Oliver Letwin could break deadlock over green investment bank
Minister of state is proposing to set up the beleaguered bank 'off balance sheet', allowing it to trade in far bigger sums
One of David Cameron's closest cabinet colleagues is actively considering privatising the much-vaunted green investment bank (GIB) in order to allow it to trade in much bigger sums.
The set-up of the bank has been the subject of intense inter-Whitehall wrangling as Conservatives and Liberal Democrats battle with Treasury officials to allow them to fulfill a commitment made in both their manifestos. Lib Dem minister and energy secretary, Chris Huhne, wants the GIB to operate as a fully fledged bank that is able to issue bonds and underwrite loans, rather than just a fund, which would be more limited and unable to release the required capital. The Treasury is reluctant to add billions of pounds of liabilities to the UK's public borrowing sheet at a time when the UK government is trying to reduce the deficit and wants the GIB to operate as a fund.
Vince Cable's Department of Business (BIS) is now taking the lead on the project and remains optimistic it is close to a deal to make the institution a public bank, with strict lending limits imposed by the Treasury.
But it has now emerged that avowed environmentalist and minister of state Oliver Letwin is looking into breaking the impasse by allowing the bank to be set up "off balance sheet". This would see private institutions contribute funds alongside some government money. It would allow the GIB to tr! ade in f ar larger sums.
The government has already pledged 1bn in start-up funds and is now expected to announce initial capitalisation of "more than double that", raised through asset sales, according to ministerial aides.
Setting up the bank would help the UK fill the invesment gap in renewable technology. Recently a report by Ernst & Young said the bank would have to be able to lend up to the value of 450bn if the UK were to develop the alternative technologies to meet its low carbon energy requirements by the year 2025. At the moment, Ernst & Young says there is only 50bn-80bn of upfront investment available, meaning there is at least a 370bn shortfall in funds.
The Department for Energy and Climate Change and BIS, run by Huhne and Cable respectively, are both "confident" that they can reach agreement on fixed lending and borrowing. Letwin and Osborne are reported to be increasingly minded to take it off balance sheet.
A ministerial source said: "If you can agree strict lending and borrowing rates then it doesn't have to be off balance sheet but Letwin is looking at making it unconstrained because then it would be able to borrow more."
GIB campaigners would be disappointed by this, believing that, while it gets around the truculence of Treasury officials, it carries with it greater risk. If the GIB were to be private, they fear it would have to "satisfy private shareholders".
Campaigners for a public GIB say another advantage to it being public rather than private would be that loans would have a government guarantee precisely the element the Treasurys fear but, according to campaigner Ed Matthew, director of Transform UK, would "reduce risk for the projects it invests in and allows it to raise the cheapest possible finance."
There are also fears that a private GIB would be less accountable to the public.
Cable will be in front of the environmental audit committee of MPs to discuss th! e GIB to morrow. A decision is expected imminently.
This article was amended on 1 February to say 1bn of funds instead of 1m
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