Budget 2011: Green Investment Bank to launch next year backed by £3bn funding
Chancellor George Osborne has today announced that the government’s flagship Green Investment Bank will launch in 2012, a year earlier than expected, but will not be able to borrow additional funds until 2015/16.
Speaking in his budget address to the House of Commons, Osborne said the bank would be backed by £1bn of government funding and an additional £2bn raised from asset sales. He added that this initial capitalisation will allow the bank to leverage an extra £15bn of private sector investment over the course of the parliament.
However, as widely expected, he confirmed that fears over the extent to which the bank could add to the national debt if it was allowed to borrow and issue green bonds meant it would not be able to borrow until 2015/16 and, even then, only if the government’s debt targets are met.
Osborne also announced the UK would become the first country to impose a carbon floor price, designed to provide businesses with certainty that the price of carbon imposed through the EU emissions trading scheme would not drop below a set level.
He said the floor price would be set at £16 per tonne in 2013 and rise to £30 a tonne by 2020, predicting the additional carbon tax would incentivise developers to invest in low carbon generation to replace the UK’s “dilapidated” energy infrastructure. Some analysts predicted the proposals would add around 10 per cent to energy bills by 2020, further strengthening the case for investment in energy efficiency measures.
Green businesses gave the two flagship low carbon policies a mixed response, welcoming the early launch of the bank, but warning that the limits on borrowing risked making it a “lame duck”. Concerns were also voiced over whether the carbon floor price will be high enough to drive investment in renewables.
“We welcome the additional finance for the Green Investment Bank, but it must have the power to borrow from day one,” said Andrew Raingold, executive director of the Aldersgate Group of green businesses and MPs. “This would put the bank at the heart of the chancellor’s plan for growth and not wait until the UK is overtaken in key green industries by competitors.”
His comments were echoed by Friends of the Earth executive director Andy Atkins, who lamented the fact that the Treasury had obviously won a long-running battle with the Department of Energy and Climate Change over whether the bank should be allowed to borrow as well as lend money.
“The Green Investment Bank should have been a vehicle to drive the UK’s economic recovery, but by delaying the bank’s borrowing powers the Treasury has sneaked round the back of the motor and siphoned off the fuel – just as the rest of government is firing up the ignition,” he said.
Speaking to BusinessGreen, John Gibbs, corporate finance partner at PwC, said that, despite the initial block on borrowing, the launch of the bank represented a “major step forward” for the low carbon economy.
“It is a lot better than what we had before,” he said. “It was never going to be the all-singing, all-dancing institution that some people wanted right from the start and this means a good injection of £18bn of investment and the potential to grow and borrow if the bank proves effective.”
He added that attention would now turn to the types of products the bank will be able to offer developers, noting that it was vital the bank provides a range of investment products, such as loan guarantees and insurance cover, as well as straight investment, in order to help reduce the risk of investing in projects such as offshore wind farms.
His comments were echoed by Vincent Neate, KPMG’s head of Climate Change & Sustainability, who agreed urgent clarification was needed on the bank’s role. “The earlier start and extra funding for the Green Investment Bank is very welcome but it is not entirely clear what the government is aiming to achieve; is this subsidised investing in otherwise uneconomic projects or a necessary intervention that will nevertheless generate a return?” he asked. “The market is looking for mechanisms to invest, more than for funding itself, lack of which isn’t the key issue when it comes to low carbon project development. The real challenge is making ‘green’ investment relatively more attractive to increase the appetite for it, altering standard investment models.”
However, Matthew Spencer, director at green business think tank the Green Alliance, warned that the bank’s credibility would be undermined by its inability to borrow money. “If you are a banker and you are asked to be on the board, are you going to want to sit there for three years twiddling your thumbs before it becomes a fully rounded bank,” he asked, adding that the government would face continued pressure to allow at least some borrowing at an earlier date. “I think they will bring the borrowing date forward – why would you not want the investment and political benefits that go with that?”
Osborne was also accused of undermining the coalition’s green credentials by freezing Air Passenger Duty and delivering a surprise cut in fuel duty as part of a new Fairer Fuel Stabiliser mechanism.
As part of a package of green measures he also announced changes to company car tax to help promote low carbon vehicles, promised an additional £200m of funding for rail upgrades and extended tax exemptions for firms that cut their carbon emissions through formal Climate Change Agreements.
In addition, he announced a major overhaul of planning regulations that is likely to be opposed by some green groups who fear sprawling new developments, but welcomed by renewable energy developers who typically suffer from lengthy planning delays.
PwC’s Richard Gledhill, said that, given the constraints on public spending, the budget contained plenty of positive news for green businesses. “After 33 minutes there had been one mention of ‘green’ and I was getting worried,” he admitted. “But then there was a flurry of activity and given the constraints there was quite a lot of focus on green issues.”
However, Spencer slammed the budget as a missed opportunity for the coalition. “There is a lot of good policy in there, but there is no urgency and the dead hand of the Treasury is holding everything back,” he said. “There are some good proposals like the Green Investment Bank, but we are not going to see any of the benefits until the next parliament.”
