Treasury officials doubt the prime minister realises the likely cost of net zero; the chancellor wants to ensure Johnson ‘owns’ it
This summer, Rishi Sunak didn’t want to have a budget alongside his government-wide spending review this autumn because he did not want to come under pressure (not least from Boris Johnson) to announce expensive green pledges ahead of the Cop26 climate summit.
The chancellor later dropped his plan to delay his package until the spring and will unveil his third budget next week. But his original idea tells us a lot about his instinct on the government’s strategy to achieve net zero carbon emissions by 2050; he wants to keep the state’s pump-priming to the very minimum.
A marathon bout of arm-wrestling between Sunak and Kwasi Kwarteng, the business secretary, delayed long-awaited government announcements on net zero until this week. This suited the Treasury; it made it harder for Johnson to come back for more to trumpet before the Glasgow summit.
Sunak did not put his name to the strategy unveiled by Johnson or even the press release about it. He ensured a Treasury document issued on the same day warned that taxes might have to rise or other spending be cut to make up for the eventual loss of £37bn a year from fuel duty and road tax, ruling out extra borrowing to do so. Privately, ministers believe the answer will lie in road pricing but did not want headlines about drivers being charged per mile when the country already faces a cost-of-living crisis.
Treasury officials doubt Johnson realises the likely cost of net zero; Sunak wants to ensure the prime minister “owns” it, just as he insisted on a national insurance rise to fund £36bn for health and social care rather than increase borrowing. There is scepticism at the Treasury that the 444,000 green jobs promised by Johnson will boost productivity – his new post-Brexit mantra – because many will be labour-intensive.
The official line is that the net zero strategy bears the stamp of Johnson and Kwarteng, a Thatcherite by instinct but who now acknowledges the need for state intervention – in this case, to attract up to £90bn of private sector investment by 2030. Although Sunak’s name was not on the strategy, Whitehall insiders tell me his fingerprints were all over it. Notably on the inadequate £450m provided for grants to encourage people to replace gas boilers with heat pumps (which eagle-eyed Liberal Democrats quickly calculated would provide 30,000 payments of £5,000 for three years when the government’s target is 600,000 new heat pumps a year by 2028).
Then there is the absence of specific measures for people on low incomes and the home insulation scheme desperately needed to make heat pumps a realistic option for many households. There’s a real prospect companies who invest in the green transition will pass on the cost in their prices, which is bound to regressive. And there’s the absence of detail in many areas and the reliance on unproven technological change – such as hydrogen, carbon captures and new aviation fuel.
In a round of media interviews today, Kwarteng barely disguised his differences with the Treasury. “I don’t think that tax rises are inevitable,” he said. He accepted “lots” of what the Treasury said – which means not all of it, and insisted net zero offers “a huge economic opportunity.” The Treasury accepts the cost of doing nothing would be greater, but worries that green investment could “displace other, more productive, investment opportunities” and put the UK at a disadvantage if other countries do not follow suit.
The Tory MPs who worry that the cost of the transition for hard-pressed families will be electorally disastrous for their party believe Sunak prevented the strategy being “even worse” in their eyes. They predict the cost of heat pumps will rise rather than fall as the government is gambling.
At a time when the two main parties seem to be converging as Johnson invades Labour’s traditional territory, it is refreshing to see clear green water between them over the climate crisis. Labour is pledging an extra £28bn-a-year of green investment, £6bn of which would insulate 19 million homes. Labour’s is a much more realistic estimate of the public money needed to find to make net zero a reality.
Johnson would probably have spent more without Sunak holding him back but is now left with a blueprint that puts off some big decisions to another day and rests heavily on his usual optimism and cakeism. His woeful lack of honesty about the costs to individuals is displayed in his promise that “we are going to build back greener without a hair shirt in sight.”
The government’s plan is a welcome step forward and better than no plan. But it also relies on Johnson’s trademark “it will be alright on the night” approach. There is no guarantee in this plan that it will be.