The government has promised it will ‘build back better’, using the opening created by Covid-19 to decarbonise the UK economy and create new jobs in green sectors. The parallels with Labour’s ‘green industrial revolution’ are clear – both proposals aim to simultaneously increase investment, create jobs and ensure we hit our decarbonisation targets.
Along with the money already allocated in the budget, the chancellor, Rishi Sunak, is using this ‘mini’ fiscal event to pledge £3bn worth of green investment. £2bn will come in the form of vouchers provided to households for the purpose of increasing the energy efficiency of their homes. Sunak has also announced support for employers who keep furloughed workers on until January – a tapering of the furlough scheme rather than an abrupt end.
But the chancellor’s promises fall far short of the funding required to tackle climate breakdown. In comparison, Germany is promising £86bn worth of green investment to create jobs and decarbonise its rail system and £36bn for a green economic recovery package. Here in the UK, Ed Matthew from the environmental think tank E3G has put the cost of making all homes energy efficient at £18bn, substantially more than the £2bn offered by the chancellor.
The spending commitments in this mini-budget do have to be put into context. Projections from the Office for Budgetary Responsibility suggest that the government deficit this year could reach £300bn – the highest peacetime on record. In this context, one might think the chancellor’s extra spending looks quite generous.
But these are not ordinary times. The Bank of England has said GDP could contract by 25% in the second quarter of the year. When the furlough scheme ends, unemployment could reach 3m. Elsewhere, similar falls in output are being recorded for nearly all the UK’s major trading partners. We are facing what could be the most significant economic contraction in living memory – and in that context, the government’s spending promises look very mild indeed.
As well as comparing the promises on offer to the scale of the economic devastation we are experiencing, we also need to compare them to the threat we face from climate breakdown. If emissions continue to rise along current trends, we could soon be facing a near uninhabitable ‘hothouse earth’ in which many of the ecological systems required to sustain human life break down beyond repair.
Of particular concern are the fast approaching ‘tipping points’ that could accelerate the pace of climate breakdown. The earth is filled with naturally-occurring carbon ‘sinks’ – like forests, oceans and tundra. When these sinks become saturated, they lose their ability to absorb more CO2, dramatically increasing the amount that is released into the atmosphere. These tipping points represent the points of no return for climate breakdown.
It should now be clear that the planet cannot avoid climate change altogether. Already, the increase in global temperatures we’ve seen over the past several decades has disrupted the climate, leading to many more natural disasters than we otherwise might have faced. From cyclones in Mozambique and Bangladesh to wildfires in Australia and California – climate breakdown is very much already with us.
The sums that would be required to stop us reaching ecological tipping points are huge – trillions of dollars distributed over the world’s largest states. Boris Johnson recently compared himself to US president Franklin D. Roosevelt, who in the 1930s introduced the New Deal. Some estimates suggest that the New Deal was worth around 30% of GDP at its peak. Sunak’s mini-budget spending pledges, meanwhile, don’t even scratch 1% GDP.
The chancellor will probably get away with concealing the meanness of his climate pledges from voters. Few people really understand the scale of funding required to decarbonise the UK economy and the results of failing to do so won’t be felt in full for several decades.
But it will be far harder to disguise the weakness of the UK’s economic response to the pandemic. When the furlough scheme ends, unemployment will rise substantially. If unemployment reaches the worst possible projections, many households will be unable to pay their debts, rents and bills – leading to an increase in insolvencies. Banks have estimated that 40-50% of the small businesses making use of the government’s ‘bounce back loan’ scheme will default when the funding ends. The impact of a significant increase in corporate and personal defaults on our financial system could be enormous.
Even if we manage to avoid a financial crisis – which would require the government to extend business loan guarantees and provide significant income support to struggling households – the recovery from the recession is likely to be long and slow, just like the non-existent recovery from the financial crisis. Productivity and wages have both stagnated for a decade, and 8m households were already struggling with problem debt before the pandemic hit.
Unless the government invests in creating millions of new, secure, well-paid green jobs, the ‘recovery’ from the pandemic will be even weaker – if it even comes at all.
Grace Blakeley is an economics commentator and the author of Stolen: How to save the world from financialisation.