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UK Infrastructure Bank Bill [HL]

My Lords, I have Amendment 24 in this group, which is an amendment to the Minister’s Amendment 23. It is always rather strange speaking to an amendment to an amendment when the amendment itself has not been spoken to—but I will do my best.

First, I congratulate my noble friend Lord Holmes of Richmond on his Amendment 6. It is well drafted and encompasses what we understand by additionality in the context of the operations of the UKIB. In Committee, it was widely agreed that additionality was so important that it should be in the Bill. I think it was also agreed that the boundary between what is in this Bill and is in other documents outside the Bill, including the framework document which is not even referred to in the Bill, has been set in the wrong place. When I say that the Committee agreed these things, I do not suggest that the Government agreed, but the vast majority of the Committee was aligned on these matters.

The Minister has been generous with her time with noble Lords, and I thank her for the meetings she arranged and for her letter of last week. She gets a gold star for effort, but I am afraid that that is not matched for content. On additionality, my noble friend claimed that the absence of an agreed definition in the Bill could stop it developing over time. That is nonsense. Additionality, as a basic concept, has barely shifted in the many years that I have been involved in public sector matters. The essence of it is about, and always has been about, something that should occur that would not otherwise have occurred but for the particular intervention or action. It is a universal principle that can be adapted to a number of circumstances.

I then suggested to my noble friend the Minister that, rather than try to produce a specific definition, she could put a high-level definition in the Bill and take a Treasury power to issue guidance to UKIB. That too was brushed aside. The Treasury likes to keep stuff in documents, such as the framework document, which it alone controls. I remind noble Lords that, as my noble friend the Minister informed us in Committee, the framework document is not even legally binding.

Nevertheless, I recognised that the Treasury is something of an immovable object on this issue, so I decided that it would be better to pursue the Minister’s offer of a way forward and include additionality issues in the periodic reports which are required by Clause 9. I thought that half a loaf would be better than no loaf, but I have to say that Amendment 23, which my noble friend has tabled, is a serious disappointment. It represents no more than a quarter of a loaf.

Amendment 23 adds an additional reporting requirement to Clause 9 but it is a lop-sided approach to additionality. Its focus is on the extent to which UKIB’s investments in projects have encouraged additional investments in those projects. It therefore will cover the extent to which projects have enabled crowding in, but it does not explicitly cover crowding out, which has always been my biggest concern, because a bank with a high capital ratio and a low cost of capital can easily outcompete private sector financing. I do not believe that if UKIB were to finance the whole of a transaction to the complete exclusion of the private sector in circumstances where 100% private finance could have been obtained, it would be captured by my noble friend’s amendment—it would not come close to being captured by my noble friend’s amendment. Such a transaction would not have encouraged or discouraged private sector finance; it would have bypassed it completely. That is why my Amendment 24 refers to investments having been made by UKIB

“despite an adequate supply of private sector financing”.

My noble friend the Minister will doubtless say that it is not in UKIB’s strategic plan to do transactions without private sector financing. It was never in the strategic plans of the European Investment Bank to crowd out private sector financing, but it did it anyway, in collusion with private sector borrowers, who were quite happy to take soft loans from public sector lenders who were much easier to deal with than hard-nosed real bankers in real banks.

My noble friend the Minister has also referred in correspondence to the impact of the Subsidy Control Act, which became law earlier this year. I have to say

that the Act, which refers to subsidy decisions, sits rather uneasily with the practice of doing investment deals in the context of a bank. I accept that at a high level it would apply to UKIB. I just think that the language is very difficult to interpret in the context of what UKIB would do. My main concern is that there would never be an enforcement action against UKIB because the crowded-out private sector financiers are exactly the same people who want to be invited to any crowding-in party. It simply will not be in their interest to try to get the Act enforced against UKIB.

For all these reasons, I am very disappointed that this Bill, which I have never regarded as a shining example of Conservative economic values in any event, is going to ignore the concept of crowding out, which ought to be something dear to any Conservative Government’s heart. I shall not move my amendment when we reach it in the Marshalled List, but I live in hope that there are still some Conservatives in the Treasury who might have a change of heart before this Bill reaches the other place.