George Osborne awarded the planned Green Investment Bank (GIB) more seed-corn funding in the Budget, but refused to allow it to borrow money before 2015, potentially jeopardising investment in low-carbon projects.
The chancellor said that the GIB would “support low-carbon investment where the returns are too long term or too risky for the market”, and he promised that its initial funding would be £3 billion, rather than the £1 billion announced last year.
But business groups and investors said the bank, which is now due to become operational in September 2012, could be hampered by the chancellor’s decision not to allow it to borrow until the public deficit is sharply reduced, by 2015 at the earliest.
“The additional £2 billion is welcome, but the bank should have powers to borrow from the outset to give investors confidence,” said CBI director-general John Cridland.
His remarks were echoed by Andrew Raingold, executive director at the Aldersgate Group (AG), which had demanded that the GIB receive up to £6 billion in initial funding.
Having the power to borrow from day one would put the bank at the heart of the chancellor’s plan for growth and ensure competitors in key green industries do not overtake the UK, he said.
Osborne said he hopes the GIB will raise £15 billion from the private sector, but the UK Sustainable Investment and Finance Association is concerned that because borrowing will not be allowed for at least another four years, investors may be reluctant to provide the bank with additional financial support.
“The delay and uncertainty about when the bank can start borrowing does not send the right signal to pension funds and investment managers,” commented chief executive Penny Shepherd.
Others, however, said that delaying the borrowing capability could mean that funds will be available when they will be most needed.
“By allowing the GIB to borrow mid-decade, its lending can ramp up quickly when the country’s low-carbon capital requirements reach a critical point,” said James Cameron, vice-chair at Climate Change Capital.
Dr Gordon Edge, director of policy at RenewableUK, acknowledged this, telling the AG’s post-Budget event that if operators know additional money will eventually be available through the GIB, they can prepare for that.
“Certainly when it comes to off shore wind, the real rampup in demand for that cash is going to be post-2015,” he said.
