This article was first published in Platform’s Carbon Web newsletter, issue 11.
Between October 2008 and March 2009, the Treasury pumped £33 billion of public money into ‘bailing out’ the Royal Bank of Scotland, to the point where the bank is now 90% owned by the UK taxpayer. Yet the government continues to insist that it will not “nationalise” RBS in the sense of playing an active role in how the bank is run but instead will take an “arm’s length” approach.
To this end, the government has set up UK Financial Investments Ltd (UKFI) to manage its stake in all the recapitalized banks. UKFI’s headquarters currently comprise of two rooms on the ground floor of the Treasury, from which RBS is being funded on a month-by-month basis. In response to questioning by the Treasury Select Committee, UKFI Chief Executive John Kingman admitted that UKFI was still in negotiation with the Treasury over the nature of its investment mandate. Perhaps because of these flimsy arrangements, it appears that the government’s “arm’s length” approach is being applied selectively according to political convenience.
The appointment of Glen Moreno as Acting Chairman of UKFI has caused embarrassment for Gordon Brown, who has accepted that reform of tax havens is a key element in addressing the financial crisis. Prior to his new role, Moreno was a long-term trustee with Liechtenstein Global Trust (LGT), a private bank accused of facilitating extensive tax evasion. Over 150 UK clients of LGT are currently under investigation by HM Revenue & Customs.
RBS’ newfound public status, combined with its record of fossil fuel finance, has been raising concerns within Parliament. Following a submission of evidence from PLATFORM, BankTrack and People & Planet, the Environmental Audit Committee’s “Pre-Budget Report: Green fiscal policy in a recession” recommended that “the Treasury examine and report on how […] environmental criteria for the investment strategies pursued by these banks might be imposed, and what impacts this might have on UK sustainable development objectives.” An Early Day Motion tabled by Liberal Democrat MP Martin Horwood called “on the Government to use its majority share in RBS to prioritise climate change as a principal concern in RBS’s lending decisions.”
But despite Parliamentary pressure, RBS has continued to pour money into fossil fuels since the initial recapitalization phase. A Guardian investigation discovered that in the four months after the first bailout, RBS was involved in financing worth £9.9 billion to coal, oil and gas corporations. This included lending to some of the most controversial companies, including coal giant E.ON in November 2008, oil company Tullow to develop oil in Uganda & Congo and Cairn to explore in the Arctic.. RBS’ subsidiary ABM-AMRO also financed a £1.1 billion gas pipeline that will play a key role in the extraction of tar sands in Alberta.
A strategic review published by RBS in February indicated that, like most of the capital-depleted banking sector, the company is drastically cutting back on capital-intensive project finance over the next five years. However, public pressure still needs to be applied to push the bank to decrease its non-project-specific lending to fossil fuel companies, and to ensure that a strong policy curtailing the financing of fossil fuels is firmly established by the time the bank regains sufficient capital to escalate project finance again.
The context of the banking crisis places the government in a prime position to push for change in implementing climate-sensitive lending policies, both from within RBS as a majority shareholder, and in terms of sector-wide change through anticipated new banking regulation. The government needs to take a ‘hands on’ rather than an ‘arm’s length’ approach in the running of RBS, and should not hide behind the excuse of maximizing returns for the tax-payer as a rationale for non-intervention. The interests of the tax-payer as shareholder would be better served by creating a more climate-secure future than through the short-term inflation of RBS’s unsustainable profit margins.