(Green) banking on our politicians

Dave Powell

07 June 2012

So it's pencil-to-paper time for the Green Investment Bank. After years of squabbling, obfuscation and goalpost-moving, the legislation to create the GIB has finally plopped down in front of MPs. And perhaps inevitably, the hard work isn't finished yet.

It's been a heck of a fight getting this far, to be honest. The Treasury never wanted to bring in the Bank in the first place. And even when they were ultimately arm-twisted by political pressure into so doing, they've still succeeded in undermining it.

As ex-Energy Secretary Chris Huhne pointed out a couple of years ago, a pretty cast-iron test of whether a bank is a bank is whether it's allowed to borrow and lend money. "Ducks quack, and banks borrow as well as lend", he said confuciusly. But what we have here is a duck that does not quack.

Chancellor Osborne points to the imminent arrival of the GIB as evidence of why he's not actually the kind of beastly chap that burns car tyres in his garden for kicks. But in reality Mr Osborne has hamstrung the Bank by decreeing that yes, OK, you can have a bloody green bank, but like everything else it'll have to jolly well wait until the deficit has been squashed before it can issue green bonds or do very much spectacularly useful.

When are we looking at? Well, even with his most optimistic hat on, the Chancellor can't claim that his deficit reduction targets will be met until 2015/16 at the earliest; his March budget this year appeared to extend that by a year until 2016/17.

Given the tumult in the UK economy, even that looks distinctly optimistic. For all his single-minded huffing and puffing on slashing public spending, cracking down on the deficit is proving to be trickier than George initially reckoned. The economy is refusing to stop being limp and continues coughing and burbling along the floor like a sick kitten.

Mr Osborne's Plan A, B and C - austerity, austerity and austerity, then cross fingers and hope for growth - is, as Cambridge economist Ha-Joon Chang so powerfully spells out, bunk. What's needed is to give the economy a kick up the bottom, not a punch in the face.

Which is where the Green Investment Bank (should) come in. There are many hundreds of billions of pounds looking to put their money into bankable low-carbon projects, pointed for starters at an energy system needing a comprehensive, low-carbon overhaul.

The GIB could and should be a powerful, throbbing beast of a thing, free to kickstart not just the economic recovery, but a low-carbon, more sustainable recovery at that. It's exactly what Germany has had for years in the KfW bank, which has been one of the major factors in bolstering the German economy in these tricky times. As the Guardian's Damien Carrington summarises in a strongly argued piece:

"KfW, owned by the German state, is huge. It has half a trillion Euros of assets, making it roughly twice the size of the World Bank. It lent €70bn in 2011, raised from international markets at low interest rates thanks to its AAA credit rating. About a third goes to energy and climate change investments, including €24bn from 2009-2011 on energy efficiency in homes, which leveraged a total investment of €58bn... Since 2001, [KfW] loans have helped insulate and seal over 2m homes, employing 200,000 people a year in the process."

In summary, the Green Investment Bank is exactly the sort of body that we need in order to get the economy working again. But instead, it has to wait until the economy's fixed before it's allowed to, er, help fix the economy. Bonkers.

The Chancellor's not for turning. Everything, literally everything, comes a distant second to taking a sledgehammer to public spending: green economy be damned. So the spotlight now turns on the MPs and peers that will pick over the handful of vague clauses within the new Enterprise and Regulatory Reform Bill which set forth the GIB.

This briefing from Client Earth has more on the details, but the number one priority is to make the Bank worthy of the name.

That means the legislation must specifically ensure the Bank can borrow and lend from the markets from day one - not at some distant point in the future, perennially beholden to an Iron Chancellor's doomed austerity drive.