The UK has a new government. The last time power changed hands the now prime minister, Keir Starmer, was director of public prosecutions, the chancellor, Rachel Reeves, was entering parliament as a new MP, and Ed Miliband had just finished his term as energy secretary, a role he has now resumed under this new Labour government.
While Miliband has experienced a varied political career, he has increasingly become associated with his first major job where he was responsible for passing the Climate Change Act, which started the UK on the path to net zero. His prior experience of government may explain why, out of the government’s five ‘national missions’, most progress appears to have been made in boosting green energy.
In its first full week, the government made a series of high-profile announcements on energy policy. These included approving the building of three solar farms, reform to the planning system, a new policy to permit onshore wind generation, the creation of a National Wealth Fund to invest in green and growth industries, a new ‘Mission Control’ to coordinate clean energy expansion, and a decision not to defend a legal challenge to a previously permitted Cumbrian coalmine. The King’s Speech, which sets out the government’s legislative agenda, included plans to establish a public energy company called GB Energy and to build more offshore windfarms by reforming the Crown Estate.
For investors who have become accustomed to asking for policy clarity and certainty, this has been a clear and early demonstration of intent. Both GB Energy and the National Wealth Fund have been established with a remit which includes catalysing private finance. While any policy announced in the first week of government will inevitably be short on detail, an industry that has been arguing that capital will follow clear policy pathways must begin to engage in good faith.
It is in this spirit that the IA recently published its 2023-24 climate and nature policy report, Financing Transition. The report outlines the IA’s approach to climate change and nature policy, focusing on how we engage with policymakers, regulators and other stakeholders on behalf of our members and their clients. We aim to support the development and implementation of effective policies that can accelerate the transition to a low-carbon and climate-resilient economy, while also protecting and enhancing the natural environment and biodiversity. The report acknowledges that a significant mobilisation of capital is now needed if these goals are to be achieved.
While there are many potential benefits to both the creation of the National Wealth Fund and GB Energy, one clear pitfall is the budget they have been tasked to invest. The pot of £15bn they are collectively expected to manage over a five-year period is diminished next to the £50bn or more which UK policymakers generally accept will need to be invested every year to facilitate the UK’s low-carbon transition.
The gap can be explained by an expectation from policymakers that the private sector is going to fund the bulk of the transition, whether through co-investment with government or – as seems more likely – through purely private investment. The expectation, we should be clear, is that private enterprise will achieve the goal which the Climate Change Act established as a legally binding target for government.
Private finance should see – and seize – the opportunity. Fiscal restraint may prevent the government from funding the transition to the extent that some, including the energy secretary, may like but policymakers who have made their intent clear will now have to deliver on providing the consistency and certainty in real economy policy to catalyse green investment opportunities.
This work will need to take place across government and not be limited to GB Energy and the National Wealth Fund. In the government’s own terms, this is a national mission. Officials under the last government had begun work to enhance public-private cooperation to enable greater use of blended finance and other models of transition finance. The new administration will need to embed this culture of cooperation across all sections of government if it is to act as the catalyst to accelerate the decarbonisation of the UK economy.
