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The new UK government should focus on direct investment in green infrastructure rather than relying on incentivising private capital through risk reduction, according to a University of Manchester expert.
Dr James Jackson, writing for Policy@Manchester, say that despite being in office for a short time, the Labour government has already made several moves aimed at stimulating private investment in green projects. These include revisions to the National Planning Policy Framework to facilitate onshore wind developments, the establishment of the publicly owned GB Energy with £8.3bn in capital, and the creation of a £7bn National Wealth Fund to de-risk early-stage green technologies.
However, Dr Jackson warns that this approach may not be sufficient to meet the UK’s green finance needs, especially in the face of strict fiscal rules. He points out that the government is under pressure to balance its budget and address an estimated £20bn deficit, while Chancellor Rachel Reeves has pledged to reduce the national debt as a proportion of GDP within five years.
In this context, the government faces two potential paths for advancing green finance. The first option, already being pursued, involves incentivising private investment by de-risking emerging green technologies through initial public funding. This method echoes the strategies of previous Conservative governments, which sought to attract private capital by assuming some of the financial risk associated with new technology.
The second, alternative path would involve more direct public investment in green infrastructure via green bonds. These bonds, which have the potential to generate equity and returns, would finance established technologies such as wind and solar power, which have already demonstrated their reliability and economic viability.
Dr Jackson critiques the current strategy of relying on private capital, noting that similar efforts in the past have failed to close the “finance gap” needed to decarbonise the economy. “Even with the assumption that the private sector will step up, the evidence shows that these strategies are not working,” he says.
Instead, he advocates for a renewed focus on public investment. “The government could prioritise another round of Green+ Gilt issuances, directing funds towards proven technologies that deliver reliable returns for the Treasury,” he writes. Dr Jackson suggests that this can be done within fiscal constraints by phasing out fossil fuel subsidies, revising the Bank of England’s bond-holding policies, and increasing windfall taxes on sectors like energy, supermarkets, and banking.
His article calls for a more robust and proactive approach to green finance, noting that the government’s current focus on catalysing private capital is a continuation of policies that have historically fallen short. By taking a more hands-on role in funding green infrastructure, Dr Jackson believes the UK can ensure more reliable progress toward its decarbonisation goals.
The full article, ‘New governments bring new opportunities: a way forward for green finance?‘ by Dr James Jackson, can be found on the Policy@Manchester website.