Green Alliance special: No green growth budget
Green Alliance Director Matthew Spencer
By Matthew Spencer, Director of the Green Alliance
This could have been a major green budget, but the chancellor has rained on his own parade by putting the brake on the best announcements and indulging in fuel price gimmicks.
The significant news is that Treasury officials didn't kill the Green Investment Bank or the carbon capture and storage programme, because of sustained pressure from the environment community and strong support from other government departments. In fact, the commitment to set up an independent public financial institution overrides decades of Treasury orthodoxy and will be taken as a personal defeat by its senior mandarins. But they have delayed its full introduction until after the next election. This means that the bank will operate as a fund for the duration of this parliament and won’t be available to support the introduction of the Green Deal with low cost finance.
The perverse effect of these decisions is that the budget commits the coalition to some significant green spending, with little chance of any return on its investment before the election. The pressure to speed things up will grow, not least from LibDem ministers who need to be able to demonstrate tangible success on the environment to their voters. The first place this pressure will be felt is in the legislation to set up the Green Investment Bank, which will give its many supporters in parliament a chance to press for earlier introduction of its borrowing powers to increase its overall impact.
The announcement that all four carbon capture and storage (CCS) demonstrations will be funded by general taxation will be welcomed by the many businesses who are investing in UK leadership of this technology. It will create more certainty, and raises the chances that the UK can win the lion’s share of EU CCS funding. The decision has one downside that the electricity market reform will have to resolve: by dropping the CCS levy on consumers and committing to taxpayer funding, it reduces the incentive of the existing power companies to engage with CCS, and reinforces the need for a strong Emissions Performance Standard to ensure they have clarity about the low carbon direction of the electricity market.
In an echo of the tactics that gave Gordon Brown a reputation for opportunism, George Osborne has used green taxes for short-term political advantage, and risked further damage to their public standing. Aviation tax rises were dropped despite the fact that aviation is historically undertaxed compared to road fuels and, whilst the road fuel duty escalator was scrapped, there was no help for bus and train users suffering much greater cost increases.
The Treasury has also confirmed that a carbon floor price will be introduced and, in doing so, has united both big industry and big environmental NGOs in opposition. A plausible carbon price trajectory, underwritten with contracts, some of the revenues from which were diverted to alleviate fuel poverty, would have been supported by the environmental community. What we have instead is a stealth tax which will do little to change investment decisions, will load high costs onto consumers and produce windfall profits for existing nuclear generators. If the Treasury has any pride as a champion of economic efficiency, it should apply a windfall tax to these generators to correct this distortion.
The chancellor is an astute political operator but, by discounting green growth as marginal to his economic project, he has missed a trick. He should expect the government’s significant commitments to CCS, renewables and energy efficiency to be generating growth and jobs before the election. He has committed the investment, now he should plan for the political return on that capital. To do so, he doesn’t need to invent new policy or battle with other ministers, but he does need to take the Treasury brake off some of this government’s best policies.
The Green Alliance an influential environmental think tank working to ensure UK political leaders deliver ambitious solutions to global environmental issues.
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