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The economy of Britain is experiencing a significant decline. Following the confirmation of a recession in the later part of last year, majority of experts believe that the downturn will be brief and not severe. However, not many are confident about a robust recovery from the most difficult time for living standards in nearly seven decades.

In the majority of economic cycles over the last hundred years, there has been strong growth after each recession as households and businesses recover from setbacks. However, according to Matt Whittaker from the Pro Bono Economics thinktank, the last twenty years have been an exception. Gross domestic product per capita has either decreased or remained stagnant for the past seven quarters, and it has been 16 years since the last extended period of growth ended.

The top priority for the winner of the upcoming general election should be ensuring that Britain can overcome its current challenges. The country has been struggling with stagnant progress for over 15 years, leading to a crisis in cost of living and a significant increase in poverty levels. The small amount of growth that has occurred has not been distributed evenly and has caused geographical disparities, causing the UK to fall behind similar developed countries.

In order to boost the struggling economy, the upcoming government must prioritize the type of growth that would benefit Britain the most. Two main goals must be considered in their plan: addressing the entrenched inequalities of the past decade and tackling the pressing issue of climate change.

Currently, political leaders are hesitant to provide a definitive plan, as Rishi Sunak has pledged tax reductions that do not align with the main goal, while simultaneously diminishing policies that could potentially aid in addressing the secondary goal.

The leader of Britain had made a pledge at the beginning of their term to transform the country into a dominant force in clean energy. However, the prime minister has since reversed their stance on net zero initiatives and embraced anti-environmental policies to appease the conservative faction of their party. Keir Starmer has also strategically retreated by reducing Labour’s proposed £28 billion investment in green initiatives due to concerns that the opposing party could exploit it during election season.

Both are centered around the same idea: being cost-effective. The aftermath of the 2008 economic crisis, Covid pandemic, Brexit, and the continuous decrease in productivity due to over a decade of inadequate investment by the Conservative party has greatly impacted the government’s finances, as well as the increasing demand from an aging population. The budget deficit is currently at a record high, and the national debt has reached its highest point since the 1960s.

Yet, it relies on two misconceptions. Firstly, the belief that taking no action has no consequences. This is clearly false, as demonstrated by the lack of investment in the past 15 years, which has led to our current state of poor economic performance. The impact of the climate crisis is also becoming more evident and more expensive for individuals and companies. Secondly, there is the notion that allowing the private sector to drive growth and handle the climate transition would be more cost-effective.

Investing in new technologies is not a cost that disappears magically in the private sector. Instead of being covered by the government through taxes, it is reflected in the prices of utilities, goods, and services on the household balance sheet.

According to a recent report by the Common Wealth think tank, implementing government-funded clean energy initiatives could be more cost-effective compared to private sector initiatives. This is due to the lower borrowing costs that countries have compared to corporations, resulting in potential savings for households. Additionally, investing in the transition to a more sustainable climate can also stimulate economic growth and pave the way for new job opportunities and industries.

The report presented an argument for a bolder strategy for Labour’s Great British Energy, which is the party’s publicly-owned company for generating clean energy. The report suggests that an initial capitalization of £8.3 billion for GB Energy could result in annual savings of £125 million to £208 million on debt interest costs, compared to borrowing from the private sector. This could potentially save up to £1 billion overall.

While Starmer cut back Labour’s overall £28bn investment plan, the decision to keep and prioritise GB Energy is an important move. Plenty of details over its operation still need clarifying. And it could be more ambitious. But a publicly owned firm investing in renewable energy could help optimise the transition to net zero.

One potential issue is that the government may not have the same expertise as large energy corporations, and may be less effective in generating energy, resulting in higher costs. However, it is becoming evident that relying solely on the market is not successful, as some of the most profitable energy companies prioritize paying investors instead of investing in renewable energy.

In the past two years, energy corporations have profited greatly due to increased prices following the Russian takeover of Ukraine. This should have resulted in a substantial reserve of funds for the transition to green energy. However, research from the IPPR thinktank reveals that just BP and Shell alone distributed £32.6bn to their shareholders in 2022 through dividends and share repurchases, which is 11 times higher than the £2.9bn they put towards renewable energy investments.

Given the current challenges of increasing supply chain expenses, unexpected political events, and elevated interest rates in financial markets, a government-supported business could alleviate the financial risks associated with renewable energy projects for private companies by investing alongside them. This approach is already widely practiced in Britain, but typically involves companies owned by foreign governments rather than our own.

Statistics from Common Wealth reveal that 42.2% of the total capacity of windfarms in the UK, both currently functioning and under construction, is owned by foreign public entities such as state-owned enterprises and public pension funds. This highlights the minimal involvement of UK entities in the wind energy sector, with the government owning a mere 0.03% of the capacity compared to Munich’s ownership of 0.85% through its stake in the Gwynt y Môr windfarm located off the coast of north Wales.

The upcoming administration will face decisions to consider. Boosting economic progress could benefit from a significant increase in eco-friendly investments. Instead of hesitating due to concerns about cost, it is the consequences of not taking action that could be more damaging.

Source: theguardian.com