With a new Prime Minister in place, Britain faces a critical decision: embrace green growth or risk economic stagnation. The new Labour Government has inherited an economy creaking at its seams – with sluggish growth, declining public and private sector investment and the lingering scars of the pandemic and energy-price crisis still hitting pay packets across the country. Growth is understandably the priority for the new Chancellor – the first woman to hold this post in 800 years. However, this historic appointment comes with historically challenging circumstances. Kickstarting growth will require ambition from the offset.
Fortunately, the UK’s Net Zero Transition offers light at the end of the tunnel. The transition, defined by 2023’s independent ‘Net Zero Review’ as ‘the economic opportunity of the 21st century’, is a high growth engine for the future. With 92% of global GDP now covered by net zero targets and the production of high-carbon goods less competitive in the UK than in countries like China and India, it is the green economy that offers Britain economic salvation. Through our strengths in clean technology, renewables, advanced manufacturing, and services, the UK economy could benefit by up to £1 trillion annually by 2030.
The UK is also well placed to leverage its competitive advantage in the fast-growing global ESG market. Consistently ranked as the top global green investment hub, early leadership by the new Government to implement a regulatory framework fit for the 21st Century will ensure that the City of London is at the heart of global transition finance and attract significant private sector investment. Swift action by the new Government to deliver the much-delayed Sustainability Disclosure Requirements – including rapidly introducing legislation for high-credibility corporate Transition Plans for the largest companies across the country – will ensure Britain is the best place to do business on green and captures the market on reinsurance, assurance and net zero arbitration.
Capturing this green growth opportunity requires decisive action to mobilise green investment. The Climate Change Committee estimates public and private investment must scale to £50 billion annually by 2030. Fortunately, the majority of this can come from the private sector. However, this investment will not materialise without confidence in the Government’s overall trajectory. In a tight fiscal context, Rachel Reeves must think smart. Committing to a Net Zero Investment Plan in her first 100 days as Chancellor would be the transformative step the UK needs.
Rebuilding market confidence is vital to unlock private investment in the transition. However, this depends as much on targets as credible delivery. Simply updating the UK’s financial regulatory framework will not drive investment at the pace and scale required to meet our net zero targets. A coherent and credible financing delivery mechanism will reassure the market that a Labour Government means business. A UK Net Zero Investment Plan would be a pioneering mechanism to remove the barriers and support the catalysts for growth – using data-led policy-making and targeted public investment to crowd in private investment at an unprecedented scale. The plan would combine independent investment flow tracking with sectoral investment roadmaps, which set out the package of regulations, policies, and public spending that will be deployed to leverage the private investment required to meet sectoral decarbonisation targets and pathways.
This announcement would be timely, given the recent legal challenge in the UK on the Net Zero Strategy which found it wanting. The next Government is required to provide an updated Net Zero Strategy by May 2025, after the existing one was deemed inadequate by the High Court. To meet the Climate Change Act’s requirements and to provide clarity of direction and certainty to the private sector, particularly for 1.5°C aligned transition planning, the Government should include sector-level transition pathways, clear targets and milestones in this updated strategy.
In turn, setting out a clear domestic delivery plan on net zero will enable a Labour Government to credibly champion the adoption of similar approaches abroad, such as endorsing the mounting calls for National Transition Plans in international fora like COP, the G20 and G7. A comprehensive plan, including key private sector reforms like mandatory transition planning, is vital if Reeves is to kickstart a global economic transformation.
If a new Labour Government seizes this moment, it can lead the world in green growth. The vast economic potential of the green transition is clear, and time is running out. By committing to a comprehensive Net Zero Investment Plan at the Autumn Budget, Rachel Reeves can provide the clear, credible framework needed to attract large-scale private investment, and set the agenda internationally on best practices for green investment. With one bold step forward, she can relaunch Britain as a global climate leader and secure a brighter future for Britain.
Read the full blog originally posted by King’s Business School here.