There is plenty of research saying green investment would benefit jobs, growth and energy bills, but Osborne won’t listen
New figures from Britain’s leading economists suggest the UK could be heading for a triple-dip recession. The chancellor should use his budget to announce that he will provide additional support for energy efficiency providing a triple boost for jobs, growth and energy bills. Earlier this week, the Treasury’s comparison of independent forecasts showed an average prediction of flat growth (ie 0%) in 2012. If they are correct, growth in the fourth quarter will have been -0.2% and the UK will be half way towards an historic triple dip.
The Institute for Public Policy Research (IPPR) has consistently argued that the government should slow down deficit reduction when the economy is stalling and speed it up when growth returns. Providing additional resources for energy efficiency is a critical way to do this. The government launched two new policies last year: the Energy Company Obligation (ECO) to tackle fuel poverty and the green deal which allows consumers to borrow up to £10,000 for energy efficiency measures to be paid back over a 25-year period. It is also considering using the energy bill as a vehicle to enhance incentives for energy efficiency.
Even if the green deal overcomes the twin obstacles of high interest rates and low levels of consumer awareness, it will not be enough to meet the UK’s carbon and fuel poverty targets. Research from IPPR has shown that the ECO will affect fewer than one in ten fuel-poor households and achieve just 26% of the emissions reductions achieved by current obligations on suppliers. According to the Energy Bill Revolution campaign, without greater financial support the policies “risk falling short” of the government’s legal obligation to virtually eliminate fuel poverty by 2016.
Energy efficiency provides a triple boost for Britain. Research by Cambridge Econometrics for Consumer Focus shows that improving energy efficiency in fuel-poor households “generates greater macroeconomic benefits – more jobs and greater growth – than the same injection of spending through other government spending programmes or cuts in VAT or fuel duty”.
It estimates that using £2.3bn of revenue per year (equivalent to what will be raised from the EU emissions trading scheme and carbon price floor, which comes into effect this April) could create up to 71,000 jobs by 2015. This includes 27,000 jobs installing insulation in houses and 19,000 in double glazing. These openings could play a major part in addressing Britain’s chronic youth unemployment problem. In addition, Cambridge Econometrics estimates that an increase in energy efficiency on this scale would reduce energy bills in treated homes by £200 per year and, using a looser measure than IPPR, says it would tackle 87% of fuel-poor households.
These costs may seem a little steep, especially since the future revenue from the carbon price floor has already been banked by the Treasury. But another route is open to the chancellor. While sticking resolutely to its “plan A” on fiscal policy, the Treasury has announced a series of policies in recent months to increase private sector lending. These include the National Loan Guarantee Scheme, announced in the last budget to lower the cost of bank loans for smaller businesses; the Funding for Lending Scheme, announced by George Osborne at Mansion House to boost lending by up to £140bn for households and businesses in the real economy; and a Business Bank to support £10bn of lending announced by Vince Cable at Liberal Democrat conference.
These are all sensible measures, but make the decision to give the green investment bank just £3bn and prevent it from borrowing until 2015/16 at the earliest all the more absurd. IPPR senior economist Tony Dolphin has proposed the creation of a British Investment Bank for green infrastructure and lending to SMEs – properly capitalised with £40bn and allowed to borrow at a ratio of 2.5-1. If this took place it would allow ample room to put rocket boosters under energy efficiency to the benefit of jobs, growth and energy bills.