HomeGreening the economyIt was a green Mansion House speech, action needs to follow it

It was a green Mansion House speech, action needs to follow it

This post is by Green Alliance’s policy advisers, Zoë Toone and James Fotherby. 

In politics, few things are predictable. Last night’s Mansion House speech was no exception. Held on the UK’s hottest day, delivered by Chancellor Nadhim Zahawi, not even two weeks into the job, it was attended by senior figures from the City of London’s financial sector in business attire, scrapping the customary black tie. Most unpredictable, however, was the chancellor’s embrace of renewables, net zero and green finance, breaking what has become a tradition to have a single, token reference to climate and nature in a Mansion House speech.

Nadim Zahawi signalled his three priorities for the summer: controlling inflation, creating the conditions for private sector recovery and delivering a vision for the UK’s financial services sector. While all good steps, there wasn’t much said about how these priorities relate to the UK’s ambitions to be a net zero financial centre and economy.

Demand management will control inflation
The chancellor pointed to the Bank of England as responsible for tackling inflation, currently at 9.4 per cent, but the bulk of this is being driven by supply side issues. The problems of post-pandemic supply chain disruptions and global energy issues, all exacerbated by Russia’s invasion of Ukraine, are out of the bank’s control and need the government to intervene.

The missing piece in both the chancellor’s speech and the government’s recent energy security strategy is demand management. Energy efficiency and deploying much more clean heat and renewable energy by 2025 could replace four times the gas the UK currently imports from Russia, whilst also reducing household energy bills.

Second, the chancellor can increase economic growth by creating the right conditions to encourage private sector investment, predominantly through skills, infrastructure and innovation, the mainstays of the current plan for growth.

Green infrastructure can help private sector recovery
By investing in those projects that tackle climate change and restore nature, while also levelling up, the government can also create a more secure space for private investment. There are several ways to achieve this.

The UK Infrastructure Bank (UKIB) received a brief mention in the speech, highlighting green projects the government has already invested in, like solar farms and green bus routes. But UKIB could be used much more strategically to help establish emerging markets such as ecosystem services, to reduce flooding risk or raise the productivity of soil for example.

This is a chance for the UK to lead globally in these markets if it is willing to take on the initial risk. The government could use the Brexit opportunity of Solvency II to free up capital from insurers. This regulation stipulates how much capital companies should hold and where they can invest. Changes will free up capital and give insurers greater flexibility to invest in long term assets. But it needs to be targeted so it delivers green growth instead of more stranded fossil fuel assets.

The chancellor reiterated the government’s aim to increase public investment in research “by almost 60 per cent” over the next five years. This country excels at early stage research but needs to get better at developing and delivering innovation down the line. Biodiversity and natural capital markets could be one such example. Taking the opportunity to shape them through effective accreditation, oversight and market rules would give the private finance sector more confidence to invest, helping to meet Defra’s £500 million a year private finance target for the natural environment and close the nature finance gap.

The chancellor’s final priority is to revitalise the UK financial services sector so it is “more open, competitive, green and technologically enabled”. This is critical, as not only are financial services vital to the economy, employing 2.3 million people and creating £1 in every £100 of UK economic output, but the City of London has struggled to keep up with other major financial centres in recent years. Last year, Amsterdam overtook London as Europe’s top share trading hub.

To fulfil this vision, Nadim Zahawi provided more details on the Financial Services and Markets Bill, unveiled in parliament today. The bill is an opportunity for the government to rewrite regulatory rules which govern the UK’s financial system. One of the foremost changes is giving regulators a new secondary objective to drive long term growth and international competitiveness.

The vision for the finance system should align with net zero
In boosting competitiveness, the government should look to the opportunities and first mover advantage of the net zero economy. Investment in green technology, such as renewables and agritech, could revitalise the London Stock Exchange (LSE). Compared with other global markets, the LSE is dominated by traditional industries, such as oil, tobacco and mining. Technology makes up just two per cent  compared to 20 per cent in foreign stock exchanges. Setting a statutory objective for regulators to align the financial system with net zero will help to raise this, providing certainty for businesses and investors.

In what was Mr Zahawi’s first, and quite possibly last, Mansion House speech as chancellor, green ambition was evident. But action should now follow fast. A framework should be set that positions the UK as the place to go for green finance, with unlocking capital for investment and making regulation work to steer private sector money in the direction of green opportunities as top priorities. Now is the time to build these markets, not hold them back.

Written by

Green Alliance is a charity and independent think tank focused on ambitious leadership and increased political support for environmental solutions in the UK. This blog provides space for commentary and analysis around environmental politics and policy issues as they affect the UK. The views of external contributors do not necessarily represent those of Green Alliance.

%d bloggers like this: