This week, all eyes will be on the chancellor’s budget, where he will decide which fiscal and monetary levers to pull to revive the economy from its greatest contraction in over three centuries. It is crucial that the measures materially help the goal of net zero Britain.
Two weeks ago, the Environmental Audit Committee, which I chair, published our report outlining why the government must use the economic recovery from Covid-19 to grow back greener.
The government has been making the right noises to combine the economic recovery with protecting the environment, such as through the prime minister’s Ten point plan for a green industrial revolution. The chancellor’s National Infrastructure Strategy, with a revision of Green Book guidance, also sends the right message to ensure investment decisions properly account for net zero policy objectives.
The private sector is poised to invest
Despite these promising moves however, Covid-19 has delayed progress of detailed plans and policies, such as expected strategies on heat and buildings, and hydrogen. Our committee keeps hearing that the private sector is poised to invest in projects, contributing to the economic recovery and to net zero Britain. But they need the demand signals and policy structures in place from government to do so.
One policy for recovery, brought out as part of the summer economic package last year, was the Green Homes Grant. It is an excellent initiative to help the 19 million homes which need energy efficiency measures to stop carbon emissions. But, as has become abundantly clear, unless it is urgently overhauled, at the present rate of approval it would take over ten years to issue the target of 600,000 vouchers. As an economic recovery measure, the Green Homes Grant is doing the opposite to what it was set up to deliver. Installers are quoting for work, but instead of hiring more staff and training them to generate the green jobs of the future, they are having to lay off staff because of unacceptable delays in having work approved or vouchers paid.
Across the country there are homeowners who want to take up the government’s offer of help with energy efficiency measures but cannot find accredited installers willing to quote, as the contractors do not have confidence that the scheme will last long enough to train more installers. Even though funding for the scheme was extended until March 2022, which is welcome, it still seems mired in administrative delay: and now we read press reports that it might be ended entirely. This would be a grave error. The scheme needs overhauling and extending, not scrapping.
The chancellor, in his budget, will be the first who has absolute freedom to propose changes to VAT following Brexit. This is an excellent opportunity to reduce rates of VAT on repair services and reused or recycled materials. Reducing rates of VAT payable on green home upgrades can also encourage low carbon technologies and energy efficiency improvements to our homes. I accept that any revenue foregone from such measures will have to be found from somewhere else. Increases in taxation are bound to be less popular than reductions, but surely such an investment in a circular economy would pay massive dividends in the long run?
The Bank of England should have more stringent support conditions
In addition to recommendations around the Green Homes Grant and VAT reductions to drive net zero Britain, our committee has urged the Bank of England to align the economic stimulus with the goals of the 2015 Paris climate agreement. The bank has an excellent record in highlighting the financial risks from climate change, above all other central banks, and was the first to publish its own climate-related financial disclosure.
However, our committee believes that the bank missed a trick with its emergency financial support package for firms “making a material contribution to the UK economy” last year. Its Covid Corporate Financing Facility loans to large companies facing cash flow crises should have had minimum sustainability conditions attached to them, as happened in some other countries. In particular, it should have required the publication of climate-related financial disclosures, in line with the government’s Green Finance Strategy.
Our committee recommends that the chancellor explicitly requires the Bank of England’s Monetary Policy Committee to not only have regard to the government’s climate objectives, but also its nature objectives. This simple, single step would assist the bank in adjusting its corporate bond purchasing policy to support these objectives better in future.
Our present challenges, in the midst of this pandemic, are being addressed by the ingenuity of scientists, the skill of the Vaccine Task Force and the heroic efforts of the NHS. But there is no vaccine against runaway climate change: it is a challenge which requires all our effort and ingenuity, and behaviour changes, to address.
The government has shown encouraging signs of promoting a green recovery but there is more to be done to sustain it and set us on track for a net zero Britain.