Environmental Audit Committee
Oral evidence: HM Treasury and the economics of climate and nature, HC 23
Wednesday 15 July 2026
Ordered by the House of Commons to be published on 15 July 2026.
Members present: Mr Toby Perkins (Chair); Olivia Blake; Julia Buckley; Jonathan Davies; Barry Gardiner; Alison Griffiths; Chris Hinchliff; Sojan Joseph; Manuela Perteghella; Martin Rhodes; Sammy Wilson.
Questions 102 - 120
Witnesses
III: James Alexander, Chief Executive, UK Sustainable Investment and Finance Association; and Jaya Sood, Senior Economist, New Economics Foundation.
Written evidence from witnesses:
- New Economics Foundation (TCN0072)
Witnesses: James Alexander and Jaya Sood.
Q102 Chair: Thank you very much to our third panel who have joined us today. Can I invite you, starting with Ms Sood, to please introduce yourself and your organisation before we make a start?
Jaya Sood: I am Jaya Sood. I am a Senior Economist at the New Economics Foundation, which is a charitable think-tank. I have previous experience in the civil service, both in DESNZ on carbon budgets and in the Treasury on fiscal budgets.
Q103 Chair: For anyone who does not know, give us a very basic analysis of where the New Economics Foundation stands on the climate and on the economy.
Jaya Sood: It is a progressive economy think-tank, and its objectives are basically to make the economy, or help to make the economy, work better for both people and planet. We are not purely an environmental NGO, although we are very much championing the transition, but at its heart, the way in which we want to achieve that is in a way that really works for people as well.
Chair: Excellent. Mr Alexander.
James Alexander: Good afternoon, I am James Alexander, Chief Executive of UKSIF, which is the UK Sustainable Investment and Finance Association. We are the membership network for sustainable finance in the UK, and we bring together banks, pension funds, asset managers and other parts of the financial services industry with £19 trillion of assets under management to advance sustainability and finance.
Q104 Chair: Excellent. What role does sustainable finance play in delivering the UK’s climate, nature and growth objectives?
James Alexander: Sustainable finance plays a very key role in this. We know—as I think we have heard from other panels today—that we are not going to find ways to pay for the transition with public money alone. We need to find ways to attract and drive private capital into that transition, and sustainable finance is a key way of delivering and achieving that.
On a more philosophical level, sustainable finance is about investing in assets, companies or activities that can stand the test of time and whose activities do not cause environmental or social harm. They are therefore able to continue going forward with their business models and their approaches.
In many respects, I think the Government and the Treasury—I know you are looking specifically at the Treasury—have done a lot of work to build and encourage the development of sustainable finance in the UK. Many of the building blocks of a sustainable finance system are now embedded here in the UK. Those include the frameworks that allow you to identify what is and is not sustainable. They include the disclosures—or we hope they will shortly, once the transition plans and the full adoption of the UK sustainability reporting standards is in place—that will allow investors to understand whether something they are looking to invest in is actually sustainable or not against a credible benchmark. They also include the enforcement mechanisms and the anti-greenwashing approaches that have been embedded across the UK.
Much of that is in place, particularly for climate. We need to do more around nature and, as the previous panel mentioned, looking at adaptation and resilience. I think we are strongly building on that.
The challenge is that we do not necessarily have the policies in place that will attract capital. You can have that regulatory environment in place, but that does not necessarily create one of the other key building blocks, which is capital movement. We need to ensure that we are constantly finding ways to ensure that a rational investor, thinking rationally, is incentivised or encouraged to invest in a sustainable activity rather than an unsustainable one. That means making sure that that is a better business model.
Q105 Chair: Ms Sood, further to what we just heard, to what extent do you think that the Treasury is providing the right framework to deliver sustainable finance against those objectives?
