Today’s Budget and the crisis in Ukraine
This year’s Budget takes place at a time of high international tension. The issue of energy security has once again shot to the top of the political agenda. The crisis in Ukraine demonstrates once again the extent to which Britain is exposed to political and economic risks beyond our control.
The fact is Britain’s dependency on external sources of energy means that we are dangerously exposed to this crisis – at a time when North Sea Oil and Gas production has fallen by over 20% since the Coalition government took office.
And while Russia supplies only a small percentage of Britain’s natural gas, the crisis has the potential to drive the price of carbon fuels higher. Brent crude is already at a high for 2014. Further tensions and conflict in Eastern Europe could trigger even higher rises in gas and oil prices.
To compound this threat, Britain has one of the lowest shares of alternative energy supplies in Europe. Renewables form just 4.3% of our energy mix, a figure just a little higher than that for tiny Malta and Luxembourg. By comparison renewable sources of energy in Germany and France form about 12-13% of the energy mix.
The Chancellor should therefore use the opportunity of the Budget to address this grave threat to Britain’s security; to invest to urgently diversify Britain’s energy mix; and to achieve greater energy efficiency.
Such investment is sorely needed. In Q4 2013, total investment (public and private) was still 1.3% below the 2010 figure. Business investment has finally started a modest increase, and is up 1.5% on the 2010 figure. But government Gross Fixed Capital Formation or investment is down a huge 9.3%. (And despite all the media interest in the housing bubble, housing investment (which includes maintenance etc. as well as new build) is up just 1.4%.)
As many economists have argued, the Chancellor could finance such urgently needed investment at historically unprecedented low rates of interest. Such low-cost public investment in energy infrastructure would achieve five important economic, energy and environmental goals.
First it would provide greater energy security to Britain’s households and firms.
Second, investment in greater efficiency would lead to cost savings for both households and firms.
Third, alternative sources of energy could help reduce Britain’s carbon emissions, which in turn destabilize the climate.
Fourth, such investment in alternative and more efficient energy would lead to the creation of local, skilled, and higher-paid jobs.
Fifth, the income from such jobs would generate the tax revenues needed to repay the government’s low-cost borrowing.
This is the win-win economic and energy strategy first proposed by the Green New Deal Group in our ground-breaking report launched back in 2008.
The Ukraine crisis exposes the failures of Britain’s economic and energy model; a model based on high levels of private debt fuelling asset bubbles; disproportionate consumption; energy inefficiency and dependency, trade imbalances and chronic low investment.
The first task of any government is to plan for, and defend the security, including the energy security, of its citizens. As a leading member of this government, the Chancellor has a duty to plan for, and defend both the economic and the energy security of Britain’s households and firms. The Green New Deal is the plan his Budget should confirm today.