Browner than Gordon?

Duncan McLaren reflects on Westminster’s comprehensive spending review.

It’s always hard to judge a budget or spending review in the immediate aftermath, and given the scale of the first coalition Comprehensive Spending Review it’s a more difficult task than usual. But on first impressions there is a lot more in the debit column than

in the credits on this occasion.

For a self-proclaimed ‘greenest government ever’ this was a key test, and it largely failed, leaving few silver linings in the clouds of wasteful cuts and missed opportunities.

The review has decimated key green promises and programmes, with the Environment department amongst the worst hit in percentage terms.

The promised Green Investment Bank (GIB) is a key example of the cuts. When Labour announced it was to get £2bn in capital, the Conservatives, then in opposition, said they would find five times that amount. Even in the last few weeks Chris Huhne was reported to be seeking £6bn for the GIB. The CSR slashes that to £1bn, and postpones it to 2013-14. Additional funding might come from ‘asset sales’ – or in other words, from further privatisation.

And it remains to be seen whether the GIB will be a bank in anything more than name. Treasury mandarins are apparently pushing for it to simply be a glorified administrator of existing public funds. But we believe it must have powers to issue bonds and leverage in private capital, within a strict mandate to fund green energy and resource efficiency projects. This remains a key battle.

For several years money earmarked for investment in Scottish renewables under the fossil fuel levy (FFL) has been accumulating in the Treasury as Westminster and Holyrood wrangled over the terms on which it would be released. This stands at around £180 million, and is growing at £20m a year. Just last week an unprecedented coalition of environmental and business groups wrote to the Chancellor seeking the immediate release of the FFL money as an addition to the existing block grant to Scotland.

But the Chancellor has come up with a cunning wheeze in which the cash will only appear in 2013, and under the control of the GIB. Then it will only be spent in Scotland if there are ‘sufficient viable investment opportunities to justify [it]’. And, as far as we can tell if the Scottish Government wants this to happen it will also have to spend an equivalent amount on renewables out of existing funding in the interim.

Now while we would love the Scottish Government to spend £250 million more on renewables development in the next 4 years, rather than spending it on the Forth Crossing or Aberdeen bypass for example, we would be less happy to see additional cuts in other environmental or social programmes to accommodate such spending, especially when we desperately need increased investment in home insulation and energy saving.

That’s what a properly funded and rapidly constituted GIB could have provided. In Germany state banks are funding both renewables development and a massive overhaul of housing, dramatically cutting energy demand, while creating jobs. Yet in this review, not only has the cash promised to the new Bank been cut to the bone, so has the existing ‘Warm Front’ programme to improve housing.

The ‘Warm Front’ home improvement and insulation programme, targeted to tackle fuel poverty, is being phased out, saving £345 million by 2013-14. It is to be replaced by the ill defined ‘green deal’ which will have to depend on private sector funding. That means improvements will almost inevitably happen mainly in low-risk middle class private homes, rather than in those of households most in need.

This is a particularly wasteful cut, as evaluations of programmes like Warm Front have shown that they not only create jobs and save energy, but also reduce health impacts, for example cutting the incidence of anxiety and depression amongst affected families in half, while reducing respiratory problems and associated days lost to school or work by up to a quarter.

On the credit side £860m has been found for the proposed renewable heat incentive for small-scale projects such as ground-source heat pumps, and levels of feed-in-tariffs (FITs) for small scale renewables have been maintained until 2014. But the spend on renewable heat is 17% less that proposed by Labour, and the new administration has pre-judged the review of FITs in 2014, by reducing funding after that date. In neither case has it done anything to prevent most of the financial benefits being creamed off by financial intermediaries, to the detriment of householders and communities.

Over £200m has been allocated to upgrade ports critical for offshore renewable energy developments. Some of these could and should be in Scotland, although this has yet to be clarified.

Up to £1bn has been set aside for a single demonstration project in carbon capture and storage (CCS). And with the news that E.on has withdrawn from the competition for that funding it seems almost certain that Longannet power station will be the location for that commercial scale test, perhaps allowing it to finally begin to shed its ‘carbon dinosaur’ tag.

Add together the surviving commitments here and you get a little over £3bn by 2014-15. As a down-payment on a green economy it’s tiny. What’s worse, it’s dwarfed by continued commitments to high-carbon road infrastructure, especially road building and widening, which will continue to subsidise motoring, while bus and rail users face rapid rises in fares.

Businesses have supported much of the review, but expressed anger at the reform of the Carbon Reduction Commitment. It was proposed as a charge on emissions in large businesses outside the EU Emissions Trading Scheme (like supermarkets) with the money raised returned to the best performing businesses as an added incentive for better performance.  It is now to become simply a charge on emissions – effectively a carbon tax – with the revenue – about £3.5bn over the spending review period – going into general funds.

We have long advocated taxing carbon or energy to fund lower employment taxes and increased environmental spending. Simply recycling tax revenue within the business sector is not the most effective way to lower emissions and increase employment, but it would be better than just taking the proceeds as general government revenue. In opposition key Conservatives such as Greg Barker championed green tax reform. In office he needs to remember the principles of good green tax reform, otherwise the credibility of green taxes will slide even further.

Far from being the ‘greenest government ever’ this administration is proving greyer than Major, and browner than Gordon. Even without looking at the impacts of the review on welfare and social programmes, it seems set to increase future burdens on the state, exacerbate inequalities and undermine potential for green growth.