The UK’s new national infrastructure bank is likely to make little impact on the quest to reach net zero greenhouse gas emissions, and will fail to plug the gap left by EU investments in the UK, Labour has said.
Rishi Sunak, the chancellor of the exchequer, announced £12bn of public funding for the new bank in the budget on Wednesday, with another £10bn in government guarantees.
The Office of Budget Responsibility found in its economic and fiscal outlook that the new bank would be likely to provide £1.5bn a year in investment and would not increase its forecast for the UK’s economic growth. A spokesperson told the Guardian it had not examined whether the bank would help the UK to meet its net zero targets.
Labour said the bank was much smaller than similar banks in Germany and other countries, and contrasted its capital with the £5bn a year the UK gained from the European Investment Bank before Brexit. Labour also called for the bank to be given a “watertight net zero mandate” to ensure that all its investments work to reduce greenhouse gas emissions. Without a strong mandate, the bank could invest in high-carbon activities.
Ed Miliband, the shadow business secretary, said: “We needed climate leadership from government but we got climate failure. Far from transformative investment in infrastructure, the government’s new bank won’t even plug the hole left by the European Investment Bank and will see us trailing way behind countries like Germany.”
The government sold off the previous Green Investment Bank, launched in 2012 with a remit to invest public funds in low-carbon projects, in 2017, in a process later criticised for delivering poor value for money.
A spokesperson for the Treasury said: “The UK infrastructure bank shows this government’s commitment to levelling up and delivering world-class infrastructure to every corner of the UK. It will have a more targeted remit than the European Investment Bank in the UK and better focus on government priorities, including the net zero target and boosting local growth.”
Sam Alvis, of the Green Alliance thinktank, said the bank would have a positive but limited impact. “The Treasury is moving in a greener direction, but very slowly. There is good initial funding for the national infrastructure bank, with the potential for creating thousands of jobs, but it falls well short of transformational funding. Without a clear net zero and nature mandate, the bank’s money could in theory go to roads, coalmines or incinerators rather than genuinely green jobs.”
Green campaigners are also concerned that the government’s “super deduction” announced in the budget could encourage high-carbon investment. Under the plans, companies will be able to claim tax relief on 130% of investments in equipment and other productivity measures. But the government has so far set no limits that would preclude companies from using the tax break to invest in fossil fuels or high-carbon activities.
Kemi Badenoch, a junior Treasury minister, rejected the possibility of restrictions on the use of the scheme when questioned by MPs at a select committee hearing on Thursday.
She said: “Those investments are going to businesses of all sizes. We do not have a way of saying this investment is good or not good for net zero … We are focused on jobs, in the most sustainable way possible, but we are not going to strangle economic recovery with regulation that’s not necessary.”
Caroline Lucas, the Green party MP, said: “It is shocking that under the super deduction scheme, the government could be giving huge tax breaks to companies to invest in fossil fuel projects which take us further away from our chances of reaching climate targets. Making sure investments are aligned with climate and nature targets would not ‘strangle our economic recovery’. If the economic recovery is not green, it’s simply not sustainable.”
Hannah Martin, co-executive director of Green New Deal UK, a pressure group, said: “A super deduction could be tailored to boost the green industries of tomorrow, helping grow the manufacturing base required to deliver electric vehicles, wind turbines and battery and storage solutions up and down the UK. Without green requirements, this tax deduction could de-risk the expansion of fossil fuel infrastructure, locking-in destructive climate change with the taxpayer footing the bill.”