The Office for Budget Responsibility’s (OBR) 2021 fiscal risks report will be seen as a breakthrough document in the years to come. It lays out, in stark terms, estimates of the future costs and economic consequences of the “potentially catastrophic” risks facing Britain’s public finances. The pandemic has produced a permanent reduction in the economy’s productive potential, and without action on climate change, the country could be facing a disastrous debt spiral. The costs of taking action on the climate now, though significant, pale next to the risks the OBR identifies. The report begins to place hard, comprehensible numbers on our bleak future.
John McDonnell proposed that the OBR should start making long-range estimates for the impacts of climate change back in November 2017, when he was shadow chancellor. The party’s thinking at the time was that by expanding the OBR’s remit to cover the costs of climate change and environmental decay more generally, political and institutional support for the long-term investments needed to mitigate and adapt to them could be locked in. Hard figures would be more difficult for future governments to ignore, and would shape a narrative around the need for action today. It was a component of the “structural reforms” that Jeremy Corbyn’s Labour argued were necessary to resolve the deep problems of the British economy.
This proposed use of the OBR was slightly counterintuitive for those on the left. The Office was set up by the 2010 coalition government in the wake of the 2008 recession as a political ruse to try to lock austerity into place: it produced a farcical set of initial forecasts for the “Emergency Budget” of summer 2010 that allowed the new Conservative chancellor George Osborne to argue that his generation-defining spending cuts would not damage the wider economy. Despite the cuts, in 2010 the OBR forecast a rapid return to the sunlit uplands, with business investment and wages booming as never before. In reality, what we got was a slump in the former and a prolonged stagnation of the latter, with real wages, at the start of the pandemic, at the same level as they were when the forecast was produced.
But over the decade since, the OBR has established a more genuinely independent and authoritative voice. It has acted ahead of government in, for example, downgrading Britain’s expected future productivity growth: in line with the clear evidence since the 2008 crash that productivity, the engine of growth, had stalled, the OBR proposed in 2017 that Britain’s future economic potential was much lower than was widely thought. This was accurate, and hardly calculated to make life easier for the government.
This new change is of even greater importance. Intellectually, the methods the OBR uses draw on the best available evidence from climate and other natural sciences, and help establish the techniques of long-run forecasting in a world where the environment can no longer be ignored as unchanging background noise. Even without the extreme risks of climate change crystallising, the OBR notes that a spectrum of less catastrophic outcomes will affect a “small, open economy” like the UK’s. These range from extreme heat putting pressure on health systems to water and food conflicts.
Too often we have tended to think about climate change as a future catastrophe rather than an ongoing decline. The OBR dramatically corrects this. In the extreme case of no action against climate change, they forecast the UK government’s debt spirals up past 290 per cent of GDP (from nearly 100 per cent today) as the costs of battling catastrophic climate change rise ever higher. Achieving net zero is unambiguously cheaper if action is taken quickly, becoming more expensive the longer action is delayed.
Likewise, the work on Covid emphasises the pandemic’s significant costs and risks for the future. Some of these are already becoming apparent, like the immense backlog of missed schooling subsequent need for catch-up education, or the severe (and rising) pressure on NHS hospital capacity.
Some are only slowly coming into view, like the need for more space and refitting of health service buildings to build in resilience to future outbreaks. And some the report identifies, but does not calculate the precise costs involved: for example, the two million (and rising) reporting “long Covid” symptoms and their unknown future costs on the NHS and other public services. The long-term costs the OBR does calculate add up to economic “scarring” that could amount to up to 6 per cent of GDP in five years’ time.
Politically, this should be decisive. Assuming they are accurate, the forecasts point to a future where the costs of our failure to act on the climate rise every year. “Trickle down” prosperity becomes an increasingly impossible dream as future growth is constrained by the rising costs of environmental decay, from resource depletion to extreme weather events. Once growth is low, its proceeds are increasingly likely to be gobbled up by the wealthy, rather than shared among the population, as the work of Thomas Piketty shows. Over time, the traditional social democratic remedy for capitalism’s ills – redistribute a little from the top, and let growth do the rest – would have to be reversed: redistribute a lot from the top, and don’t rely on growth.
To describe this as a challenge for parties of the left is an understatement: the foundations of modern social democracy are built on the idea that gentle reform of capitalism is possible and desirable. But once the environment itself becomes increasingly unstable, gradualism becomes more and more unworkable. The window of opportunity for a social democratic programme is closing. Once shut, more radical alternatives, progressive or otherwise, will take its place.