Funding net-zero could cost UK less than pandemic

There is widespread coverage across the UK newspapers of the latest annual report by the Office for Budget Responsibility (OBR), in which the UK fiscal watchdog focuses on both the economic recovery from the Covid pandemic as well as the nation’s net-zero goal.

Headlines

The FT says: “Funding the UK’s transition to net-zero emissions could cost the government less over 30 years than the pandemic has cost in just two, the OBR said on Tuesday. Getting to net-zero by 2050 would add 21% of gross domestic product, or £469bn in today’s terms, to the UK’s public debt, if governments around the world took early action to reduce emissions, the fiscal watchdog said. Most of this would be due to the loss of revenue from fuel duty, with the gains from higher carbon taxes sufficient to cover public spending of about 0.4% of GDP a year on net-zero investments. The OBR described this fiscal cost as ‘significant’ but ‘not exceptional’ – while warning that it could be much higher if governments delayed acting until 2030 and then had to cut emissions sharply. Unchecked climate change could take public debt to 289% of GDP by the end of the century – compared with the post-pandemic peak of 108.6% the OBR currently forecasts for 2023-24.” The FT adds: “The growing frequency of extreme weather events is one reason the OBR believes advanced economies, the UK included, are more exposed to ‘potentially catastrophic risks’ than in the past – with sporadic crises carrying lasting consequences for the public finances.”

The Guardian follows a similar line to the FT, saying: “The UK’s climate targets will cost the government less over the next 30 years than the price of battling the Covid-19 pandemic if it acts quickly, according to the UK’s fiscal watchdog…The independent spending forecasts found that taking early action to decarbonise the economy would have a smaller net impact on the UK’s finances than Covid or the 2008 financial crisis. But the spending watchdog said that delaying climate action until the start of the next decade…would end up adding twice as much to the national debt as acting fast. Failing to take action could have a catastrophic impact on the public finances, the OBR warned.”

Business

The Daily Telegraph, in a report on the frontpage of its business section, says that the chancellor Rishi Sunak “faces a triple threat of Covid, climate change and rising interest rates in his battle to balance the books”. It continues: “The watchdog admits the scale of any subsidy [to ‘decarbonising buildings and ripping out the gas boilers’] is ‘unknowable’, but assumes the government picks up the entire cost of ‘greening’ the poorest 15% of households, while the middle 70% pay half and the richest 15% foot the entire bill…Acting late on climate change or ignoring it altogether makes the fiscal news even worse, however.”

The Times says “lost fuel duty will have the biggest impact on the government’s fiscal position as petrol and diesel vehicles are phased out”. It adds: “While the fiscal costs of reaching net-zero could be significant, the OBR said they were not exceptional. It warned, however, that its projections were based on an optimistic scenario in which governments take early and decisive steps to reduce emissions. The consequences for the public finances will be grave if policymakers delay action until 2030.” The Press Association report carried by the Independent report sits under the headline: “UK faces triple threat from pandemic, climate change and ballooning debt – OBR.”