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A Labour government would seek to unlock at least £10bn a year of extra money from banks and insurers to invest in Britain’s clean energy industry, shadow City minister Tulip Siddiq has revealed.
Siddiq told the Financial Times that Labour is exploring how to use the covered bond market to channel more money into wind farms, hydrogen and other green infrastructure projects.
Covered bonds are a type of financial security usually backed by a pool of mortgages but with an extra guarantee from the issuing bank.
Under the Labour proposals, ministers would ask the Financial Conduct Authority to change the rules governing the sector to include green infrastructure for the first time — in line with proposals in Denmark.
Labour’s new plan is part of a broader push by the party to make Britain a clean energy “superpower” by 2030.
It comes as the Climate Change Committee, a government watchdog, warned that the UK was no longer a leader on climate issues, describing efforts to take action on climate change as “worryingly slow”.
“Something has got to be done,” said Siddiq, who is expected to announce Labour’s plans on Thursday at the trade body CityUK’s conference. “Our partnership with the City is crucial for the economy . . . They’re desperate for the green agenda actually, they just don’t have the means to do it, they don’t have the confidence to invest, and I sense a feeling of despair from some stakeholders.”
Siddiq said green covered bonds would provide banks and investors with a lower cost and secure way of financing established energy-related infrastructure projects.
The party is already in talks with the FCA about how the new system would work in practice.
Covered bonds tend to have higher credit ratings and lower funding costs than unsecured debt, making it cheaper for banks to access longer-term finance, which can be lent to clean energy projects.
Under the Labour proposals, institutions such as insurers would be able to buy these bonds to invest in sustainable projects knowing they are backed by assets.
Some countries in the EU have already issued “green covered bonds” but these tend to be based on mortgages on “green” properties rather than lending on renewable energy projects.
Mike Eakins, chief investment officer of Phoenix Group, the insurance company, said it is aiming to invest up to £40bn in sustainable assets, adding that a green covered bond market would help them access green investments.
Siddiq criticised the government for dragging its feet on green initiatives. She pointed to Solvency II reform, which would allow insurers to invest in a broader range of assets such as green finance. “The slowness is really frustrating, it’s caused a lot of uncertainty for business,” she said. “Is [the money it will unlock] going to be invested in Britain? Or is it going to be sent overseas, for example, as a windfall for shareholders?”
The mortgage market and escalating cost of borrowing is another source of concern for Siddiq, but she defended the banks. “It does feel like some of the Tories . . . were implying it’s the fault of the banks. The banks are doing the best they can. They have a situation where the Tories crashed the economy . . . I feel it’s wrong to pin the fault on the banks.”
Lenders have come under scrutiny for failing to pay out a similar amount to savers, preserving their profit margins. “The government should take some responsibility,” Siddiq said. “I’m defending the banks here.”
She also had reservations over the “Edinburgh reforms” — government plans announced last year to loosen rules around financial services, which included relaxing the ringfencing regime. Ringfencing was introduced in response to the last financial crisis to protect taxpayers from having to bail out banks again.
“My personal view is ringfencing is there for a reason. It was there to make life safer . . . I don’t feel this is the time to mess around with it,” Siddiq said.
