We need a greener way of banking. Photo: Flickr/Ryan Hyde
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Caroline Lucas: We need to invest in a positive, green and socially just future

The Green MP lays out her proposal for green infrastructure quantitative easing.

Next week the Conservatives will present their first Budget as a majority Government.

The context is grim.

Progress on child poverty, surely a bellwether for good government, has stalled – with one in six children living in poverty. And when we consider how the Government is doing when it comes to keeping children warm in their homes, things look just as bad.  Last year, 2.23 million children in England were living in fuel poverty, whilst an estimated 65 people a day die in the UK in winter as a result of illnesses due to cold homes.

Added to these shocking figures is the fact that so-called improvement in our economy remains extraordinarily skewed towards London and the South East, with Government figures showing that almost 40% of the UK’s economic activity is happening in just those two regions. The jobs that have been created in recent times are, all too often, short term and insecure.

Some parts of the forthcoming Budget, like the £12 billion cuts to social security spending, we already know about. The other announcements, which will trickle out over the next few days, will no doubt also serve to lock the country into further austerity and bring our public services ever closer to breaking point.

Ministers know that alternatives do exist.

One such alternative offers a route to rebuilding our economy, tackling climate change, and providing decent long terms jobs in every city, town and village across the UK.

It’s known as Green Infrastructure Quantitative Easing (GIQE), a concept first proposed by the Green New Deal Group and an idea that, if you can get past its unappealing name, basically means investment in a positive green and socially just future.

GIQE could contribute to strengthening the UK economy via a carefully costed, nationwide programme to train and employ a ‘carbon army’. This army would be at the frontline of the fight against cold homes by making all of the UK’s 30 million buildings energy efficient, and, where feasible, fitted with solar panels. This would, in the first instance, dramatically reduce energy bills and fuel poverty, whilst also cutting greenhouse gas emission and cutting current dependence on imported energy.

Secondly, a GIQE programme could also help tackle the housing crisis by financing the construction of new affordable housing that’s highly energy efficient and built predominantly on brownfield sites.

Thirdly, GIQE could help finance improved regional public transport networks to help revitalise local and regional economies. That’s more and better buses, trains and coaches, helping people to get around their communities and stay connected.

Quantitative Easing is already back on the global economic and political agenda. The growing threat of deflation has meant that Japan has reintroduced QE, and the European Central Bank has begun its own programme to deal with the serious economic problems of the Eurozone.

Here in the UK, our export markets face global threats that include a slowdown in the US and Chinese economies plus the financial fragility of the Eurozone – compounded only this week by the ongoing crisis in Greece.

Moreover, domestic economic difficulties, including inadequate tax revenues, a deficit that is likely to prove to be stubbornly high and the spectre of deflation - none of which are encouraging consumers to spend or business to invest- mean the time is ripe for a new round of QE.

The scope of the GIQE energy efficiency initiative would be huge – and ambitious: There are around 28 million dwellings and 2 million commercial and public sector buildings in the UK. But we should be ambitious – on behalf of the unemployed who needs jobs, the families who need affordable housing and the climate that needs our protection.  It has been estimated that nearly £500bn of investment in new low-carbon infrastructure is required over the next 10 years, of which £230bn will be required for energy efficiency alone. A ‘Green Infrastructure QE’ programme would likely cost £50 billion a year over the next ten years.

To put this into context, between 2009 and 2012 the Bank of England e-printed £375 billion of conventional QE, at an average of £125 billion per year.

This was the equivalent of over £6,000 for every man woman and child in the UK. Yet this considerable sum of money mostly benefitted the banks and investors by inflating house prices, the stock market and commodities. It had very little impact in terms of generating real economic activity on the ground or delivering concrete social and environmental benefits. Green QE is designed to achieve far more – targeted far more effectively.

The actual mechanism is relatively straightforward. The Bank of England would e- print tens of billions of pounds annually, as it did during the last round of QE, and a considerably enlarged publicly owned Green Investment Bank (GIB) would issue investment bonds to be bought by this QE programme. This would effectively leave the money required to fund green investment both debt and interest free, in the hands of the Green Investment Bank (GIB)[iii], to be invested over a realistic time scales and so be non-inflationary.

Mark Carney, the Governor of the Bank of England, is on record in a letter to me saying that, if the government requested it, a next round of QE could be used to buy assets other than government debt – thus clearing the way for the kind of ambitious green infrastructure programme we urgently need.

Since QE involves the central bank putting new money into circulation, by creating e-money and using it to buy assets, this programme will not increase the UK’s repayable debt levels. Professor Werner, Director of the Centre for Banking, Finance and Sustainable Development at the University of Southampton, and the creator of the quantitative easing concept, explains that since the central bank can simply keep the assets on its balance sheet, there is no need for taxpayers to repay this debt or for it to be considered as an expansion of public debt.

