HM Treasury’s role in our low carbon future

Posted by Rob Lambe on 4th July 2016


Since the UK has narrowly voted for Brexit, British-based businesses face unprecedented uncertainty. Within the next two months we are likely to see a new Prime Minister, Cabinet and a restructured Opposition Party. By the end of the year we may have seen a General Election, a second Scottish referendum and the starting gun for our inexorable exit from the European Union. The implications for the legislative and policy framework cannot be guessed.

In this new post-vote context, it is worth considering which institutions and policies can be used to give confidence to businesses over the next few months. Giving evidence to the Environmental Audit Committee earlier this week, I was asked to consider the role of the Treasury in sustainability and I argued that the department must focus on long-term policies, which will drive enduring benefits for the UK whilst stabilising the business investment landscape.

HM Treasury is indisputably the most powerful government department. It has the ability to promote or override decisions by other departments and wields direct influence over economic activity in this country. Unsurprisingly, businesses pay attention to Treasury.

Traditionally the Treasury has seen itself as a gatekeeper, in charge of the fundamentals of setting taxation and regulating the banking sector. But it is also highly sensitive to the political priorities of its ministers and this has on occasion led to deeply damaging decisions.

For example, the Energy Company Obligation (ECO) was a well-designed policy that sought to reduce the fuel bills of those least able to pay by adding just 4% to the energy bills of all consumers[1]. As a business, we could see a clear pathway for how the market would develop and we invested heavily to be ready to answer it. But almost immediately after its introduction the ECO became a political football and was severely downgraded, wasting corporate money and government credibility. The ECO shambles was a classic example of short-term politics trumping long-term planning. In the short term, energy consumers’ bills became slightly lower but in the long term fuel poverty is likely to worsen and the government now has less ability to reduce bills for the most vulnerable households.

The Zero Carbon Homes policy also fell foul of short-term political need. The policy was introduced in 2006 and in response, industry worked closely with government to develop the detail. But in summer 2015 an almost arbitrary decision by government scrapped the whole policy, despite there being no evidence supporting the need for cancellation. This knee-jerk decision severely undermined government credibility in the eyes of business.

Treasury has also provided examples of positive leadership. The Infrastructure Carbon Review[2] linked carbon reduction with costs savings in major infrastructure. It was published by the Treasury and consequently drove a huge amount of interest in my sector, with signatories from contractors to client side signing up to it. This did not require funding or policy support but created a strong positive reaction simply by the Treasury using its authority to highlight potential cost savings associated with carbon savings.

Treasury should prioritise sustainable, long-term thinking over the coming months and years and areas that I and my fellow witnesses highlighted to the Committee included investment in innovation and promoting energy efficiency, for example by linking Stamp Duty payment to the energy efficiency of a house. The construction sector has repeatedly called for home energy efficiency to be made a national infrastructure priority and this would again allow businesses to invest with confidence.

While new announcements will clearly be on the back burner over a politically charged summer, the need for long-term planning has never been greater. Once new political matters are in place, the Treasury must accept that to create stable economic growth it must show leadership on sustainability, providing a bastion of policy certainty while so much else will be in flux.

Rob Lambe is Treasurer and a Director of the Aldersgate Group, and Managing Director of Willmott Dixon Re-Thinking.

[1] FT (October 2013) “Why green taxes are less than they seem”.

[2] HM Treasury (November 2013) Infrastructure Carbon Review