up and strategic direction of the new institution. Sir Adrian Montague has very kindly agreed to chair this advisory group.
As the Chancellor set out in Budget 2011, the initial capitalisation of the GIB will be £3 billion and the bank will invest with and through the private sector and tackle risks which the private sector cannot adequately finance. In this way, the bank will mobilise projects significantly in excess of the Government’s contribution. With the funding provided in this Parliament, the GIB could mobilise an extra £15bn of private investment. We do not envisage that this level of activity will require a large institution: 50-100 professional staff during this Parliament. Proposals have been made to locate the headquarter in, interalia, London, Edinburgh and Bristol and a decision will be taken in due course based on ability to deliver
The Government will enable the GIB to have borrowing powers from 2015-16 and once debt is falling as a percentage of GDP. This will allow it to significantly scale up its operations at the time when the green financing need is greatest. We are not seeking at this stage to be prescriptive about which form borrowing should take and, more generally, about the final products of the bank or its structure.
Once state aid approval is achieved we will move to enshrine the institution’s enduring status in legislation.
Setting up such a Bank is a major undertaking. There is much work to be done to build and grow the green investment bank and this Government looks forward to updating the House on further milestones in the future.