Government short-changed on chaotic Green Investment Bank sale – NAO

The Green Investment Bank was sold too cheaply and would have been worth more if the government had waited for a sale, according to a report by the National Audit Office (NAO).

What was then the Department for Business, Innovation and Skills, decided to sell part of or all of the bank in June 2015, just three year after the public investment body was established to stimulate investment in green infrastructure. The sale process was launched in March 2016, with the Environmental Audit Committee (EAC) warning then that the sale process had been rushed.

Now the bank, since renamed as the Green Investment Group, has been purchased by Australian investment firm Macquarie Group, an organisation with a history of asset stripping. The sale went through in August, with Macquarie paying the government £1.6 billion, excluding a stake in assets retained by the government, which were valued at £132 million.

However, the NAO report suggests that the sale process did not go as planned: achieving ‘limited competitive tension’ and taking 18 months - more than two times longer than expected.

The government had originally planned to complete a ‘phased sale’, meaning the government would retain ownership of the bank until 2018, when more of the projects currently under construction had begun operation, a move that the government estimates could have raised an additional £63 million, though the NAO suggests ‘it could have raised considerably more or less than this depending on how successfully assets moved from construction to operation’.

Because of the protracted sale, however, this approach was abandoned in April 2017.

In addition to this, the NAO says that the delay and uncertainty surrounding the sale ‘affected the GIB operationally’ and led to the departures of a number of key staff, limiting its ability to invest during the sale period.

A further delay to the sale, as the decision to sell to Macquarie was challenged at the High Court by Sustainable Development Capital, a rival bidder for the bank, meant that legal fees further damaged the bank’s operations.

“Ultimately the value for money of the Green Investment Bank intervention will only be seen over time,” said Amyas Morse, Head of the National Audit Office. “A key test will be whether the government needs to intervene again in this way to stimulate growth in the green economy and to help it achieve its climate change commitments.”

As of March 2017 the GIB had invested in 100 projects, committing up to £3.4 billion of its own capital, and had attracted £8.6 billion of private capital, equating to around £2.50 for every £1 invested.  

Macquarie has made public commitments to invest £3 billion through the bank over the next three years, but, as the NAO points out, this is not legally binding and the government’s commitments on climate change will require investment past 2020.

‘Simply shocking’

The report has received understandable criticism from politicians concerned with the environment and the bank itself.

“It’s simply shocking that the government wasted millions of pounds by not going ahead with the phased sale option,” said Caroline Lucas, Co-Leader of the Green Party, who also sits on the Environmental Audit Committee. "Not only was the sale of the Green Investment Bank wrong in principle, but the whole process was carried out in a way that was hugely disappointing.

"Despite its clear success the Green Investment Bank was hived off to private equity firm, whose non-binding commitment to tackling climate change for just the next three years will do little to assuage people's concerns.”

Liberal Democrat Leader Vince Cable, who, as Business Secretary for the Coalition Government established the GIB, added: “Sadly, the mishandled sale process has created uncertainty, particularly through key staff losses, at a time when the GIB should have been growing and helping the UK hit international carbon reduction targets by fostering the green economy.”

The National Audit Office report is available to download on the NAO’s website.