Can anyone explain why the government's new "funding for lending" programme can't be used to power up the Green Investment Bank?
So let me get this right.
The Bank of England has been authorised to plough a minimum of £5bn a month in printed money into UK banks in the form of six-month low interest loans made available through a so-called Extended Collateral Term Repo, in an attempt to bolster confidence that the government will support our banking through the Eurozone storm and, as such, they can start lending again. Meanwhile, a new "funding for lending" scheme will similarly offer an estimated £80bn in three-to-four-year low interest loans to UK banks in yet another desperate attempt to get our recalcitrant bankers lending to businesses and prospective home buyers.
But, as expertly explained today by the BBC's Robert Peston, there is no one for the banks to lend to even if they wanted to. They are understandably reluctant to run down their cash positions, given the events of 2008 and the continued uncertainty surrounding the Eurozone, and even if they were happy to increase lending, businesses are reluctant to borrow and invest until they see signs of a demand-led recovery and households are equally reluctant to take on any additional debt. Creditworthy prospects are thin on the ground and the bulk of businesses and individuals seeking loans represent the kind of higher risk bets bankers are understandably reluctant to make.
So it's not going to work or, if it does, it is not going to work on the scale the government hopes.
Meanwhile, up and down the country a battalion of businesses and projects that are only deemed relatively high risk because of the vagaries of government policy are struggling to access credit and raise the capital they need to expand. They are the green businesses and low carbon infrastructure projects that ministers are on record as saying they want to nurture, that are critical to meeting the country's emission reduction and renewable energy targets, and are proven drivers of job creation and economic growth. A handful of banks, such as the Co-operative, realise the benefits of lending to these projects, but the bulk of conventional banks remain too risk averse to pump money into projects that face relatively high levels of policy uncertainty, meaning much of the cash on offer from the Bank of England is unlikely to flow through to the low carbon economy.
Sadly, the one policy mechanism for getting capital into the hands of these businesses and developers, the Green Investment Bank, is limping towards its launch badly undercapitalised with just £3bn of government funding, and hamstrung by the Treasury's instructions that it cannot borrow until deficit reduction targets are met, hopefully in 2016, but in all likelihood much later. As such, the only UK bank not to benefit from the latest round of Bank of England largesse is the soon-to-be-launched Green Investment Bank.
Can anyone else spot the simple solution here?
Diverting just half of the £80bn the Bank of England is waving in front of the disinterested banks into the Green Investment Bank could provide the single biggest boost to the UK economy since the government took office. Yes, the taxpayer would be taking on the risk of lending that the Treasury is so desperate to offload on to the banks (because they have done such a great job of risk management in recent years). But the largest risks associated with the offshore wind farms, biomass power projects, energy-efficiency initiatives, carbon capture and storage facilities, recycling plants, and marine energy parks that the Green Investment Bank will presumably back are associated with government policy, which is controlled by, erm, the government.
With the Bank of England offering its loans at ultra-low rates of interest, the GIB could lend to low carbon projects at attractive but still commercial rates, actually making money for the Exchequer at the same time as driving the green growth the government says it wants. Jobs and growth could be created from tomorrow if lending activity was spread across quick-to-deliver building energy-efficiency projects, as well as more ambitious large-scale infrastructure projects.
There is nothing to stop this course of action apart from the Treasury's crippling economic orthodoxy. Chancellor George Osborne's ideological infatuations mean he would rather tinker round the edges with a lending scheme that is highly unlikely to work (but will make the UK's banking sector richer still by giving bankers cheap money that they can then lend to people they were going to lend to anyway at much higher rates of interest) than countenance any kind of innovative thinking that could be interpreted as direct state action to drive green investment.
There is a simple solution available that will allow the Green Investment Bank to drive rapid growth, create jobs, and cut emissions on a scale far beyond that which the government has envisioned, and all without adding one pence to the deficit in any real sense. And yet no one in the Treasury will consider it, or offer a clear explanation as to why not.
Treasury opposition to the low carbon agenda has become so engrained as to become a cliché amongst green campaigners. I've always been of the opinion that it is not quite as bad as environmentalists make out – I am not naïve about the Treasury's generalised hostility to many aspects of the green economy, but the sector is still growing fast, renewable energy subsidies remain in place, if under pressure, and officials are moving forward with a carbon floor price.
And yet the past few weeks have forced me to rethink this generous assessment. Less than a month ago, Treasury minister Chloe Smith told me at a Green Alliance event that the prime minister and chancellor's silence on environmental issues should not concern prospective investors in the green economy, because we have departmental government in this country and the signals from DECC and Defra make it clear the UK is committed to building a vibrant low carbon sector. And then we learn that the Treasury is pushing to cut support for onshore wind farms by more than double the amount DECC had wanted (so much for departmental autonomy), and are forced to watch on as Osborne butchers yet another perfect opportunity to get investment flowing into the green economy.
A low-cost, low-risk option for creating jobs, driving growth and cutting emissions is staring the chancellor in the face, and yet he does not even have the decency to explain why he will not give it due consideration. Because until we see a legitimate explanation as to why the Green Investment Bank cannot be properly empowered using loans from the Bank of England, we can only assume the decision is another case of anti-green sentiment from the chancellor mixed in with a healthy dose of economic incompetence.
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