Green finance. While most proposals for funding the green transition focus on fiscal policy, private financing will also play a key role as the need for more green investment intensifies. Creating the conditions for that private green investment is a key policy challenge, and one that governments around the world are grappling with. Much of the debate so far has occurred in an era of historically low interest rates, but that era may be coming to a close with rising base rates in response to high inflation. How to adapt to this new lending environment becomes increasingly urgent as there is a risk of vital green investment slowing down at a point where we need it to accelerate.
Greening targeted credit policy. The Bank of England must adapt its “policy toolkit” to combat the climate and cost of living crises, according to a new report by the New Economics Foundation (NEF). NEF argues that instead of “demand management relying on a blunt single interest rate tool”, green targeted credit policy interventions could both help the transition to net zero while also enabling the bank to better meet its price and financial stability targets. The report notes that both China and Japan have recently greened their targeted credit policy in the form of refinancing operations providing cheap credit to banks to lend for sustainable investments. NEF makes five recommendations for how to green targeted credit policy:
Truss’ energy plan. New Prime Minister Liz Truss is expected to announce a £100 billion + plan to cap energy bills. According to a Bloomberg exclusive, Truss is planning to set a fixed unit price for energy suppliers to sell gas and electricity to households with the government making up the difference. Bloomberg’s Alex Wickham says that the plan would “effectively replace the current price cap and sideline Ofgem”. It is not yet clear how the plan will be funded and whether it will extend to businesses as well as households.
22% inflation. Inflation could soar to as high as 22% if gas prices don’t fall, according to new estimations by Goldman Sachs. Even if gas prices fall to the level that the bank predicts, Goldman Sachs economists still expect that inflation will reach 14.8% in January.
A gendered analysis of the cost of living crisis. “Due to lower wages and savings, women are less prepared to face the rise in the cost of living”, the Women’s Budget Group (WBG) finds. In the third in a series of briefings on the gendered dimension of the cost of living crisis, the WBG’s proposals include uprating universal credit, overhauling the energy sector and extending the windfall tax to ease the impact of the crisis.
Liz Truss: a free marketeer or a “state capitalist”? As Liz Truss is elected as leader of the Conservative Party and therefore as UK Prime Minister, the Institute for Innovation and Public Purpose’s Craig Berry argues that the new PM may be more comfortable with state intervention “than her mimicry of Margaret Thatcher would lead us to believe”. In practice, this will look like a continuation of the growing Conservative appetite for “state capitalism”, he argues, with state capitalism defined as “the co-constitution of political and economic forces which control both state institutions and the dominant forms of accumulation”.
‘Trussonomics’ influencers. Cardiff academic Professor Patrick Minford, former Standard Chartered economist Gerard Lyons and the Institute for Economic Affairs’ Julian Jessop are rumoured to be the “trio of economists closest to the Truss campaign”. These influences suggest a dramatic shift away from Treasury “orthodoxy”, with Jessop arguing that Truss has “the vision to do things radically differently”.
No new taxes? Before being elected, Liz Truss vowed not to introduce new taxes if successful in becoming Prime Minister. In the final leadership hustings before winning the vote, Truss confirmed that there would be “no new taxes”.
Excess profits. Energy firms are on track to make excess profits of up to £170 billion in the next two years according to leaked Treasury analysis. The news comes after Liz Truss ruled out a further windfall tax and said “I don’t think profit is a dirty word”. The Treasury has said they do not recognise this figure.
CEO pay. Capping CEO pay is the best way to make the UK more equal, argues the High Pay Centre’s Luke Hildyard. Hildyard proposes a statutory wage cap arguing that with “some companies spending in excess of £20 million on just their executive teams, a cap in the low hundreds of thousands would save companies vast sums of money that could be used to support pay increases for thousands of lower earners”.
York and North Yorkshire devolution deal. Last month, York and North Yorkshire signed a “historic” devolution deal which will see the region elect its own mayor and receive £540 million in funding. However, the Institute for Public Policy Research (IPPR) has outlined that the fund only represents “roughly £20 per person per year for 30 years not accounting for projected population changes”. “To put this in context”, the IPPR says, “the north of England saw a £413 per person fall on average in annual council service spending in each year between 2009/10 and 2019/20”. The £540 million figure is significantly less than the £750 million investment fund included in the original bid.