Jaya Sood: In terms of the Treasury’s frameworks, first, I think that the role of sustainable finance depends on the characteristics and the nature of the market in question. I do not think it is the case that we should just be aiming to construct frameworks around some idea that the public finances are incredibly constrained and, therefore, the only way that we can resolve any of these issues in climate mitigation and adaptation or in nature is to just crowd in, de-risk and pull in as much private capital as we can. I think it is more nuanced and more complex than that.
Sustainable finance and private finance have a much larger role to play in achieving mitigation objectives. A fair amount of those kinds of investments will be profitable and competitive, and as you go across from mitigation to adaptation to nature, the case for private finance delivering on those objectives gets weaker: most of those investments are unprofitable and generally a public good.
I think Treasury frameworks, as they are set up, have enabled us to make a lot of progress on mitigation and have enabled us to channel a fair amount of sustainable finance and private finance into investments in that area. We have the National Wealth Fund set up as a public policy bank, which is a positive move forward, and there is progress on disclosure infrastructure, as James said. Embedding climate—and to a lesser extent nature—into the Bank of England’s remit has also been really important. Just last month, we heard that the Bank is going to start greening its collateral framework, following the European Central Bank doing so.
I do think that these frameworks, regardless of the progress made, are still in service to a relatively outdated view of, first, what will attract investment into the future. We can look at countries that are being successful in accelerating gross fixed capital formation at the moment; they are the ones that have big state-led programmes and strong regulatory regimes. I think that is a slightly different approach from what our frameworks are set up to do, including with bodies like the National Wealth Fund.
Secondly, there is a relatively outdated view of where the characteristics of the market in question mean that private finance is ill-suited to delivering the objectives. I think the discussion on nature in the earlier panel was interesting. I am sceptical about the degree to which nature objectives will actually be achieved if we pursue this pathway of trying to marketise everything.
Q106 Chair: You alluded there to nations that are doing particularly well in this. Who would you advise us to look at as examples of best practice?
Jaya Sood: I think the standout example—McKinsey did a really good report on this, looking at where is investment going at the moment and what that means for competitiveness in the investment space—is China, of course. Our economy is nothing like China’s and our state institutions are nothing like China’s, but that is the direction of travel. The rate at which they are building and developing new assets in this space is far beyond what anyone else in the world is doing.
We could also look at our European neighbours, in terms of, for example, their policy bank infrastructure. We can look to Germany for KfW and to France for Bpifrance. They are much older institutions than the National Wealth Fund, but they are far bigger and far better capitalised. In lots of those European countries, their states are quite forward-leaning in taking equity stakes in the grid or in these big green strategic infrastructure projects, and that is just not what we are doing at home.
Q107 Chair: What do you see as the main strengths or weaknesses of the Treasury’s current approach?
Jaya Sood: I think that its strengths are that it has made some progress in terms of the disclosure and regulatory infrastructure. I think that it has also been quite forward-leaning in increasing public finance that is being channelled towards these infrastructure projects. We had the big capital uplift to DESNZ’s spending envelope last year.
The weaknesses are effectively that the Treasury sets out these promising looking trajectories and then waters things down and pulls back. The decision not to take forward the green taxonomy has had implications on the economy, and the slow progress in mandating transition plans has also been quite detrimental. There is a really good example of—I can go into it if you are interested—the Bank of England’s corporate bond purchase scheme, which was green-tilted in 2021. That could have benefited from transition plans and a green taxonomy, but it ended up having to come up with these classifications itself. I will leave it there.
Q108 Chair: Mr Alexander, where would you like to see the Treasury focusing its efforts to have the greatest impact?
James Alexander: I mentioned some of the regulatory work that has already been done, but we have not yet seen the transition plans moving forward, which of course is a Labour manifesto commitment. We want to see that moving forward. We also want to see the adoption of the UK sustainability reporting standards.
More broadly, the challenge now is one of policy and ensuring consistency and confidence in Government policy. A classic example is the zero-emission vehicle mandate or ZEV mandate. That is trying to respond to an industry that has a chicken and egg problem. On one side you have nobody that is going to buy an electric vehicle if they cannot charge it anywhere, but equally no one is going to build the network of charging infrastructure across the country if no one has an electric vehicle.
What we need to do is find ways, and the ZEV mandate has been a key part of doing that, of helping give confidence to private capital providers, many from pension funds and others. This is not just talking about wealthy people investing their money; this is talking about people across the country whose pensions are being invested in the industries of the future, such as electric vehicle charging infrastructure. We need billions of pounds of investment, and the way that we are going to get that is by encouraging or giving confidence that those pensions are not being put into an investment that is going to go foul after a few years.
The challenge, of course, of endlessly reviewing things like the zero-emission vehicle mandate is that investors say, “Well, hang on, this is a 20-year investment and within six months of the policy it is being reviewed again. How can we have confidence?” That is the main challenge.
Q109 Chair: On that question, how important is it for the Government’s ability to encourage people to invest in these kinds of markets and initiatives in future, that they basically hold firm, in relative terms, on the zero-emission vehicle mandate? There are clearly people in this place calling for various degrees of rowing back on it, including pushing the date out to 2035 in the most extreme cases. How important do you think it is, for the sake of future investment, that the Government convince investors that they will stick to what they said?
James Alexander: It is extremely important. I cannot overstate how important that is for investors to feel confident making long-term investment decisions. The ZEV mandate is one example; there are others, in terms of housing and warm homes. There have been questions even around the offshore wind auctions. When they are looking at investing in the UK, looking at the UK policy environment, looking at people calling into question some of the key flagship policies that are driving forward investment, the questions that investors are asking themselves are: “Is this the right place to invest? Is this the right country to invest in?” I cannot get across how important it is that we provide that stable policy environment for investment, to give investors confidence.
Q110 Chair: In terms of electric vehicles particularly, the investment in charging infrastructure is very much dependent on those charging points being attractive to consumers who do not have access to charging at home. From my perspective as an electric vehicle driver who has a drive and can charge my own car, I am not a big customer of those. The investment has been made on the basis that we are going to move beyond just the fleet sector, and beyond people who can charge at home, and it will become a more mainstream thing. If Government were to say, “It’s difficult for people who live in a flat or a terraced house to do this, so we’re going to let them off,” it would undermine the entire basis of that investment decision, would it not?
James Alexander: Absolutely.
Chair: What would be your message on that, as an example of investment in this way?
James Alexander: My message would be that policies that have been put in place specifically to drive consumer change, and attract investment around that consumer change, take some time to bed in and need to be left to bed in. We are going through a substantial transition in mobility, as one example, in the economy. The only way we are going to do that is by the Government, industry and consumers working together, and if the Government pull the rug out halfway through the implementation of a policy, that undermines confidence in the other areas, and puts at risk the transition we are trying to create.
Q111 Sojan Joseph: Mr Alexander, if I can come to you first. Does Treasury’s current sustainable finance framework provide the certainty and incentives needed to mobilise investment across the whole transition, including in areas where markets alone are unlikely to deliver? If not, where are the most significant gaps?
James Alexander: On the climate side, the Treasury’s policies are broadly working, but there is still more to do. Things like the National Wealth Fund are having a positive impact, and we heard that from other panel members previously today. I would like to see the National Wealth Fund and GB Energy focusing even more on attracting and driving as much private investment as possible, so that every pound of taxpayers’ money that goes into a project or a transaction has the target of attracting as much private capital as possible.
Using those scarce resources that the National Wealth Fund and GB Energy have should be driving and attracting as much private capital as it possibly can. That will also create growth; it will create new opportunities. The more private investment we can get in, the more comfortable private investment becomes with those transactions, so the idea would be that, eventually, you would not need Government support to make those transactions move forward.
