We are writing to you ahead of next week’s Spring Statement to urge you to amend the 3% cap on Public Sector Net Investment (PSNI) included in the Charter for Budget Responsibility introduced to the House in the Autumn, and to introduce a windfall tax on the excess profits of oil and gas companies to both help struggling households and advance the transition to a zero emissions economy.
We are concerned that the restrictions you have placed on capital investment are unnecessary, a disaster for the climate and inequality and leave us the UK dangerously exposed to high and volatile oil and gas prices. That is why we are writing to you to urge you to use this Spring Statement to announce:
1. A ‘green exemption’ to the 3% cap on Public Sector Net Investment to enable us to build for the future, freeing your government to invest in the stability of the UK, while also ‘levelling up’ the nations.
2. A ‘climate and nature test’ on all government infrastructure investment to ensure that day to day investment decisions advance rather than undermine progress against our climate and nature goals.
3. A windfall tax on the excess profits of North Sea oil and gas producers to help families hit by unprecedented energy price rises, namely an increase in the Supplementary Tax from its current level of 10% to 35%.
By placing a cap of 3% GDP on public investment in infrastructure, you have limited investment to well below the level needed to transform our homes, public buildings including hospitals and schools, energy systems, transport infrastructure, landscape, biodiversity and agricultural systems if we are to meet our climate and nature targets, securing a viable future for the UK. The lack of such investment to date, has left the UK particularly vulnerable to volatile fossil fuel prices and will increase, rather than reduce, public debt. In its July 2021 Fiscal Stability Report the Office for Budget Responsibility (OBR) points out that public debt would be at 289% if the climate crisis is unmitigated, 13 times higher than the cost of investment needed.[i]
Levels of day-to-day investment in infrastructure already place the UK close to the bottom of the league table among our peers in the OECD, higher than only Luxembourg and Greece in 2019. According to OECD figures, the UK had relatively low levels of GFCF (‘gross fixed capital formation’, the measure allowing international comparison of public capital investment) in both 2018 and 2019, both from the public and private sectors. The UK ranked 30th within the OECD in 2018, and 31st in 2019, for total GFCF as a proportion of GDP. In 2019, the last year for which data was available, UK public GFCF at 2.8% was well below the OECD average of 3.6% and UK private GFCF at 15% was well below the OECD average of 19%.[ii]
By setting the cap on PSNI only marginally above the current day to day average, the 3% cap prevents investment in the transformation of the UK’s infrastructure at the scale needed if we are to meet climate and nature targets. Analysis by the Green Alliance think tank, supported by the Green Renewal coalition[iii], revealed that last Autumn’s comprehensive spending review included just £7.8 billion in new investment in response to the climate and nature crises over the next three years. This falls far short of the £62.9 billion needed to meet our targets and protect the economy from climate risk, leaving an investment gap of £55.1 billion that needs to be filled.[iv]
This is not only of critical importance if we are to meet our climate and nature targets. It is of particular concern in the context of the UK’s particular vulnerability to high and volatile energy prices. High and rising energy bills are being driven by the UK’s reliance on dirty fuels, a legacy of this government’s failure to invest in the transition to home grown, safe and reliable, renewables. The failure to upgrade public buildings, leaves the NHS and our schools and universities dangerously exposed to high energy prices. In addition, too many houses in the UK leak heat and are desperately in need of better insulation. Previous Treasury failure in this area leaves UK householders exposed to a volatile energy market and beholden to gas and oil giants who have described current profit levels as ‘like a cash machine’ while energy companies pass down the costs to people struggling to get by.[v]
Our transport system is also currently vulnerable to the volatility of energy markets. Investment in improved public transport, walking and cycling infrastructure and the infrastructure needed to support electric vehicles improve health outcomes and help to ‘level up’ the nations while accelerating the transition away from dirty fossil fuels.
Unprecedented increases in energy prices will impact all of us, but some people will feel it more than others. Many of our constituents, as people do across the UK, worry about how they will afford to keep their homes warm, the lights on and food on the table. According to the New Economics Foundation, this April, 23.4 million people, more than 34% of the population, will be living below the Minimum Income Standard and almost half of all children will be living in families that have to make sacrifices on life’s essentials.[vi]
You must use next week’s Spring Statement to act - protecting people across the nations of the UK from being cornered by poverty now and into the future. That means amending the Charter for Budget Responsibility by introducing a ‘green exemption’ so that we can invest in home-grown renewables, such as solar panels, heat pumps and wind turbines, transform our transport infrastructure and get the insulation needed into every home and building to stop them leaking heat. We must also ensure that all government investment in infrastructure advances, rather than undermines, our climate and nature goals. A climate and nature test on all government investment would do that. With investment needed to transform our infrastructure, strengthen the economy, and increase tax revenues, repairing the climate would also repair the public finances.
In the short term, and to avert the worst impacts of the cost-of-living scandal, a windfall tax on the excess profits of oil and gas companies could be used both to reduce energy bills now and invest in the homegrown renewables needed to safeguard our future.
We urge you to consider these proposals in full ahead of next week’s Spring Statement.
Caroline Lucas MP, Chair, All Party Parliamentary Group on the Green New Deal
Clive Lewis MP, Co-chair, All Party Parliamentary Group on the Green New Deal
Wera Hobhouse MP, Vice chair, All Party Parliamentary Group on the Green New Deal
Zarah Sultana MP. Vice chair, All Party Parliamentary Group on the Green New Deal
Nadia Whittome MP, Vice chair, All Party Parliamentary Group on the Green New Deal
Liz Saville Roberts MP, Vice chair, All Party Parliamentary Group on the Green New Deal
Claire Hanna MP, Vice chair, All Party Parliamentary Group on the Green New Deal
Stephen Farry MP, Treasurer, All Party Parliamentary Group on the Green New Deal
[i] Fiscal Risks Report, OBR, July 2021, P12, https://obr.uk/docs/dlm_uploads/Fiscal_risks_report_July_2021.pdf
[ii] Figures provided by the House of Commons Library, drawing from OECD data: Source: OECD. Stat, Annual National Accounts databases 8A and 12, retrieved 23 December 2021
[iii] The Green Renewal Coalition comprises Green Alliance, WWF, The National Trust, RSPB, The Woodland Trust, The Wildlife Trusts, Client Earth and Wildlife and Countryside Link
[iv] Spending Review 2021-2024, Green Alliance on behalf of the Green Renewal Coalition: https://green-alliance.org.uk/wp-content/uploads/2021/12/Briefing_spending_review_2021-24.pdf
[v] BP boosts buybacks as oil and gas prices create ‘cash machine’, Financial Times, 2 November 2021
[vi] 23.4 million people unable to afford the cost of living this spring, New Economics Foundation, 14 March 2022