Reform the Treasury to tackle major environmental challenges

shutterstock_Treasury_lo (2)This post is by Duncan Hames MP. It was first published by The Guardian

Tackling climate change and restoring the public finances both require a long term view, but politics continues to be driven by short term considerations.

A lack of long term thinking in government undermines effective policy making, and that really matters when it comes to the environment. The threat of climate change demands action now but, by its very nature, we won’t see many of the benefits of that action – or the consequences of inaction – for decades to come.

The government has started to get this right in some areas, displaying the far-sightedness that climate change demands. The Climate Change Act was passed and the Committee on Climate Change created, both with cross-party support. The coalition government has set up the Natural Capital Committee to advise on the sustainable use of our vital natural assets. We’ve also made investments for the future, of which we can be proud: renewing our railway infrastructure, for example, and doubling the electricity generated from renewables.

But the way the Treasury assesses the costs and benefits of policy options goes to the very heart of how the government makes decisions.

Indeed, in many ways, the disciplines required to take seriously the long term need to get borrowing under control, and ultimately reduce the burden of public debt, aren’t so different to those required to ensure that we don’t leave a terrifying environmental legacy to the next generation as well. Yet benefits that will be realised by future generations and are difficult to quantify are too often given less weight than they should when balanced against immediate monetary costs.

In the Treasury, we place on one department responsibility for two big and important tasks of government: managing the public finances and ensuring we prosper as a nation. Balancing these twin demands is inevitably difficult, especially when it comes to appraising environmental policies. In some cases, it can lead the Treasury to apply models designed to analyse fiscal policies to environmental ones, capturing the financial costs while missing many of the benefits.

A number of Liberal Democrat parliamentarians, in partnership with Green Alliance, have been looking ahead to find Liberal Democrat approaches for the next parliament to the major environmental challenges we face, and also grapple with this question.

A possible answer would be to break up the Treasury. A new finance ministry could focus on ensuring the health of the public finances, while an extended Department for Business, Innovation and Skills could be given responsibility for a sustainable development policy.

Before then, however, it is surely worth reforming the Treasury to tackle some of the specific causes of policy short-sightedness. It could, for example, be given a clear objective to ensure a low carbon and resource efficient United Kingdom, and assign more weight to the future risks from climate change to our economy.

There could also be greater green oversight of the Treasury. Just as the Office for Budget Responsibility now scrutinises the effects of fiscal policies and assesses the long-term sustainability of the public finances, a new ‘Office for Environmental Responsibility’ could review the sustainability of current policies in terms of impact on climate change, resource efficiency and local noise, water and air pollution. It could also examine the economic risks of growing pressures on the world’s resources.

The men from the Treasury would argue that this could dilute its ability to manage the public finances. But that ignores the bigger danger posed to the economy by a deteriorating environment and the costs of failing to properly prepare for a future of greater resource scarcity.

Despite the long term decisions the coalition has made, the party conferences have demonstrated that short term policy making is alive and well. We would argue that Treasury reform – while it cannot fix this on its own – has a vital part to play in ensuring that the government takes a more long term view.

Green liberalism: reforming the Treasury for long term policy, was published on Monday 6 October 2014,  under the Green Liberalism project from Green Alliance’s Green Roots programme. This project aims to stimulate green thinking within the philosophical tradition of British liberalism and its advisory group, of which Duncan Hames MP is joint-chair, is made up of both independent experts and individuals involved in the Liberal Democrat party. 

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