Economy and Fair Work Committee

Meeting date: Wednesday, October 5, 2022

Official Report 686KB pdf

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UK Infrastructure Bank Bill

Agenda item 4 is consideration of the legislative consent memorandum for the UK Infrastructure Bank Bill, which is a United Kingdom Government bill. It was introduced in the House of Lords on 11 May 2022 and it seeks to change the law on devolved matters.

I again welcome Ivan McKee, Minister for Business, Trade, Tourism and Enterprise. The minister has been joined by Geoff Owenson, senior policy officer at the Scottish Government, whom I also welcome. I invite the minister to make a brief statement on the Scottish Government’s position. We will then move on to questions from members.

Thank you for the opportunity to speak to you this morning about the legislative consent memorandum for the UK Infrastructure Bank Bill. The bill was lodged at Westminster on 11 May, and the legislative consent memorandum was lodged at the Scottish Parliament on 2 September.

The Scottish Government fully supports the aims of the UK Infrastructure Bank, which are broadly aligned with ours. Investment in infrastructure will be critical to meeting our commitment to a just transition to net zero and it plays an important role in supporting regional and local economic growth. The purpose of the UK Infrastructure Bank Bill is to put the bank on a statutory footing by placing its objectives in legislation. It is intended to create transparency, accountability and governance.

The UK Infrastructure Bank has already made its first investments. It has been operating on a non-statutory basis since it was established in July 2021. We welcome the £22 billion of financing capacity and the advisory services that are being made available to local authorities.

Although our aims are currently aligned, the policy landscape in Scotland differs from that of the rest of the UK, with our infrastructure investment plan, our global capital investment plan and our national strategy for economic transformation providing the framework for our policy priorities. Additionally, Scotland’s climate change plan sets a target date for net zero emissions of all greenhouse gases by 2045, which is five years before the UK Government target. The timeframes and nature of Scotland’s transition to net zero will therefore be different from those of other parts of the UK, and delivery will follow a different approach. We have therefore been seeking assurance that Scotland’s interests will be suitably reflected in the design and delivery of UK Infrastructure Bank activity.

The bill as introduced would allow HM Treasury by regulations made by statutory instrument to amend the UK Infrastructure Bank’s functions or the meaning of “infrastructure”. We appreciate that building in flexibility will allow the UK Infrastructure Bank to be responsive to changing priorities over the longer term without a requirement to update legislation. However, it also creates a future risk of divergence from Scottish Government priorities.

There is a clear overlap between the strategic objectives of the UK Infrastructure Bank and those of the Scottish National Investment Bank, particularly with regard to tackling climate change and supporting regional economic growth. In order to ensure that investments deliver maximum impact, we believe that it is imperative that the two banks are able to work together to identify and support appropriate infrastructure projects in Scotland. It is also crucial that Scottish interests are appropriately represented and that there is an awareness of our economic context.

We are therefore seeking an administrative mechanism such as a memorandum of understanding between the UK Infrastructure Bank and the Scottish National Investment Bank in order to support continued alignment in the approach over the long term. We have also asked for confirmation that there will be no funding implications with respect to the Scottish budget.

Scottish ministers are clear that the UK Infrastructure Bank Bill has merit, but some of the clauses continue to cause constitutional concern. The Cabinet Secretary for Finance and the Economy wrote to the Economic Secretary to the Treasury, John Glen, on 9 June offering in-principle support for a legislative consent motion, but that letter made it clear that legislative consent was contingent on the assurances that I have outlined being provided.

We remain in discussions with the UK Government about the assurances that we have requested. I am hopeful that we may be able to secure those, but we are still to receive a formal response. For now, therefore, I cannot recommend consent to the UK Infrastructure Bank Bill as it stands.

Thank you, minister. You said that the Government wrote to the UK Government on 9 June looking for some assurances and you indicated that there are some on-going discussions. On the proposal for a memorandum of understanding between the UK Infrastructure Bank and the Scottish National Investment Bank, do you think that there is an understanding of the need for that? You mentioned a mechanism “such as a memorandum of understanding”. Are any other solutions being looked at in relation to the relationship between the two banks?

09:45  

A memorandum of understanding to provide alignment between the Scottish National Investment Bank and the UK Infrastructure Bank would be helpful to ensure that that alignment is in place. There have been official-to-official discussions on the matter. I understand that those are progressing in a positive direction and that there is an understanding or a recognition on the UK side that that would be a helpful move. We remain hopeful that that will reach a positive conclusion. As I said, however, we are still in discussion on the detail.

We may get progress there. I understand that there has been a suggestion or request from the Scottish Government that an individual with relevant knowledge of Scotland’s policy and project landscape be included on the board of the investment panels in order to give that level of knowledge and expertise at the centre of decision making. Has there been a positive response to that?

From our perspective, that would make sense. As I said, it is important that Scottish interests and differences in the policy and economic landscape are reflected in the UK Infrastructure Bank, and we have made that request. We are less hopeful that there will be agreement from the UK side in that regard, but we continue to press the case because we believe that that would be a clear mechanism to ensure that Scottish interests were represented.

