Civil servants have been urged to consider the impact of state privatisations on a range of fiscal measures after a report concluded that the government’s priority to get the Green Investment Bank off the public sector balance sheet posed a risk to value for money in the sale process.
The National Audit Office reviewed the sale of the bank led by the Department for Business, Innovation & Skills (now the Department for Business, Energy & Industrial Strategy) to a consortium led by infrastructure group Macquarie Group for £1.6bn, a £186m premium on the taxpayer investment in the firm.
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Auditors concluded that the decision in June 2015 to sell all or part of the GIB, which had been founded in October 2012 to “accelerate the UK’s transition to a greener, stronger economy”, was made with two objectives in mind: securing value for money, and declassifying GIB from the public sector balance sheet to reduce public debt. The department also told auditors it wanted to allow GIB, which as of March 2017 had invested in 100 projects having committed up to £3.4bn of its own capital and attracted £8.6bn of private capital, to raise its own finance.
The report highlighted that the sale process, which was run by the Treasury’s UK Government Investments arm, had obtained a premium to government's investment. But, lasting 18 months with the final deal being completed in August, the process was more than two times longer than expected.
According to the review, the government made a decision in April 2017 to sell in full, rather than pursue its phased sale option which it forecast could have raised an additional £63m. This was because the government wanted to transfer the construction and market risks of holding to the buyer in order to remove the asset from the public sector balance sheet.
However, given the possible reduction in the sale value, the NAO said civil servants must “consider the impact of sales on a range of fiscal measures” when selling public assets. “Officials should assess explicitly by how much declassification could reduce the potential value for money of a sale, and make this impact clear to decision-makers,” the report concluded.
“If a sale option does not meet all of government’s objectives but is likely to achieve a higher value than other shortlisted options, a basic estimate should be made of the price achievable. This will allow policy makers to better understand any value for money trade-offs between sale options for a given set of objectives.”
It also called on the government to set sale criteria early in the process, including an explicit statement of when a “no sale” option will be preferred.
During the sales process, BIS, on advice from UKGI, concluded that the risks of a phased sale outweighed the potential benefits of a higher price when compared with the sale to Macquarie, and “effectively took a lower sale price to avoid the risks of waiting”, the report concluded.
Auditor general Amyas Morse said the overall value for money of the Green Investment Bank policy intervention will only be seen over time. Following the sale, GIB continues as an institution with private funding and green commitments, but Macquarie has no legal obligation to ensure GIB will keep focusing on its green objectives and be an "enduring institution" for years to come, the review noted.
“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,” Morse said.