Isra-Mart srl:Green Investment Bank turf war rumbles on

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Business leaders have welcomed government plans to launch the new institution, but fears remain that the Treasury is trying to limit its ability to raise private finance.

The government may have announced in last week's Comprehensive Spending Review that it is to move forward with plans for a Green Investment Bank, but green business groups remain concerned that the Treasury is planning to clip the wings of the new institution.

George Osborne announced last week that the new bank would be backed by £1bn of taxpayers' money and additional funds raised from government asset sales and private finance.

The decision was hailed as a major victory for the Department of Energy and Climate Change (DECC), which reportedly faced opposition to the plan from officials at the Treasury who would have preferred to see the bank operate as an investment fund stripped of the ability to raise private finance.

However, fears are now mounting that the bank could still be left under-financed and that the Treasury is attempting to limit the institutions ability to raise private finance.

Speaking at an Environmental Audit Committee hearing earlier this week, Philip Wolfe, director of the Aldersgate Group think tank, said that the £1bn of funding currently pledged fell well short of the £4bn to £6bn of capitalisation investors felt was necessary to attract private backers to the bank.

"£1bn alone without being topped up from any additional proceeds is in danger of being at a level where it can scarcely make enough difference to have the impact that is intended," he said.

His comments were echoed by Chris Hewett, of think tank Green Alliance, who told the committee hearing that the bank's effectiveness could only be maximised if it is set up as a genuinely independent institution with the ability to raise private funding.

Speaking to BusinessGreen.com, Rob Wylie, partner at clean tech venture capital specialists WHEB Venture Partners, said the new bank would also have to draw on experts with experience of investment banking. "If you are going to call it a bank, you need a banker in charge, not a civil servant," he said.

However, sources within Whitehall have indicated that Treasury officials are continuing to resist calls for the bank to issue green bonds, arguing that only the Treasury should be allowed to issue government-backed bonds. Ministers are also said to be concerned that any bonds issued by the new bank would appear on the government's accounts, adding to the national debt.

Negotiations between the Treasury, DECC and the Department of Business, Innovation and Skills about the future of the bank are on-going and could take several months to be resolved. As a result, the government is not expecting the bank to be up-and-running until 2013.

One green business insider said that it was critical to the success of the low-carbon economy that the bank be granted extensive powers to raise private finance.

"There are still concerns about whether it will be a real bank that is able to borrow and issue bonds," he said. "There is a battle [with the Treasury] that still needs to be won and it is absolutely essential for the success of the bank that it is won."

Speaking to BusinessGreen.com last week, Energy and Climate Change Secretary Chris Huhne indicated that he was willing to make the case for an independent bank and would resist any efforts to set the new bank up as a glorified investment fund.

"The Treasury has had quite a lot of experience of banks in the past few years and it ought to be able to know that a bank is something that borrows money and lends money," he said. "I think the Treasury is very well aware of the definition of a bank. If we were to announce that we were to go ahead with a bank that was not a bank, a lot of people in the city would spot that pretty rapidly."