Are there other organisations that use that model that could be used as an example of why it is important? It is not suggested that the person has to be based in Scotland or be Scottish; what is needed is somebody who has knowledge of the Scottish circumstances.

We have had similar discussions with the UK Government in other areas, but not always with success. We think that it makes sense to have somebody who explicitly has that understanding.

Have there been discussions with the other devolved nations? Will the UK Infrastructure Bank cover Wales and Northern Ireland and are there similar concerns from them?

There is concern from Wales. The Welsh Government has not recommended consent either, on that basis.

You mentioned concerns about Barnett consequentials. Will you expand on those and say what assurances you are looking for?

Clearly, if there is money coming north as a consequence of things that the UK bank does—it has already invested £200 million in broadband as part of its initial investments in Scotland—we would not want that to be caught up in issues around the Barnett formula.

My understanding is that there have been discussions on that at official level and some progress has been made. There is recognition that that issue needs to be addressed. We hope that it will be resolved, but nothing has been clarified definitively yet.

Is this a common concern? Are there other areas where the UK Government is making direct investments or payments into Scotland where there are concerns around Barnett consequentials? I am thinking of levelling up money, green ports and other projects that are happening.

It is certainly an issue in terms of the route that levelling up funds follow. I have not been as close to that, but there has been quite a bit of discussion about green ports and whether they impact Barnett or not. Things are being considered on a case-by-case basis, and that is why we feel that it is important to get some clarification and assurances on this investment.

You have highlighted the three areas and there are on-going discussions with UK Government officials, but what is the timescale? When will we know the outcome of those discussions?

The bill will be taken through in the rest of this year. We obviously want this to be resolved sooner rather than later.

Hello, minister. I want to ask about your request for an individual who has knowledge of Scotland. You are not necessarily asking for a Scottish Government representative; it just needs to be someone who knows about Scotland. Could that be a UK Government person with knowledge of Scotland?

It needs to be somebody who understands Scottish Government policy and the context within which we operate—somebody who understands our national strategy for economic transformation, our net zero activity, our global capital investment plan, our focus on infrastructure, our strategic transport plan and so on, and who is able to make the case as to why and how the infrastructure bank’s investments should be aligned with those priorities.

You are not asking—or maybe you are—to approve who that person is. That person could change, could they not?

Yes.

You are asking for that.

No—we are not asking for that. I meant, “Yes, the person could change.” We are just looking for the investment panels to include somebody who has an understanding of those issues.

Is Wales looking for something similar?

I am not sure whether Wales has made exactly the same case. It can speak for itself.

We are here to talk about Scotland, of course. Is it your understanding that we will get a memorandum of understanding?

There seem to have been positive moves around that. I think that there is recognition that it makes sense. The details need to be worked through, but we hope that that will reach a positive conclusion.

The convener asked about the timescale. Am I correct to say that this Parliament will not be asked to take a view until later in the year or early next year?

If we get the issues resolved to our satisfaction, we will return with another recommendation at some point. That could be later this year or early next year—yes.

It may be that this question should live with the Public Audit Committee, but have there been any discussions about how moneys that are spent by the UK Infrastructure Bank will be actively scrutinised, audited and aligned with the national performance framework, given that the Scottish Government is responsible for outcomes?

That reinforces the point that I made about the importance of the UK Infrastructure Bank having an understanding of the Scottish context. We need to consider the impact of the decisions that it makes on the national performance framework, which is central to the Scottish Government’s priorities and the way that we work.

Officials might want to comment on the audit of the impact of that, but it will depend on what the investment is. I will take the current work on broadband as an example. If that goes as planned, it will have an impact on our broadband roll-out aspirations and contribute to our metrics on delivery of those. We monitor that as a separate piece of work. We can check and come back to you on the specifics.

I highlight the issue because of the suggestions of an MOU and a representative who will consider the proactive, up-front aspirations in various areas. However, I am also thinking about the reactive scrutiny element in relation to value for public money. Those are the two sides to the coin. However, you can come back to us on that.

I have a final question on the proposed memorandum of understanding to create alignment between the UK Infrastructure Bank and the Scottish National Investment Bank. At the moment, the objectives for those two banks and institutions are quite similar. For example, they are both concerned with net zero ambitions. However, can you foresee a position where they could start to diverge and have different priorities? Is preventing that one of the purposes of having a memorandum of understanding? Why is it important to have that?

Divergence of priorities is an issue, and that is one reason why we want to have better processes for alignment in order to guard against that in the future. A memorandum of understanding will also help to ensure that the two institutions work together where it makes sense for them to do so and do not bump into each other, for want of a better phrase, when it comes to support for specific projects. When a project is looking for funding, it can talk to a number of institutions or investors. If the two banks understand each other and how they are operating in that space, it will make the process a bit more streamlined and efficient.

Thank you. That brings our evidence session on the LCM to a close. I will suspend the meeting briefly to allow a change of witnesses.

09:54 Meeting suspended.  

09:55 On resuming—