Dismay at 'watered down' Green Bank plans

Construction industry figures have voiced concern after Chris Huhne let slip plans for a Green Investment Bank could be scaled back to a green bond fund.

The green bank plan was a key pledge in the conservative election manifesto, aimed at raising private funds for green infrastructure projects.

But in an interview with the Guardian, energy secretary Chris Huhne hinted plans were being scaled back because the government’s priority was to restore credibility in government finances.

Huhne said there were “phasing issues” with the scheme amid reports that the DECC is at loggerheads with the Treasury, which reportedly wants to water down the plan.

A fund would be unable to raise finance by issuing “green bonds” to back green projects and instead would be limited to investing in products offered by the market.

The Treasury is reportedly concerned about the prospect of taking on billions of pounds of liabilities to found a green investment bank at a time of austerity.

The auditor Ernst & Young has said that the bank would need £4-6bn of capital to be effective. Without a bank, only about a fifth of the £450bn investment it estimates is required over the next 15 years for the UK to meet its targets on reducing carbon emissions would be made.

George Osborne announced as part of the Comprehensive Spending Review that £1bn of funds would be set aside for 2013/14 to set up the bank, but he said he hoped “much more” would be raised for the bank from “future government asset sales” and the private sector.

Paul King, chief executive of the UK Green Building Council, said: “This is extremely disappointing news for the wider goal of creating a low carbon economy in the UK. I fear this is a short-sighted approach for Government to take given the urgency and scale of the task ahead.  
 
“A well financed dynamic Green Investment Bank would allow the UK to leverage the necessary private sector finance to meet both climate change targets and boost job creation in the construction sector.”

A spokesperson for the DECC said the department would not comment on speculation about the design at this stage. “The government is working on the design, which will be completed in 2011. We expect the body to be operational by 2012.”