The classic example is early offshore wind, which was very difficult. The precursor, I suppose, to the National Wealth Fund, the UK Green Investment Bank, did an awful lot of work to try to de-risk offshore wind. Part of that was making investors comfortable and confident with the technology and the approaches, and that has largely occurred, and that allowed us to build quite a strong offshore wind industry in the UK. That is part of where I want to see this moving.
On nature and adaptation, I think there is still more work to do and, as Jaya rightly pointed out, those are areas where it is harder to attract private capital. We have to find new and innovative ways of doing that; it is a key role for the Treasury to work with industry to find new financial mechanisms to attract private capital, because we are not going to solve these problems if we think it can happen only through public money.
Q112 Sojan Joseph: Do you have anything to add, Ms Sood?
Jaya Sood: Yes, I do. On the climate side, I think where the gaps are is twofold. One, as I mentioned at the start, is this nuance around what the types of markets and types of investments are that we are talking about. I think one of the reasons the climate consensus is fracturing is because of political disagreements. That is coming from people in society not buying into the idea of the transition, and that is because it has ended up being really costly: the promise of lower bills that was going to come with renewables has not been delivered. I think that is in part because, if you open the door to private finance to deliver as much of the transition as you can, you do not necessarily have so much control over how that market is functioning, and consumers and bill payers can be the ones ending up paying the price.
Offshore wind is a really good example where Treasury frameworks have worked well to leverage private finance into an appropriate sector. Where they have not worked so well is somewhere like the grid. We are going to need huge amounts of grid expansion going forward into the future, if we are going to electrify the country. Grid companies, the TNOs and DNOs—Citizens Advice did a report showing this just last week—are making an absolute killing at the moment, because that is a monopoly industry; it is not well suited to private finance. We do need to be slightly careful about the answer always being to just create markets such that they leverage in as much finance as we can.
Another gap is the under-utilisation of the Bank of England as a lever. This is very complicated, because the Bank is independent. It has price stability as its mandate, under which lots of people, including me, would categorise the climate transition, mitigation, adaptation and nature investment. There are levers it could use. It is starting to green its collateral framework, and starting to do bits here and there. It could be doing things like offering a cheaper rate of borrowing for financial institutions investing more towards green rather than brown assets.
Of course, there are gaps in adaptation and in nature. My view on that would be that those objectives are best served and best delivered through a combination of public finance and serious regulation and planning. DEFRA’s land use framework—published this year—is the beginning of that. We can go down the route of the limits of public finance, if you would like. I love talking about that topic, but I will leave it there.
James Alexander: Can I just build on that, slightly, on the regulatory side? That is a really key role that the Government need to play—maybe not the Treasury, per se, but parts of Government—in terms of making it make sense, and making it the rational choice to take the sustainable approach. For example, at the moment, if you are in a hard-to-abate industry, such as steel-making or concrete, even if you wanted to attract private capital to transition to net zero at the moment, you would find it very hard to do so, because your product is not necessarily going to sell for any more at the end of the day. Green concrete is not really worth much more than regular concrete.
How do we turn that risk upside down? The way to do that is for the Government to look at these industries, one by one—or perhaps collectively—and say that, “If you want to sell concrete or steel in the UK in 10 years’ time, it has to meet these criteria for how it is manufactured, whether it is imported or made here.” That changes the whole risk profile. Suddenly you go from the risk being to transition, to the risk being not to transition.
A big part of what sustainable finance is about has been looking at risk and understanding the risk from the environmental and social challenges. One of the things that has changed in the five years that I have been doing this job is that policy risk has gone from being the No. 1 thing people were thinking about all the time, to almost not being on the agenda. People do not believe that policy is going to change substantially in the medium term, such that irresponsible or polluting business practices will be made impossible. That is a big driver of change for companies.
Q113 Sojan Joseph: Are you suggesting the Treasury should focus more on public spending and risk-sharing, rather than creating market frameworks?
