That Green Investment Bank thing

You what?

The GIB was a Conservative and LibDem manifesto pledge, and a coalition pledge. MPs on the environment audit committee made plain that only an independent bank that can borrow and issue bonds would be equal to the scale of the challenge. But Treasury officials have put up a fierce fight, not wanting to cede its control over government borrowing and adamant that allowing GIB borrowing is impossible, as it would add to the national debt. (The latter is an infuriating quirk of accountancy rules – GIB borrowing would not increase the UK\’s deficit – all money going out would be balanced by money coming in – but would count towards the national debt.)

What the hell is that supposed to mean? What misunderstanding of finance underpins this?

If the government borrows money the national debt rises. If a government owned body borrows money the national debt rises. If the government guarantees new debt then the national debt rises.

Because, you see, the taxpayers are on the hook to repay this debt: thus we add the new debt to the national debt which is, by definition, the amount of debt that the taxpayers are on the hook to repay.

Whether it gets added to the deficit is irrelevant.

And no, it doesn\’t matter what you spend the money raised through that debt on. Windmills, solar panels, council houses or current pensions: it\’s new debt, guaranteed by the taxpayer,  and so is part of the national debt.

Having abandoned a very sensible proposal to switch a per-passenger to a per-plane tax, discouraging empty flights, the government is now set to abandon a planned rise in the passenger tax.

The EU won\’t allow a per plane tax and APD already covers the externalities of flying.

If this is the level of \”green\” reporting that we\’re going to get on the budget…..

4 thoughts on “That Green Investment Bank thing”

  1. I hadn’t realised the per-plane tax had been scrapped – what is the EU’s reason for disallowing it?

  2. gasman – it is being blamed on the EU but there is no EU rule that would disallow it. Now it is being blamed on the “Chicago convention” but that is another fallacy. My guess is that BA lobbied them to prevent it.

  3. I don’t think we (or the Treasury) know enough about the GIB to know how much of its assets ad liabilities will (or should) be on the government’s books. It could end up being an equity fund that co-invests in ventures funded by non-recourse debt in which case very little would show up as part of the national debt or similar.

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