Changes to the Green Investment Bank (GIB) announced in last week’s Budget will threaten the Government’s ability to leverage infrastructure funding, engineers warned this week.
Chancellor George Osborne’s Budget revealed that the bank would be launched in 2012, a year earlier than expected.
The GIB will also have £2bn in funds in addition to the earlier pledged £1bn funding from the sale of public-owned assets.
But Osborne curbed the bank’s ability to borrow money until 2015 at the earliest. Until then, the bank’s resources will be limited to £3bn. Ministers hope that this will eventually leverage up to £15bn of private investment in low carbon infrastructure projects.
ICE director general Tom Foulkes said the steps taken in the Budget’s treatment of the GIB were “not enough”. He also expressed fears for the funding body’s future.
“The increase in the GIB’s start-up fund and the commitment to an earlier launch are welcome. But the fact still remains that a GIB without the powers to borrow until 2015 at the earliest will struggle”
Tom Foulkes, ICE
“The increase in the GIB’s start-up fund and the commitment to an earlier launch are welcome. But […] the fact still remains that a GIB without the powers to borrow until 2015 at the earliest will struggle to generate the scale of investment required and could reinforce a negative impression about the UK’s approach to infrastructure development.”
Civil Engineering Contractors Association director of external affairs Alasdair Reisner said there remains “considerable work to be done before the bank is up-and-running”, and added that he hoped the announcement would be “swiftly followed by greater detail about the way the GIB will operate, and the projects that it will be able to fund”.
Lending ‘only if UK meets criteria’
The bank’s ability to lend could even be constrained after 2015 as it will depend on the UK meeting certain financial criteria to comply with international accounting rules.
When established, the new bank will have to be classified for National Accounts purposes as either public or private.
If the bank is classified as being within the public sector, the costs of projects it finances will have to be included on the government’s balance sheet, adding to the budget deficit. This could undermine government support for the scheme.
A report published earlier this month by the Environmental Audit Committee warned of the consequences of ignoring “the number of market failures and investment barriers that require urgent remedial action”.
It added: “The GIB must not be just another fund to disburse Government money, but a bank able to raise its own finance, fill a gap in the market for government-backed bonds, and offer a range of commercially-driven interventions, such as loans, equity and risk-reduction finance.”
“The GIB must not be just another fund to disburse Government money, but a bank able to raise its own finance”
Environmental Audit Committee
On the eve of the Budget, leaders of the government’s cross-party groups on underground space and on infrastructure sought to reassure the construction industry that they would be “pro-growth” and “pro-infrastructure” at an ICE event.
Speaking at the All Party Parliamentary Group’s “Infrastructure for Growth” reception in Westminster, Labour MP Nick Raynsford said support for major projects such as High Speed Two would remain strong within the major parties.
But Tory MP Mark Garnier called for a realistic approach towards investment in this year’s Budget.
He said “currently, we are borrowing 25p for every £1 we spend. There has to be an element of cuts.”
At the event, ICE President Peter Hansford repeated calls from the Budget submission produced by the ICE and the Association for Consultancy & Engineering, the Civil Engineering Contractors Association and the Construction Products Association.
This said that regulatory reform, increased transparency and a balanced approach to localism were all vital to efforts to boost infrastructure spending.