James Alexander: The Treasury should do both, and should look at what is the most effective approach in different areas. There is definitely a role for corporate regulation, around ensuring that companies are not permitted to pollute in future, with a gradual recognition that continuing to pollute in the way many companies do now is not going to be possible in the future, and that companies need to attract investment to make sure they can upgrade their machinery or electrify their equipment, such that they are not causing that pollution in future.
Q114 Sojan Joseph: Was the Treasury right to prioritise transition plans and disclosure-related reforms, rather than introducing a UK green taxonomy?
James Alexander: I think so, yes. We would have liked to have seen all three, but we also recognise some of the political constraints the Government are under around corporate regulation. Of the three, if you put them in priority order, the taxonomy comes third on that priority list. The most important thing for investors at this point is to understand the nature of the transition plans of companies, and the nature of the data those companies provide on their current sustainability credentials, so that investors have all the information they need to make sensible investment decisions, based on the different risk analysis they see, of companies that are polluting more or that are less resilient.
Additionally, what transition plans do is focus company executives’ minds on the areas where they need to take action. They allow investors to see a year-by-year plan of what companies plan to do between now and 2050. Collectively, when you amalgamate multiple transition plans, with the various dependencies—not every company can fix the issues on its own—those various dependencies almost form part of the UK’s national transition plan effort, by saying, “There are 100 major companies in the UK that each need this particular thing to happen.”
That gives the Government a clear guideline of what that is, and how to go about making it possible. Now what we want to see is transition plans actually happening. We have had the consultation; it was quite broadly drafted. We want to make sure this actually moves forward, and that the Government recognise how important this particular piece of regulation is for investors across the economy.
Q115 Sojan Joseph: We heard from various panels that the lack of policy clarity is stopping investors from investing. In your understanding, are investors willing to provide capital today, but unable to do so, because of policy or regulatory barriers?
James Alexander: That goes back to the point that I made previously on things like the ZEV mandate: that policy plays an extremely important role in making a decision to invest, or the cost of capital for that investment decision, viable or not viable. Policy can act as a substantial de-risking effort to allow investors to be more comfortable making a choice. We have to remember that investors are not just looking at which UK investment they might choose; they are looking at investments all over the world.
We want them to think about investing here and to think that this is a place with stable policy and regulation they can predict long into the future, because most investments run for more than just a few years, and that it is, therefore, a good place to put what is often people’s pensions—we do not want to be playing around with people’s pensions. It is so important that we have, in the UK, that stable policy and regulatory environment.
Lord Sharma talked about this on the previous panel. The fact that, up until now, what has been a cross-party consensus, or a fairly broad consensus, around the UK’s carbon budgets has now broken, and that there seems to be some loss of consensus on net zero altogether, is extremely challenging for investors. They are saying, “We want to know that the country is going in this direction.” As the Chair said, how it is done, how quickly and how that moves are subjects for legitimate political debate, but investors are very keen to know there is a broad direction of travel. That is what encouraged a lot of investors to sign up to net zero targets at the COP we hosted in Glasgow, and that is one of the major success factors of that.
Investors could be accused of having slowed down some of their progress since then. What investors are doing is responding to the political environment, and what they see as Governments across the world slowing down on their targets. Investors cannot be ahead of where the economy is. There was a strong consensus that Governments, companies and investors were all pointing in the same direction and going towards the same targets, and it does feel as though that consensus has broken. Investors are saying, “We can’t be where the economy isn’t moving to—we have to be aligned with where the economy is.”
Q116 Sojan Joseph: One final question: in your view, what is the most important action the Treasury could take to unlock additional private investment?
Jaya Sood: For me, there is so much the Treasury could do, but the most useful thing it could do now is move with where the momentum is going, both in terms of what is pulling that investment in globally, and the steps it has already started taking to do with the National Wealth Fund as its policy bank. It needs to do two things with the National Wealth Fund. One is to help it get its capital out of the door: KfW deployed about £80 billion of finance last year; the National Wealth Fund did about £3 billion, which is far below its annual capacity limit. The first thing is to get money moving out of the door.
