Recommendations & Conclusions
12 items
1
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
On the basis of a Report by the Comptroller and Auditor General, we took evidence from HM Treasury (the Treasury) and the UK Infrastructure Bank (the Bank) on the creation of the Bank.1
Government response AI summary
The government states that the decision to establish the UK Infrastructure Bank (the Bank) at pace was prioritised to ensure that the institution could begin to deliver on its objectives as soon as possible, supporting investment in infrastructure throughout the UK and helping the government …
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HM Treasury
8
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
The Treasury intends the Bank to be a “long-lasting institution” providing financing for infrastructure projects well into the future.21 This label echoes the Green Investment Bank’s status as an “enduring institution,” which was subsequently sold to the private sector five years after its creation. In our 2017 report The sale …
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The Treasury intends the Bank to be a “long-lasting institution” providing financing for infrastructure projects well into the future.21 This label echoes the Green Investment Bank’s status as an “enduring institution,” which was subsequently sold to the private sector five years after its creation. In our 2017 report The sale of the Green Investment Bank we found that the term ‘enduring institution’ had little meaning in practice, and insufficient protections were put in place to prevent it from being sold.22
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Government response AI summary
The Treasury and the Bank will report to Parliament six-monthly on the roll- out of the Bank, including updates on recruitment, deals made and progress towards the operation of their own internal systems, and the Treasury will update the Framework Document and Strategic Steer to …
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HM Treasury
9
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
The Treasury provided the Bank with £22 billion in capital to cover the first five years of operation; beyond then, it expects the Bank to be self-financing. We asked whether this was a realistic target. The Bank told us it expects to be profitable within five years, with its income …
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The Treasury provided the Bank with £22 billion in capital to cover the first five years of operation; beyond then, it expects the Bank to be self-financing. We asked whether this was a realistic target. The Bank told us it expects to be profitable within five years, with its income exceeding the £70 million to £80 million a year cost of running the Bank.23 However, if the returns from current investments are needed to finance future deals, this would be “more challenging” to deliver within five years. The Bank told us that infrastructure financing is typically much longer dated that five years. When asked whether it would provide additional financing to the Bank after five years, the Treasury told us that if the Bank was additionally investing and meeting its targets,24 When challenged on whether the Bank would be sold in the future if it proved to be profitable, the Treasury told us that profitability wouldn’t be the only factor in any decision, and that the Bank’s contributions to major government goals such as working towards net-zero, and putting the Bank in statutory legislation, would make it “more difficult to sell”.25
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Government response AI summary
The Treasury and the Bank will report to Parliament six-monthly on the roll- out of the Bank, including updates on recruitment, deals made and progress towards the operation of their own internal systems, and the Treasury will update the Framework Document and Strategic Steer to …
Read full response →
HM Treasury
12
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
The costs associated with setting-up the Bank as a separate institution, such as procuring new IT systems, make it a more costly option than alternatives such as extending the remit of existing bodies.31 The Bank told us it is working towards a “triple bottom line”, consisting of its two policy …
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The costs associated with setting-up the Bank as a separate institution, such as procuring new IT systems, make it a more costly option than alternatives such as extending the remit of existing bodies.31 The Bank told us it is working towards a “triple bottom line”, consisting of its two policy objectives—helping to tackle climate change and aiding regional growth; alongside two financial objectives—generating a financial return and “crowding-in” additional private investment.32 The Treasury set the Bank a target to earn an annual return on equity between 2.5% and 4% by 2025–26. It also told us that it has set the Bank a target to attract additional private finance of £18 billion.33 The Bank told us that “to be additional every time we invest”, that “additionality is a judgement” and that there are many ways the Bank can be additional. The Bank explained that it can be additional by filling financing gaps or taking risks, including policy risk, that the private sector is unwilling to accept. The Treasury told us that “but it is not there just to get as much money out the door as it can. It is there to do the things that are truly additional.” The Bank told us that it “can look to be additional to all those market moments by working with the government departments, understanding the private market appetite and then figuring out what we think our intervention is”, but that it has “not got there yet”.34
