UK budget rules hand over green economy to China

The economy of slavery

The report argues that the Treasury should not be misled by the inaccurate British narrative that investing in green infrastructure costs too much and that borrowing to finance the transition to a net zero economy will worsen the UK’s public finances in the long term. Britain.

“Fiscal responsibility requires investing in assets that generate sustainable private and public returns while encouraging domestic savings,” says Zenghelis.

The report discusses the UK’s fiscal rules combined with the Treasury’s rigid application of “cost-benefit analysis” to green investments.

Together, these factors make it virtually impossible to stimulate economic growth and put the UK in a ‘savings doom loop’.

“Public investment is vulnerable feast or famine cycles, becoming a soft target adapt to the rules every time there is bad economic news,” says Zenghelis, who is currently a special advisor to the Bennett Institute for Public Policy in Cambridge and a senior fellow at the Grantham Research Institute at the LSE.

In the introduction to the report, the director of Cambridge Zero Professor Emily Shuckburgh i Grantham Institute Chairman Professor Lord Stern, say that a new model of growth and development is in our hands.

“…The UK has the science and innovation base to lead, but action must be clear, quick and decisive,” they say.

Bad tool

Cost-benefit analysis is a narrow accounting approach used to evaluate the advantages (benefits) and disadvantages (costs) associated with a particular decision, project or policy, assuming that the rest of the system remains the same.

“We are already in the middle of a large-scale technological transformation in which the entire system is changing,” says Zenghelis. “Marginal cost-benefit analysis is the wrong tool.”

The report shows that return on investment on individual projects is not the right measure for policymakers in the face of a massive economic revolution driven by artificial intelligence, automation and climate-related innovations.

Investments must complement each other as we build a new network that changes the system and creates cascading effects across the economy, affecting jobs, productivity and costs.

Promoting sustainable energy growth

Report from Cambridge Zero Policy Forum and Grantham Research Institute for Climate Change and the Environment at LSE shows how China and the US have overtaken the UK and other major economies by setting clear strategic industrial goals and spending hundreds of billions on climate change investments and tax breaks.

Their investments have already resulted in enormous development of renewable energy sources, electric vehicles, batteries, heat pumps and other climate sectors.

“China and the United States have made strategic and political decisions to use climate change mitigation as a growth tool, rather than focusing on inappropriate cost-benefit analysis models,” says Zenghelis.

The report argues that the multiplier effect of green infrastructure investments is so large that analysts also systematically underestimate the scope for productivity gains from clean innovation.

The net zero transition strategy cannot be treated in isolation from the rest of the economy. The report shows that tough political decisions are also needed on public spending, taxes, debt accumulation and domestic savings.

“If Treasury is serious about the challenges of growth and productivity and climate change mitigation, it must be willing to reassess its decision-making process,” says Zenghelis.

The report recommends a wider range of complementary approaches and says it is not too late for the UK to harness the groundbreaking research and innovation of world-leading universities to seize the opportunities available.