This actually comes back to your earlier question, but I do not think it is just policy and regulatory barriers that are holding back that appetite for sustainable investment to come here to the UK. It is about showing that this Government are serious and that they are going to be a serious co-investor as well—a serious player in the game. That is what is happening in China, and it is starting to happen in Europe. There are these big, strategic assets where there is state co-investment alongside the private investment, and that is anchoring. It is also showing that the state is serious about this. The state is sharing in some of the upside, so it actually cares how profitable and how well these infrastructure projects are run. I would probably say the most important thing would be to focus on the National Wealth Fund. I also think the Bank of England is an under-utilised tool.
Q117 Chair: Ms Sood, do you want to respond to the question on the green taxonomy?
Jaya Sood: Like James, I think that they are all really important. They serve very different purposes. Disclosures are important for understanding what corporations are doing now. Transition plans are really important for understanding where they are headed in the future. The green taxonomy makes it easier for investors to categorise firms along those lines, rather than having to look into those disclosures themselves.
The example I gave, of where a green taxonomy would have been really useful, was during the quantitative easing programme, where the Bank of England employed this corporate bond purchase scheme. It said that if corporate bond issuers were more aligned with climate goals, it would offer a better price for buying up those corporate bonds. In determining which corporate bonds it was going to offer a better price to, it had to look into the TCFD disclosures itself. It also had to construct its own framework and look at the emissions intensity of the activities that sat under that corporation.
The one weakness was that was only a snapshot in time, because at the time the Bank did not have access to transition plans. They would have shown the direction of travel of businesses and might have affected how it made those lending decisions. The other issue is that, without a green taxonomy, it had to do all the work itself, so it was doubling up and duplicating efforts unnecessarily.
Q118 Jonathan Davies: We have had very insightful evidence this afternoon, so thank you very much. The ZEV mandate has come up a few times. In general terms, to what extent do you feel that vested interests in the sectors—I am particularly thinking of automotive and hard-to-abate sectors—are shaping the Government’s thinking on this issue, on how we mitigate carbon emissions and manage our relationship with the environment? Particularly in the automotive sector, they have an incentive to sell you a new car, don’t they?
To what extent has that curtailed green investment and private capital going into things like sustainable fuels? Because there is a case to say that if you have, perhaps, a 10-year-old, well-made car that is well maintained, and you power that on sustainable fuels, it makes sense to run that car for the rest of its life, because an electric vehicle takes many, many miles to offset its carbon emissions.
How good do you think the Government are at making those assessments about whether, actually, the automotive industry would like to sell you a new electric car, but for the sake of our relationship with the environment, we should be pushing in a different direction and relying more on sustainable fuels? Does it permeate the Government’s thinking that those powerful voices within commercial aspects of the economy are sometimes leading us to go down the wrong track?
James Alexander: Yes, I think we have to accept the broad premise of what you are saying. We have to get better at reusing and extending the life of things as far as possible. A throwaway culture, which exists all through the economy, not just in automotive, is clearly not where we need to be. At the same time, with electric vehicles we have a technology that is proven to work, proven to be cheaper and proven to be effective. I do not fully understand why incumbent automotive companies are not rapidly transitioning, when they are being so readily pushed out by companies that are electric-only and are now taking a substantial share of the market.
There is definitely a transition challenge here. These companies have failed to transition quickly enough, and you might argue there is a degree of policy failure in there, although I am not sure what it would be. Some of the incumbent companies are losing substantial market share to new companies, particularly from China. I understand that the UK is one of the biggest markets in the world for Chinese electric vehicles, and that has had an impact.
In terms of corporate interference on policy, the area we see this the most, of course, is the oil and gas industry. It is very clear that that is the incumbent industry that has significant resources, which sees the transition as an almost life-or-death moment, and has switched in recent years from trying to deny climate change altogether to saying we do not need to solve it as quickly, and so is putting enormous amounts of money into lobbying and engagement, not just here but all across the world.
