UK should boost green public investment by 1% of GDP a year, say top economists
LSE and Cambridge experts warned investments, such as development of new North Sea oil and gas fields, will likely damage the UK economy.
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Your support makes all the difference.The UK Government should increase public investment in tackling climate change and biodiversity loss by £26bn a year – or 1% of gross domestic product (GDP) – to boost growth and productivity, leading economists have found.
Professor Nicholas Stern and other experts from the London School of Economics and the University of Cambridge analysed current plans to cut public investment over the next few years, as laid out in the Chancellor’s 2024 autumn statement.
In a report released on Monday, they said continued low public investment, and ongoing barriers to business investment in productive and sustainable assets, are “inconsistent with success in international markets and will likely lead to more stagnation”.
The researchers also warned that unsustainable investments, such as the development of new oil and gas fields in the North Sea and the construction of homes and offices that are not energy-efficient, will likely damage the UK economy.
Productivity is driven by efficiency, and investment in resource and energy efficiency gets more out of the country’s resources and drives competitiveness in global markets
“This risks creating stranded assets, significant financial losses in polluting and emissions-intensive sectors, and an insecure, unaffordable and unsustainable energy supply,” they wrote.
“It will also mean that the UK fails to adequately tackle climate change, biodiversity loss and environmental degradation, including water and air pollution.”
The researchers estimated that the UK needs to increase annual public spending by 1% of GDP – £26 billion at current prices – to make up for decades of underinvestment in its physical, natural, social, knowledge and human capital.
This will enable the country to deliver on tackling climate change, biodiversity loss and environmental degradation as well as being economically productive and competitive in future, the report noted.
The authors, which also includes Dimitri Zenghelis, Esin Serin, Professor John van Reenen, Dr Anna Valero and Bob Ward, pointed out that this public investment would encourage more private investment.
The report said: “Together with a coherent set of public policies to drive innovation and address gross systemic inefficiency, this would help crowd in private investment in tackling climate change, biodiversity loss and environmental degradation, and could form part of a rise in annual overall public and private investment that taken together is equivalent to at least 3% of GDP, or £77 billion”.
It adds: “Productivity is driven by efficiency, and investment in resource and energy efficiency gets more out of the country’s resources and drives competitiveness in global markets.
“The investments inevitably will be front-loaded, substituting capital for fossil fuels, and reducing waste and pollution.”
Once the UK’s sustainable innovation system is up and running, government support can be phased down, as new, more efficient and productive industries increasingly outcompete the old and generate their own global revenues and inward investment
The authors also concluded that investments in the transition to a sustainable, inclusive and resilient economy will improve the UK’s public finances.
They acknowledged that there will be upfront investment costs but “targeted and temporary borrowing for good public net investment” will reduce the debt-to-GDP ratio over time, calling it “fiscally responsible”.
“Once the UK’s sustainable innovation system is up and running, government support can be phased down, as new, more efficient and productive industries increasingly outcompete the old and generate their own global revenues and inward investment,” the report notes.
“By contrast, inaction would likely prove costly to economic competitiveness and financial resilience and require costly remedial support later on.”
A Government spokesperson said: “This Government is focused on long-term decisions to strengthen our economy which is why at Autumn Statement we announced a business investment package which could raise investment by around £20 billion a year in a decade’s time.
“We’re leading the world in our transformation of the energy industry towards more clean and renewable energy, with over 80,000 green jobs being supported or in the pipeline since 2020 and our plans to power up Britain are expected to attract a further £100 billion investment in green industries of the future.”