We need a greener way of banking. Photo: Flickr/Ryan Hyde
Show Hide image

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.

Getty.
Show Hide image

The Brexit Beartraps, #2: Could dropping out of the open skies agreement cancel your holiday?

Flying to Europe is about to get a lot more difficult.

So what is it this time, eh? Brexit is going to wipe out every banana planet on the entire planet? Brexit will get the Last Night of the Proms cancelled? Brexit will bring about World War Three?

To be honest, I think we’re pretty well covered already on that last score, but no, this week it’s nothing so terrifying. It’s just that Brexit might get your holiday cancelled.

What are you blithering about now?

Well, only if you want to holiday in Europe, I suppose. If you’re going to Blackpool you’ll be fine. Or Pakistan, according to some people...

You’re making this up.

I’m honestly not, though we can’t entirely rule out the possibility somebody is. Last month Michael O’Leary, the Ryanair boss who attracts headlines the way certain other things attract flies, warned that, “There is a real prospect... that there are going to be no flights between the UK and Europe for a period of weeks, months beyond March 2019... We will be cancelling people’s holidays for summer of 2019.”

He’s just trying to block Brexit, the bloody saboteur.

Well, yes, he’s been quite explicit about that, and says we should just ignore the referendum result. Honestly, he’s so Remainiac he makes me look like Dan Hannan.

But he’s not wrong that there are issues: please fasten your seatbelt, and brace yourself for some turbulence.

Not so long ago, aviation was a very national sort of a business: many of the big airports were owned by nation states, and the airline industry was dominated by the state-backed national flag carriers (British Airways, Air France and so on). Since governments set airline regulations too, that meant those airlines were given all sorts of competitive advantages in their own country, and pretty much everyone faced barriers to entry in others. 

The EU changed all that. Since 1994, the European Single Aviation Market (ESAM) has allowed free movement of people and cargo; established common rules over safety, security, the environment and so on; and ensured fair competition between European airlines. It also means that an AOC – an Air Operator Certificate, the bit of paper an airline needs to fly – from any European country would be enough to operate in all of them. 

Do we really need all these acronyms?

No, alas, we need more of them. There’s also ECAA, the European Common Aviation Area – that’s the area ESAM covers; basically, ESAM is the aviation bit of the single market, and ECAA the aviation bit of the European Economic Area, or EEA. Then there’s ESAA, the European Aviation Safety Agency, which regulates, well, you can probably guess what it regulates to be honest.

All this may sound a bit dry-

It is.

-it is a bit dry, yes. But it’s also the thing that made it much easier to travel around Europe. It made the European aviation industry much more competitive, which is where the whole cheap flights thing came from.

In a speech last December, Andrew Haines, the boss of Britain’s Civil Aviation Authority said that, since 2000, the number of destinations served from UK airports has doubled; since 1993, fares have dropped by a third. Which is brilliant.

Brexit, though, means we’re probably going to have to pull out of these arrangements.

Stop talking Britain down.

Don’t tell me, tell Brexit secretary David Davis. To monitor and enforce all these international agreements, you need an international court system. That’s the European Court of Justice, which ministers have repeatedly made clear that we’re leaving.

So: last March, when Davis was asked by a select committee whether the open skies system would persist, he replied: “One would presume that would not apply to us” – although he promised he’d fight for a successor, which is very reassuring. 

We can always holiday elsewhere. 

Perhaps you can – O’Leary also claimed (I’m still not making this up) that a senior Brexit minister had told him that lost European airline traffic could be made up for through a bilateral agreement with Pakistan. Which seems a bit optimistic to me, but what do I know.

Intercontinental flights are still likely to be more difficult, though. Since 2007, flights between Europe and the US have operated under a separate open skies agreement, and leaving the EU means we’re we’re about to fall out of that, too.  

Surely we’ll just revert to whatever rules there were before.

Apparently not. Airlines for America – a trade body for... well, you can probably guess that, too – has pointed out that, if we do, there are no historic rules to fall back on: there’s no aviation equivalent of the WTO.

The claim that flights are going to just stop is definitely a worst case scenario: in practice, we can probably negotiate a bunch of new agreements. But we’re already negotiating a lot of other things, and we’re on a deadline, so we’re tight for time.

In fact, we’re really tight for time. Airlines for America has also argued that – because so many tickets are sold a year or more in advance – airlines really need a new deal in place by March 2018, if they’re to have faith they can keep flying. So it’s asking for aviation to be prioritised in negotiations.

The only problem is, we can’t negotiate anything else until the EU decides we’ve made enough progress on the divorce bill and the rights of EU nationals. And the clock’s ticking.

This is just remoaning. Brexit will set us free.

A little bit, maybe. CAA’s Haines has also said he believes “talk of significant retrenchment is very much over-stated, and Brexit offers potential opportunities in other areas”. Falling out of Europe means falling out of European ownership rules, so itcould bring foreign capital into the UK aviation industry (assuming anyone still wants to invest, of course). It would also mean more flexibility on “slot rules”, by which airports have to hand out landing times, and which are I gather a source of some contention at the moment.

But Haines also pointed out that the UK has been one of the most influential contributors to European aviation regulations: leaving the European system will mean we lose that influence. And let’s not forget that it was European law that gave passengers the right to redress when things go wrong: if you’ve ever had a refund after long delays, you’ve got the EU to thank.

So: the planes may not stop flying. But the UK will have less influence over the future of aviation; passengers might have fewer consumer rights; and while it’s not clear that Brexit will mean vastly fewer flights, it’s hard to see how it will mean more, so between that and the slide in sterling, prices are likely to rise, too.

It’s not that Brexit is inevitably going to mean disaster. It’s just that it’ll take a lot of effort for very little obvious reward. Which is becoming something of a theme.

Still, we’ll be free of those bureaucrats at the ECJ, won’t be?

This’ll be a great comfort when we’re all holidaying in Grimsby.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Brexit. You can find him on Twitter or Facebook.