We can see the results. It has substantially slowed the transition. It has led us not to believe some of the science—despite the fact that 99% of scientists agree—and it has created a huge public debate in an area that should not actually be a debate about whether we fix climate change, but how we fix climate change.
That is extremely unfortunate. It is unfortunate that it has been allowed to permeate throughout global politics. How we address that, I think, is by listening very clearly to scientists and others who really know what they are talking about, but also by holding firm—holding firm on the analysis we have done, and trusting that our analysis of how the economy is going to develop is the right one.
Importantly, we cannot try to be a country that sits on the fence, between the new economy around electrification and renewables and the old economy around fossil fuels. If we do that, we will lose in both directions. We need to say that the economy of the future is evidently going to be around sustainability and renewables. Lord Sharma said exactly the same thing.
Do we want to be a leader in that? Do we want to use our universities to drive key innovations in that? Do we want to have the companies of the future based here in the UK? Or do we want to sit on the fence, try to ride two horses at once, fail to do either, and end up without the innovations here, without the companies here and without the industry here? To me, it is pretty obvious what sort of economy we want to create.
Q119 Sammy Wilson: You have spoken about Government policy changes, which of course are very often driven by reality. I do not blame groups such as yours, who come along here with an agenda and promote it vigorously; I would not expect you to do anything less.
But the motor industry says that the mandate has cost it £12 billion in the past two years and it has deterred significant investment in the United Kingdom, with further investment likely to be held back. The grid operators say that even if everyone wanted an electric car, they could not provide the necessary charging capacity because the grid is not yet strong enough and will not be for many years, given the scale of investment and physical work required. As we hear in the Chamber almost weekly, jobs are being lost in the oil industry with no immediate prospect of replacing those well-paid jobs. Is it not a political reality that the realities of life must confront the Government at times, and they must make choices that lead to changes in policy not simply for electoral reasons, but to ensure that people can live their lives without facing steep increases in bills at a time when they are already vulnerable? Do we not have to accept that policies designed to show their benefits in 50 years may not be appropriate for the next five, and may therefore need to be revised?
Jaya Sood: Is that to both of us?
Sammy Wilson: Both of you.
Jaya Sood: As James said, I think what has happened is we have ended up in a situation where we are in the worst of both worlds. The Government are spending a great deal of money financing subsidies to companies that are, to a degree, delivering the transition, but doing so in a way that means consumers are not able to see the benefits of the costs, for example, in their bills coming down.
If we had a stronger industrial strategy that was more detailed, more serious and more forward-thinking, with the state as a proactive, equity-stake-taking co-investor in a lot of these projects, yes, it would lower the flexibility. It would mean that when challenges came along, and costs exceeded what was expected, and that impacted the consumer, the Government would need to hold firm and not change direction.
I also think that the kind of flexibility we are maintaining at the moment, by constantly changing direction, with the Government consistently caving to pressure and not putting forward a detailed, serious industrial strategy that it puts its clout behind, and that the Treasury can get behind, means that costs to the consumer are still going up. They are going up because we are transitioning in a very disorderly way, where a lot of the benefits of the transition are not being captured by the consumer, but are being captured by international private finance a lot of the time.
We are stuck in this middle ground, where we are not being strong and bold enough, and the Government are not backing their decisions and pathways in a way that mean they can actually lower costs and make life easier for people, so that people can see the benefits of the transition. Instead, we are in this middle-ground world where the Government are under pressure for not doing enough, and people’s bills and costs are still really high.
James Alexander: Building on that, you talk about political reality, but political reality has to hit real life. That is why it is called political reality. We have a real climate reality and an economic reality. The climate reality is that the climate is changing. We cannot deny that. We cannot sit here on a day like today, with a close to record-breaking temperature, and deny how much the climate is changing. The climate reality is that farmers are not going to be able to grow crops. The climate reality is that almost half a million homes are not going to be able to get flood insurance in the next few decades. That is in a report we just published.