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Government response AI summary
The Treasury will update the Framework Document and Strategic Steer to ensure that they reflect the new statutory footing for the Bank, and the Treasury and the Bank will continue to work closely together over the coming years to ensure that as the Bank becomes …
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HM Treasury
13
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
The Bank told us it is currently developing several Key Performance Indicators (KPIs) to measure its success. For its two policy objectives, these include carbon emissions abated, jobs created and productivity. The Bank told us it expects to abate 2 million tonnes of CO2 and create or support 3,900 jobs …
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The Bank told us it is currently developing several Key Performance Indicators (KPIs) to measure its success. For its two policy objectives, these include carbon emissions abated, jobs created and productivity. The Bank told us it expects to abate 2 million tonnes of CO2 and create or support 3,900 jobs from the 10 deals it has made so far. The Bank still does not have targets or other success criteria for these KPIs. The Bank has yet to establish ways of measuring its contribution to productivity.35 The Bank added that it was developing other potential impact metrics and that these metrics will be reported, on an aggregate basis, in the Bank’s annual report. The Bank has started to develop ways of measuring wider aspects of additionality, which will include providing a narrative for each transaction it does.36
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Government response AI summary
The Bank will work with the Treasury and UKGI to ensure that future metrics are clear and stretching to ensure the Bank continues to deliver against its strategic objectives, and expects to publish a further document setting out its Impact Framework in the summer of …
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HM Treasury
15
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
The Bank has developed arrangements for reporting performance and emerging issues to its shareholder (the Treasury), through the shareholder representative (UKGI). However, the Committee has seen other examples in government where similar arrangements apply and where things have gone wrong long before Parliament has received any warning.39 In addition, neither …
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The Bank has developed arrangements for reporting performance and emerging issues to its shareholder (the Treasury), through the shareholder representative (UKGI). However, the Committee has seen other examples in government where similar arrangements apply and where things have gone wrong long before Parliament has received any warning.39 In addition, neither the Treasury nor the Bank have plans to share UKGI reports more widely with Parliament. The Treasury confirmed the importance of notifying Parliament of an emerging problem, including where UKGI was involved. It acknowledged that there are areas where Managing Public Money rules apply but notifications to Parliament “are a bit patchier than we would like”. Treasury told us that there is an “improvement process” going on, in relation to UKGI.40 39 Q 18 40 Qq 16–19 14 The Creation of the UK Infrastructure Bank 2 Building out the Bank’s operations Investment Strategy
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Government response AI summary
The Treasury's Shareholder Representative on the UKIB Board is UKGI who are managed independently but are wholly owned by HM Treasury, and the Treasury are responsible for oversight of UKGI and reporting on their performance to Parliament.
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HM Treasury
18
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
The Bank’s 10 deals to date have focused on clean energy (five) and digital (four) projects.49 These deals have generally been in areas of technology and risk where projects are relatively common, for example broadband and solar power farms.50 The Treasury told us that the Bank “needs to take a …
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The Bank’s 10 deals to date have focused on clean energy (five) and digital (four) projects.49 These deals have generally been in areas of technology and risk where projects are relatively common, for example broadband and solar power farms.50 The Treasury told us that the Bank “needs to take a judgment going forward as to the areas in which the private sector might not be able to invest without the encouragement of the bank”.51 The Bank told us it has a small banking team of 15 to 18 people and will need to increase this to around 70 people to cover the market and the investor base.52 41 Q 37 42 Q 42 43 Q 47 44 Q 10 45 Q 24 46 Q 36 47 Qq 24, 43 48 Q 43 49 Q 10 50 Correspondence from the Chief Executive Officer of the Infrastructure Bank to the Chair, 1 November 2022 51 Q 24 52 Q 7 The Creation of the UK Infrastructure Bank 15 The Bank’s advisory function
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Government response AI summary
A lead point of contact within the Bank has been assigned for departments that are most critical to delivering our mission, each of whom has regular engagement with their department to understand the government’s strategic priorities and help originate and assess investment opportunities.
