This unprecedented public health crisis is placing an almighty toll on UK finances. Estimates vary but the UK government will be borrowing hundreds of billions by year-end, many businesses are suffering despite the extensive support offered and several years of record low unemployment are now at risk owing to this terrible virus.
It is right that the Chancellor has been focused on measures to stabilise our economy and give reassurance to businesses and employees. The Job Retention Scheme for example, will help ensure that businesses will be able to resume operations quicker and avoid the costs of laying off.
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However, we must now start to look at our recovery and what measures can be taken to facilitate growth, boost jobs and expand production. This is an opportunity as much as a requirement. It is a chance for the new Chancellor to reframe and redirect our economy to meet the long-term needs of our people and the planet.
A renewed focus on capital investment to achieve economic growth and productivity will be critical. The planned “infrastructure revolution” outlined in the 11 March budget must go ahead, as must the “levelling up” agenda. But let’s make it a green infrastructure revolution, and level up to create new green jobs.
The UK has already shown great global leadership on climate change as the first major country to legislate to become a net zero emission nation by 2050. But to ensure we achieve such an ambition, the way we have done things previously needs to change, especially in capital markets.
As we come out of this crisis, the UK Government should issue a sovereign green gilt to specifically fund capital investment in infrastructure that will help stimulate the British economy after the coronavirus outbreak, creating new jobs, technology and transport – while also continuing the mission to become a net zero emission nation by 2050.
If we are to meet such an important and ambitious target, it is going to require significant investment, and this will require private capital.
Britain is the world’s leading financial centre, yet we are surprisingly behind the curve when it comes to utilising capital markets to finance green growth.
The Netherlands, France, Poland, Ireland and Belgium have all issued a sovereign green bond and Germany and Italy have announced they will be issuing later this year. While many of these saw oversubscribed demand, the French have been the most successful to date, raising over £20bn mainly from other countries to fund their green infrastructure.
Despite not having our own government green bond, UK investors are actually very active in the global green bond market – 28% of the money raised by the French for example, came from British investors. Only 2% of the world’s outstanding green debt is denominated in GBP, over 40% are denominated in euros.
So why has the British government so far held back on a green gilt? Well, it is partly down to concerns expressed by the Debt Management Office (DMO) who issue the debt about whether a green gilt will be more expensive to issue. But if we look at the other sovereign green bonds on the market, they either trade flat to, or even slightly tighter than their non-green peers. The only real additional cost will be in the reporting on the use of proceeds, but these will be far outweighed by the benefits borne from the investment raised for our country’s infrastructure.
Finally, in addition to being a cost effective way of growing our economy and making it more productive, it would also put a marker down for Britain as a future green finance leader, showing that the City of London can innovate, adapt and evolve to meet future needs.
Since 2010, the Conservatives in government have made great strides on climate change, but as we now face a great economic hurdle, we should seek to get out of the red by going green.