Indeed, this is completely consistent with the most recent UK quantitative easing programme. This saw the Bank of England, which is owned by the UK government, buy UK government debt in the form of gilts. The net result is that one arm of the government ends up owing debt to another arm of the government. If accounted for like a commercial enterprise this debt would, as a result, show as cancelled because you cannot, of course, owe yourself money. This is precisely why George Osborne could cancel the interest payments on the £375 billion of gilts held under his previous quantitative easing programme.

In the case of GIQE, bonds issued by the Green Investment Bank will never need to be repaid. This means that the GIB will in turn not need to demand repayment of the loans they grant to local authorities and others to fund green investment.

One further and crucial benefit of GIQE is that it would increase the tax by increasing the number of people in well-paid employment in the UK. This in turn would have benefits for deficit reduction, contributing to that all important confidence that’s needed to unlock additional private funding from pension and insurance companies, through to individual savers.

Taken together, this all adds up to providing the scale of long term investment required to create the sustainable economy the UK needs. GIQE could achieve all this and it would do so while benefitting every single part of the UK.

GIQE is ambitious, because it has to be. The status quo – of an economy that fails to lift children out of poverty and sees older people die in their homes because of the cold – is a resounding failure.

It’s not just the Government who should look closely at the significant benefits of Green Infrastructure QE. The Labour Party, so short of fresh thinking in recent years, should be closely examining this proposal too. Labour leadership candidates must answer a simple question: if not this, then what? We need a plan to create jobs in every constituency across Britain – I hope those candidates will join me in making the argument for a fairer, greener economy fit to serve all of us for years to come.

Britain needs more decent jobs. We need a credible plan of action on climate change. We need bold action to tackle the housing crisis. It’s time that both the Government and the Opposition, rather than continuing to hand money over to the banks as they have done since the financial crisis, will seriously consider this plan to build a resilient economy, protect our shared environment and create thousands of new well paid jobs.

Caroline Lucas is the MP for Brighton Pavilion.

Photo: Getty
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Sooner or later, a British university is going to go bankrupt

Theresa May's anti-immigration policies will have a big impact - and no-one is talking about it. 

The most effective way to regenerate somewhere? Build a university there. Of all the bits of the public sector, they have the most beneficial local effects – they create, near-instantly, a constellation of jobs, both directly and indirectly.

Don’t forget that the housing crisis in England’s great cities is the jobs crisis everywhere else: universities not only attract students but create graduate employment, both through directly working for the university or servicing its students and staff.

In the United Kingdom, when you look at the renaissance of England’s cities from the 1990s to the present day, universities are often unnoticed and uncelebrated but they are always at the heart of the picture.

And crucial to their funding: the high fees of overseas students. Thanks to the dominance of Oxford and Cambridge in television and film, the wide spread of English around the world, and the soft power of the BBC, particularly the World Service,  an education at a British university is highly prized around of the world. Add to that the fact that higher education is something that Britain does well and the conditions for financially secure development of regional centres of growth and jobs – supposedly the tentpole of Theresa May’s agenda – are all in place.

But at the Home Office, May did more to stop the flow of foreign students into higher education in Britain than any other minister since the Second World War. Under May, that department did its utmost to reduce the number of overseas students, despite opposition both from BIS, then responsible for higher education, and the Treasury, then supremely powerful under the leadership of George Osborne.

That’s the hidden story in today’s Office of National Statistics figures showing a drop in the number of international students. Even small falls in the number of international students has big repercussions for student funding. Take the University of Hull – one in six students are international students. But remove their contribution in fees and the University’s finances would instantly go from surplus into deficit. At Imperial, international students make up a third of the student population – but contribute 56 per cent of student fee income.

Bluntly – if May continues to reduce student numbers, the end result is going to be a university going bust, with massive knock-on effects, not only for research enterprise but for the local economies of the surrounding area.

And that’s the trajectory under David Cameron, when the Home Office’s instincts faced strong countervailing pressure from a powerful Treasury and a department for Business, Innovation and Skills that for most of his premiership hosted a vocal Liberal Democrat who needed to be mollified. There’s every reason to believe that the Cameron-era trajectory will accelerate, rather than decline, now that May is at the Treasury, the new department of Business, Energy and Industrial Strategy doesn’t even have responsibility for higher education anymore. (That’s back at the Department for Education, where the Secretary of State, Justine Greening, is a May loyalist.)

We talk about the pressures in the NHS or in care, and those, too, are warning lights in the British state. But watch out too, for a university that needs to be bailed out before long. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.