The Chancellor's optimism is wearing thin, argues James Murray, we need a proactive green growth strategy
Oh happy day. The economy is growing – a whole 0.2 per cent during the second quarter of the year, which depressingly is actually at the upper end of what many analysts were expecting.
The UK economy has now been flatlining for nine months and Chancellor George Osborne is fast running out of excuses.
Yes, it was a cold winter with the wrong sort of snow; yes, the UK has been hampered by both the Eurozone teetering on the brink and the basket case US political system that seems incapable of running the world's largest economy; yes, the tragic earthquake in Japan also had a dampening effect on growth; yes, the Royal Wedding may have resulted in a net negative economic impact, despite the fact we were told at the time there would be a sizable boost from tourism and retail; and yes, perhaps there are a few signs of "underlying growth" out there.
But for all the explanations and excuses, Osborne and Co cannot get away from the fact that they have been in office for a year and ever since the fag end of the previous government's stimulus package the economy has been as flat as the proverbial pancake.
The simple truth is that the government is singularly lacking anything that could pass muster as a coherent short- to medium-term growth strategy, let alone a green growth strategy. The coalition may have a robust argument for why it urgently needs to focus on the deficit (an argument that looks ever-more compelling each time Eurozone countries edge towards the brink of economic apocalypse), but that does not excuse it from its duty to help stimulate growth. The finances are tight, but there are innovative steps the government could take to drive sustainable growth without necessarily adding to the deficit.
The question is what, given the state of the nation's finances, can the government do to deliver meaningful growth?
The first step should be to acknowledge once and for all that if we are to have a growth strategy it has to be a green growth strategy. The arguments for focusing economic stimulus funding and policy measures at low-carbon businesses and infrastructure have been well rehearsed, but they bear repeating. Scientific, economic and political realities mean we have to urgently decarbonise our economy and wean ourselves off volatile fossil fuels, and the cycle of recession and recovery represents the perfect opportunity to give that transition a major kick start.
Interest rates are low, horded capital is sitting on balance sheets waiting for the perfect investment opportunity, politicians are looking for labour-intensive projects to tackle unemployment, low-carbon infrastructure is desperately needed to help underpin long-term recovery, and many of our international competitors are pursuing their own green growth strategy.
Despite some encouraging progress at the Department of Energy and Climate Change (DECC), we have heard hardly a peep out of David Cameron and George Osborne on green issues since the election beyond a few platitudes on being the "greenest government ever". Any green growth strategy should start with a meaningful speech from both the prime minister and the chancellor explicitly committing the UK to low-carbon growth. That commitment alone would help stimulate green investor confidence and help silence those critics who maintain the low-carbon economy is only a priority for a handful of ministers.
The next step is to draw together those aspects of the coalition's agenda that could already be positioned as a green growth strategy. Electricity market reforms, the Green Deal, the Renewable Heat Incentive, feed-in tariffs, the Green Investment Bank, the proposed electric car charging network, plans for new high-speed rail links, even the much criticised waste strategy and planning reforms are all designed to stimulate green investment and create jobs as well as curb carbon emissions. Energy and climate change secretary Chris Huhne and his colleagues at DECC have been doing a pretty good job presenting the case for green growth, but it has been a lonely battle. The rest of the cabinet should be drawing together these disparate policies into one narrative centred on how the government is taking action to stimulate a green recovery.
In doing so they should also drop the absurd insistence that the coalition has abandoned the previous government's interventionist green industrial policy and is not seeking to pick winners with its low-carbon investment. The Regional Development Agencies may have gone and quangos such as the Carbon Trust may have been spun off, but there is still a low-carbon technology fund and a host of other government-backed bodies investing directly in low-carbon projects.
Witness recent grant commitments to fund marine energy parks, offshore wind technologies and electric cars as evidence if you doubt this fact. The coalition is continuing to provide direct support for some cutting-edge clean tech projects and should be looking to weave this support into its green growth narrative rather than underplaying it so as not to upset ideologically driven backbenchers.
Of course, the suggestions made so far are presentational rather than policy-focused, and while I have no doubt a more co-ordinated green communications strategy would help drive green investment it will not, on its own, deliver the kick-start the economy desperately needs.
So what can be done without contradicting Osborne's priority of reducing the deficit?
The most obvious choice is for the Treasury to finally pursue some of the revenue-neutral green tax measures that experts from across the political spectrum have long predicted could drive green growth. There is a vast array of options from which to choose, ranging from proposals for stamp duty breaks on greener homes, to Zac Goldsmith's call for more punitive levies on the most polluting cars to be balanced by tax breaks on cleaner vehicles. If Osborne cannot stomach taking Ed Balls' advice and cutting VAT across the board, how about revisiting the idea of cutting taxes on green goods and services?
A genuine overhaul of the taxation system in favour of green taxes would comply with the coalition agreement, reverse the recent trend away from green taxes and, if properly balanced, deliver immediate and significant green growth.
The next trick is to find some cash from somewhere in order to deliver a modest yet highly focused green stimulus package.
The Treasury is quick to quash calls for more spending, warning of the impact on the deficit, but there are options that could be delivered without derailing the wider debt reduction effort.
It might not be politically feasible at the moment given recent hikes in energy bills, but if the government is really confident its Green Deal energy efficiency scheme will help bring energy use down, there is a case for agreeing to an increase in the pot energy firms pay to generators through the feed-in tariff renewable energy incentive scheme.
As solar developers are fond of pointing out, the sector could create tens of thousands of jobs over the next few years, with an increased feed-in tariff pot that would equate to just a few more pence a week on energy bills. Such a move would help deliver a genuinely sustainable small-scale renewables industry that should then be able to stand on its own two legs as incentives are scaled back in a more co-ordinated fashion than we have seen to date.
Equally, a government that is serious about delivering growth should revisit the absurd decision to stop the Green Investment Bank from borrowing for the next four years. To block such a move on the grounds that accountancy rules would mean it would add a few billion to the deficit is the height of political short-sightedness.
Then there are Vince Cable's calls for another round of quantitative easing. There are plenty of good reasons to oppose another high-risk round of money printing, but if the government does go down this route it should take a look at an interesting paper from Finance for the Future, which eloquently argues that rather than restoring bank's balance sheets any quantitative easing should be used to support green investment.
Finally, even if George Osborne would rather spend a rainy Bank Holiday weekend camping with Ed Balls than perform a u-turn, it is worth pointing out yet again that the billions he wasted in the budget providing an utterly ineffective cut to fuel duty could be much better spent supporting green initiatives that both drive growth and help people shift towards a more sustainable means of transport.
Many of these proposals would prove politically unpalatable for Osborne, particularly given they would be seized upon by Labour as both evidence of government indecision and an indication that the coalition has accepted its argument that growth represents the most effective means of tackling the deficit.
But with the economy flat-lining, the step change in low-carbon development yet to materialise, and the coalition's green agenda still too narrowly confined to DECC, it is surely time for the government to give us something to properly celebrate in the form of a clear, concise and clearly costed green growth strategy. Now that really would be a happy day.
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