My colleague Fiona Harvey revealed in October that plans for a green investment bank could be watered down under pressure from the Treasury.
A commission set up by George Osborne to look at the issue – led by Bob Wigley, the former European head of Merrill Lynch – had called for the bank to have powers to raise finance from the private sector, for instance by issuing bonds, green Isas, raising loans and other measures. But this was opposed by Treasury officials, according to Fiona:
They would prefer the bank to operate as a simpler fund, dispensing grants and loans in conjunction with the private sector but without the powers to generate its own self-sustaining financing mechanisms.
And in today’s Guardian Chris Huhne confirms that the bank will start life in the more limited form.
“Obviously, if we were to turn around and have the GIB borrowing vast amounts of money tomorrow I can understand that managers of the national debt would be a little alarmed…I am absolutely at one with the Treasury on the need to make sure our fiscal credibility is completely re-established. The key issue is whether or not having established our fiscal credibility, what then happens? There are phasing issues, there are transition issues. What is the point at which maybe it begins as a fund and later is a bank, whatever. Let there be no doubt that the first overwhelming priority of the government has to be to get the deficit down.”
By setting up a fund rather than a bank the entity will have much less leverage and be able to lend less. The confirmation will be greeted with dismay in green circles and among many big companies. Recently 20 corporations (including Microsoft, BT, British Airways, Jaguar LandRover) wrote to ministers to call for the bank to be given £4bn to £6bn initial funding and wide-ranging authority to issue structured financial products.
An official from the energy department says that Huhne’s comments have been misportrayed to some extent. Instead, the energy secretary made clear that he did eventually want the new entity to be a bank, I’m told: “Ducks quack, banks borrow and lend,” he apparently told the Guardian.
The CSR has already provided £1bn for the bank, to be spent in 2013/14. “All options are still on the table,” says the DECC official.