Tories plan to sell £1.4bn stake in Green Investment Bank to pay down deficit
The government's commitment to low-carbon technology has been called into question as it prepares to raise more than £1bn by selling a majority stake in the Green Investment Bank, the project that was a central promise in the Conservatives' 2010 manifesto.
Sajid Javid, the business secretary, will announce the plan at the bank’s annual review meeting on Thursday. The government is likely to keep a stake in the bank but could sell off as much as 70%.
The bank is likely to be valued at a small premium to its assets, or loans, which are currently about £2bn, suggesting that the Treasury could raise £1.4bn or more from the stake sale that will be used to pay off government debt.
The bank was the first of its kind in the world, established under the coalition government with the Liberal Democrats. The Conservatives have often cited it as evidence of their commitment to the environment.
A leading candidate for the Lib Dem leadership has condemned the share sale. Tim Farron, MP for Westmorland and Lonsdale, said the government should retain a majority stake in the investment bank.
“The decision is incredibly reckless and will damage investor confidence in the sector,” he said. “But more than that, it will bring into question the Tories’ commitment to the low carbon economy.”
Based in Edinburgh with an office in London, the bank was launched in 2012 with £3.8bn of government capital. Its remit is to invest profitably in wind, biomass and other green schemes that struggle to gain funding elsewhere because they are considered too risky or long-term for the private sector on its own. The bank’s investments have included £236m to build and run the Rampion windfarm off the coast of Brighton, £2.5m to replace boilers in sheltered housing and a £6.3m loan to install low-energy bulbs in Glasgow’s street lights.
The bank said it became profitable last year, recording a £3m pre-tax profit in the second half and a £100,000 profit for the year.
It has attracted private money but its activities have been limited by the Treasury’s refusal to let it borrow on the private market, like a conventional bank. It is also constrained by European Union rules on governments providing aid to companies.
Javid said: “The Green Investment Bank has shown that investment in green technologies can be a profitable business. The challenge now is to build on this success.
“The bank will still be green, still be profitable, still be a market leader in financing environmentally sound infrastructure. But, free from limitations on where it can borrow money and EU regulations on state aid, the bank will be able to access a much greater volume of capital.”
UBS, the Swiss investment bank, has been advising the bank’s board, while the government has hired its own adviser, Bank of America Merrill Lynch, to conduct the stake sale, with a shortlist likely to emerge later this year. The government is targeting pension funds, the sovereign wealth funds of other countries and similar investors seeking stable long-term returns.
The bank announced its 50th investment on Wednesday: a £2m deal to extract heat from waste water to provide energy for buildings in Scotland.
The project means the bank has now invested more than £2bn in projects. It has attracted another £6bn of private capital to fund projects worth as little as £2m and as much as £1bn.
The chancellor, George Osborne, said: “We want the Green Investment Bank to attract more investment and we will use the money we raise to pay down the national debt.”
E3G, the thinktank that developed the idea for the bank, said selling a majority stake would cast doubt on the government’s focus on green energy, deterring private investment in low-carbon schemes. It warned that the bank’s green remit could be diluted by greater demands for profits.
Nick Mabey, chief executive of E3G, said: “Selling off a majority stake in the Green Investment Bank would be completely reckless. It has kept investment in the real economy going at a time when bank lending had fallen to an all-time low. It has played a critical role in supporting the UK economic recovery.”
David Powell, senior economics campaigner at Friends of the Earth, said: “Releasing the Green Investment Bank from the chancellor’s penny-pinching clutches may be a small mercy – his refusal to let it borrow money underlined his green-bashing reputation. But privatising the bank could be a catastrophe without clear new rules in law to force it to invest in genuinely clean technology.”
Friends of the Earth helped launch the campaign to establish the bank. It called for shares to be sold to members of the public and not to the highest bidder.
Caroline Lucas, the Green MP, said: “The government’s rash and irresponsible plan to sell off a large chunk of the Green Investment Bank calls into question their commitment to investing in a low-carbon economy. The government should keep at least a majority stake in the Green Investment Bank to ensure investor confidence is upheld and the commitment to low-carbon lending remains.”
This article first appeared on the Guardian website
edie is part of the Guardian environment network