Last year we called for the privatisation of the Green Investment Bank, so it is good to read in the Financial Times today that the Government is considering how this can be done. Privatisation would completely free the Bank to leverage private capital and become an even more serious provider of corporate finance.
The Green Investment Bank was set up with taxpayer funds in order to provide access to capital for companies with innovative solutions to environmental problems. Britain’s impaired banking system has meant that new, dynamic start-up companies have not been able to get access to adequate funds for capital investment. Diversifying the source of business financing is critical to driving investment and innovation. In the long term, the solutions to our environmental problems will come from private sector innovation and the adaptation of new technologies rather than drip feed inefficient subsidies taken from the pockets of taxpayers.
The Bank has had some success so far and has backed 50 projects which have cumulatively been worth over £2 billion since 2012; the sorts of projects which are receiving funding are quite varied. For example, the latest project to have received funding supplies heat from waste water to reduce unnecessary energy costs. It does seem that the initial cash injection has indeed pulled in other financing with an inflow of a further £6 billion of private capital into such projects.
However, privatisation would let the Bank function freely would remove any concerns over future political interference. State owned banks across the World are always vulnerable to being subject to new regulations which force them to direct financing in certain areas to fund pet projects and extend pork-barrel politics. Furthermore, privatisation would also remove the taxpayer liabilities which come from the bank being state owned as the bill for bad investments has to be picked up by taxpayers. Given that £3.8 billion was pledged for the bank, there is still another £1.8 billion of taxpayers’ money which is due to be forked out.
Letting the bank be owned and run privately would give it the operational freedom and borrowing capabilities to act as a Challenger Bank driving up efficiency across the market and providing capital for innovative businesses. When it releases its results this week, the Bank is expected to have generated a profit. Furthermore, the Business Department makes clear that the Enterprise and Regulatory Reform Act “ensures that the Bank will always have a green purpose regardless of future ownership.” This means that even as a privately owned institution, the Government could ensure (if it wanted) that the Bank maintains its original purpose.
Privatising the Green Investment Bank will reduce the taxpayer liabilities and give it the freedom to act as a properly functioning commercial bank. The Government should go full steam ahead.