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HM Treasury
19
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
The Bank’s functions include providing an expert advisory service to help local authorities and other project sponsors to develop and finance infrastructure projects.53 The Bank told us that establishing this service is not straightforward, compared to its local authority lending function which is already operational. The Bank has three advisory …
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The Bank’s functions include providing an expert advisory service to help local authorities and other project sponsors to develop and finance infrastructure projects.53 The Bank told us that establishing this service is not straightforward, compared to its local authority lending function which is already operational. The Bank has three advisory function pilot projects up and running with some larger local authorities—Manchester, West Yorkshire, and Bristol—covering zero emission buses and heat networks.54
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Government response AI summary
The government and the Bank welcome the Committee’s recommendation and will provide information later in Spring 2023 after completion of the pilot projects. The Bank will share insights from pilots and engagement with local authorities and is already engaged with a range of local authorities …
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HM Treasury
20
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
The Bank told us that in developing the pilots, it wanted to try to understand and define problems that it thinks will be most common across the local authority landscape, such as financing heat networks, zero-emission buses and social housing retrofit projects. The Bank will then find the most capable …
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The Bank told us that in developing the pilots, it wanted to try to understand and define problems that it thinks will be most common across the local authority landscape, such as financing heat networks, zero-emission buses and social housing retrofit projects. The Bank will then find the most capable local authorities already working on these problems and work with them to develop a proposition that it could then “replicate across other local authorities”.55 This approach has led the Bank to focus its three pilots on larger local authorities. We asked the Bank why it was not giving advice to smaller authorities. The Bank said it did not mean to suggest it was restricting access to the smaller authorities, but “the reality is that we do not and will not have the resource to cover them effectively”. It told us that it has started with larger authorities because it thinks it will learn lessons there quickest, and the challenge for the Bank would be “to figure out how to get that to the smaller authorities in a way that is usable and useful to them.”56
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Government response AI summary
The government and the Bank welcome the Committee’s recommendation and will provide information later in Spring 2023 after completion of the pilot projects. The Bank will share insights from pilots and engagement with local authorities and is already engaged with a range of local authorities …
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HM Treasury
21
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
The Bank has not reached a decision on how it will fund its advisory function. Decisions on funding will be important given the Bank’s expectation that demand will be significant, and that it will not have the resource to cover all requests effectively.57 The Bank told us it has considered …
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The Bank has not reached a decision on how it will fund its advisory function. Decisions on funding will be important given the Bank’s expectation that demand will be significant, and that it will not have the resource to cover all requests effectively.57 The Bank told us it has considered models for charging local authorities to use the advisory service but as things stand, it does not intend to charge directly. It told us this was because local authorities are already resource-constrained, and it is more likely that the Bank’s interventions will be successful if it can help local authorities as “cheaply and efficiently” as possible. The Bank indicated that the revenue generated from its local authority lending will probably end up paying for the advisory function.58 Engagement with government departments
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Government response AI summary
The Bank will share the key insights developed through the pilots and its engagement with a range of local authorities to date in Spring 2023, and is already engaged with a range of local authorities for its next wave of advisory work, to be announced …
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HM Treasury
22
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
The activities and policy objectives of the Bank overlap with departments across government. For example, the Department for Levelling Up, Housing and Communities (DLUHC) has policy responsibilities in relation to local government and to regional and local economic growth.59 The Treasury expects the Bank to set out how it intends …
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The activities and policy objectives of the Bank overlap with departments across government. For example, the Department for Levelling Up, Housing and Communities (DLUHC) has policy responsibilities in relation to local government and to regional and local economic growth.59 The Treasury expects the Bank to set out how it intends to work with stakeholders, including policy departments across government, as part of the Framework Document setting out the formal arrangements between Treasury and the Bank.60 53 C&AG’s Report para 1.9 54 Q 39 55 Q 41 56 Qq 41, 53 57 Q 53, C&AG’s Report para 3.5 58 Qq 50–51 59 Q 91, C&AG’s Report Figure 3 60 C&AG’s Report para 3.7 16 The Creation of the UK Infrastructure Bank
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Government response AI summary
A lead point of contact within the Bank has been assigned for departments that are most critical to delivering our mission, each of whom has regular engagement with their department to understand the government’s strategic priorities and help originate and assess investment opportunities.
Read full response →
HM Treasury
23
Conclusion
Thirty-Fourth Report - The Creation of …
Acknowledged
We asked whether the Bank had mechanisms in place to manage pressures from competing government departments looking for the Bank to invest in their policy areas. The Bank told us that it is operationally independent to make its own decisions, with an Accounting Officer and a Board as part of …
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We asked whether the Bank had mechanisms in place to manage pressures from competing government departments looking for the Bank to invest in their policy areas. The Bank told us that it is operationally independent to make its own decisions, with an Accounting Officer and a Board as part of that independence.61 The Bank told us it has “very active discussions” with the Department for Business, Energy and Industrial Strategy because its portfolio overlaps with that of the Bank. The Bank also described working with DLUHC, the Department for Transport and the Department for Environment, Food and Rural Affairs (Defra). However, the Bank’s Accounting Officer told us he had not yet established personal connections with DLUHC or Defra, 16 months into the Bank’s operations.62 61 Q 92 62 Q 91 The Creation of the UK Infrastructure Bank 17
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Government response AI summary
A lead point of contact within the Bank has been assigned for departments that are most critical to delivering our mission, each of whom has regular engagement with their department to understand the government’s strategic priorities and help originate and assess investment opportunities.
Read full response →
HM Treasury