Speaking in his budget address to the House of Commons, Osborne said the bank would be backed by £1bn of government funding and an additional £2bn raised from asset sales. He added that this initial capitalisation will allow the bank to leverage an extra £15bn of private sector investment over the course of the parliament.
However, as widely expected, he confirmed that fears over the extent to which the bank could add to the national debt if it was allowed to borrow and issue green bonds meant it would not be able to borrow until 2015/16 and, even then, only if the government’s debt targets are met.
Osborne also announced the UK would become the first country to impose a carbon floor price, designed to provide businesses with certainty that the price of carbon imposed through the EU emissions trading scheme would not drop below a set level.
He said the floor price would be set at £16 per tonne in 2013 and rise to £30 a tonne by 2020, predicting the additional carbon tax would incentivise developers to invest in low carbon generation to replace the UK’s “dilapidated” energy infrastructure. Some analysts predicted the proposals would add around 10 per cent to energy bills by 2020, further strengthening the case for investment in energy efficiency measures.
Green businesses gave the two flagship low carbon policies a mixed response, welcoming the early launch of the bank, but warning that the limits on borrowing risked making it a “lame duck”. Concerns were also voiced over whether the carbon floor price will be high enough to drive investment in renewables.
“We welcome the additional finance for the Green Investment Bank, but it must have the power to borrow from day one,” said Andrew Raingold, executive director of the Aldersgate Group of green businesses and MPs. “This would put the bank at the heart of the chancellor’s plan for growth and not wait until the UK is overtaken in key green industries by competitors.”
His comments were echoed by Friends of the Earth executive director Andy Atkins, who lamented the fact that the Treasury had obviously won a long-running battle with the Department of Energy and Climate Change over whether the bank should be allowed to borrow as well as lend money.
“The Green Investment Bank should have been a vehicle to drive the UK’s economic recovery, but by delaying the bank’s borrowing powers the Treasury has sneaked round the back of the motor and siphoned off the fuel – just as the rest of government is firing up the ignition,” he said.
Speaking to BusinessGreen, John Gibbs, corporate finance partner at PwC, said that, despite the initial block on borrowing, the launch of the bank represented a “major step forward” for the low carbon economy.
“It is a lot better than what we had before,” he said. “It was never going to be the all-singing, all-dancing institution that some people wanted right from the start and this means a good injection of £18bn of investment and the potential to grow and borrow if the bank proves effective.”
He added that attention would now turn to the types of products the bank will be able to offer developers, noting that it was vital the bank provides a range of investment products, such as loan guarantees and insurance cover, as well as straight investment, in order to help reduce the risk of investing in projects such as offshore wind farms.
His comments were echoed by Vincent Neate, KPMG’s head of Climate Change & Sustainability, who agreed urgent clarification was needed on the bank’s role. “The earlier start and extra funding for the Green Investment Bank is very welcome but it is not entirely clear what the government is aiming to achieve; is this subsidised investing in otherwise uneconomic projects or a necessary intervention that will nevertheless generate a return?” he asked. “The market is looking for mechanisms to invest, more than for funding itself, lack of which isn’t the key issue when it comes to low carbon project development. The real challenge is making ‘green’ investment relatively more attractive to increase the appetite for it, altering standard investment models.”
However, Matthew Spencer, director at green business think tank the Green Alliance, warned that the bank’s credibility would be undermined by its inability to borrow money. “If you are a banker and you are asked to be on the board, are you going to want to sit there for three years twiddling your thumbs before it becomes a fully rounded bank,” he asked, adding that the government would face continued pressure to allow at least some borrowing at an earlier date. “I think they will bring the borrowing date forward – why would you not want the investment and political benefits that go with that?”
Osborne was also accused of undermining the coalition’s green credentials by freezing Air Passenger Duty and delivering a surprise cut in fuel duty as part of a new Fairer Fuel Stabiliser mechanism.
As part of a package of green measures he also announced changes to company car tax to help promote low carbon vehicles, promised an additional £200m of funding for rail upgrades and extended tax exemptions for firms that cut their carbon emissions through formal Climate Change Agreements.
In addition, he announced a major overhaul of planning regulations that is likely to be opposed by some green groups who fear sprawling new developments, but welcomed by renewable energy developers who typically suffer from lengthy planning delays.
PwC’s Richard Gledhill, said that, given the constraints on public spending, the budget contained plenty of positive news for green businesses. “After 33 minutes there had been one mention of ‘green’ and I was getting worried,” he admitted. “But then there was a flurry of activity and given the constraints there was quite a lot of focus on green issues.”
However, Spencer slammed the budget as a missed opportunity for the coalition. “There is a lot of good policy in there, but there is no urgency and the dead hand of the Treasury is holding everything back,” he said. “There are some good proposals like the Green Investment Bank, but we are not going to see any of the benefits until the next parliament.”
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