The economic reality is that electric cars are cheaper to run and cheaper to buy than petrol cars. Unfortunately, we are hitting against quite a lot of realities, and the sensible political response is to say, “These changes are happening. They are hard. They are complicated. We cannot pretend they are not happening. We have to do what we can to make people’s lives as easy as possible within the context of these climate and economic realities.” Just ignoring them, and hoping they go away, I do not think is a responsible position.
Q120 Sammy Wilson: We all accept that the economic reality for the vast majority of people outside these walls is that at present they find it difficult to pay their electricity bills, because the transition is costly. Indeed, the Grantham Institute indicated that we would not experience the full benefits. The costs would be loaded between now and 2050, and we might then begin to feel the benefits of the transition spending and transition costs after 2050. That is not good enough. This is a political and economic reality, and that is not good enough for people who are currently unable to meet their cost of living.
You talk about the change in the climate and everything else, and we could talk about what causes the change in climate; we are experiencing climate change, but people are also experiencing the economic reality now. All I was really trying to get from you is an acknowledgment that the Government do not do this wilfully. The Government do this because they are faced with a situation where you cannot deliver some of the policies without either disproportionate cost or physically having to make huge changes that cannot possibly be made in the short run.
James Alexander: Yes. I am happy to acknowledge that people are finding life very difficult. That is something that the Government need to look at very closely and pay very close attention to, and I hope they are. We cannot fail to acknowledge that the gas price is a major driver of electricity prices, that gas supplies are clearly even more fragile and subject to shock than they have ever been, and that that change is not going to go away either. There are multiple reasons for the economic shock we are currently in, and multiple reasons for the cost of living challenges; to say they are purely the fault of net zero I think would be disingenuous, to say the least.
We need to make sure we are putting out to the public a rational, thoughtful narrative on how we get the country to net zero—to the place where we are not causing further climate chaos, which is going to affect future generations much more substantially than any of the shocks we have seen to date—while also keeping in mind that we do recognise and appreciate that people are suffering from cost of living challenges, and that we need to take steps to address that.
That means looking at things like skills, and how the Government support communities, as you talked about. A clear example could be Port Talbot and the area around it. I do not feel there was a multi-layered Government response, saying, “We know Port Talbot is going to be a challenge. We know there are lots of areas around Port Talbot where we could put in training places. We could address some of the reskilling needs. We could find and attract international companies to manufacture things for the future economy in the areas around Port Talbot.” I do not feel we had that multi-agency Government response. That is the sort of thing we need to think about much more strategically.
Jaya Sood: Just one word on this. I totally acknowledge your point as well, and there is more that the Government could be doing to socialise the cost of the transition. That is a choice, and that is about market design. I have already spoken about profit extraction along the supply chain. A lot of profit extraction is going on along the pathway of the transition that, quite frankly, is unacceptable. It is ultimately consumers who are paying the price for that. I am not surprised that they are frustrated.
On the other end of the scale, you have market design options laid out in front of you: a rising block tariff for energy bills, removing levies from bills and putting them on to taxation, and increasing the degree of progressive taxation you are doing.
This is a macroeconomic problem, the transition. It is not that the transition is operating in a silo, with these associated costs, and everyone is going to have to pay those costs equally. It is important—as James says, talking about Port Talbot—that we think about what the transition is going to do to people’s jobs and livelihoods, first, but also, secondly, to their day-to-day costs. If we are going to massively expand the grid, is that going to put a lot of costs on to consumer bills, and what are we going to do about that? There are options that are developed and out there that the Government could choose to take.
Chair: Ms Sood and Mr Alexander, thank you very much indeed. We appreciate the evidence we have heard from you. We bring this sitting to a close.