Reform’s plans to scrap next zero would cost investors and push up taxes
Far from saving money, Reform’s plans to scrap net zero would deter private investment that is already committed and cost more in the long-run. Proof, if it were needed, that Nigel Farage’s party has abandoned all pretence at economic credibility, says Sam Hall
With his announcements on benefits this week, Nigel Farage has abandoned any pretence of economic credibility. By restoring the winter fuel payment in full and expanding access to child tax credits without a credible plan to fund the extra spending he is playing fast and loose with the stability of the UK economy.
His main proposal to pay for higher welfare spending is through scrapping net zero. But the potential savings, which he claims are worth £45bn a year, simply do not exist.
Most of the purported £45bn cost of net zero is not taxpayer money, but private investment in new energy and transport infrastructure. The Institute for Government, which wrote the report that Reform’s numbers are based on, has already issued a statement to this effect.
This money belongs to the private sector and cannot be hived off by the Chancellor to fund day-to-day welfare spending.
Additionally, without these net zero projects to finance in the UK, firms will simply invest their capital elsewhere, likely overseas.
Damaging investor confidence
Another problem with Farage’s plan is that the subsidies we pay to existing clean energy schemes, like renewable energy, cannot be cancelled. To unlock private investment, firms were offered long-term, legally binding subsidy contracts. However inefficiently designed and poor value for money the previous Labour government’s subsidy schemes were, the reality is we’re tied into them. If ministers in a future Reform government wanted to junk the subsidies, the companies would have to be compensated. And if they tried to ditch the subsidies without paying out on the contracts, this would be deeply damaging for wider investor confidence in the government and would push up the cost of financing infrastructure schemes.
But as well as the ‘savings’ from scrapping net zero being largely fictional, Farage conveniently ignores the fiscal cost of his alternative approach.
Abandoning net zero would mean the taxpayer assuming an open-ended financial liability for building taller sea walls, bigger flood defences, and more reservoirs, paying out more support to water-logged farmers, and underwriting an increasing number of uninsurable risks
Scrapping net zero would end up costing the Treasury more in the long run, pushing up taxes. If we abandon net zero, it means abandoning efforts to limit climate change to manageable levels. This means having to spend ever increasing sums on adapting to its worsening impacts. The taxpayer would have to assume an open-ended financial liability for building taller sea walls, bigger flood defences, and more reservoirs, paying out more support to water-logged farmers, and underwriting an increasing number of uninsurable risks.
Abandoning decarbonisation also means slowing down the move away from fossil fuels and exposing the Treasury to another expensive gas price spike. The last one caused by the Russian invasion of Ukraine cost the government over £94bn in energy bill support. With growing instability in the Middle East and disruption to global trade, it would be an expensive gamble to stay hooked on fossil fuel markets that dictators and petrostates control.
Also, would Reform actually cut all net zero spending to zero?
Firstly, Reform’s manifesto does commit to supporting new nuclear, synthetic e-fuels, and tidal energy, which would all require significant new energy subsidies.
Additionally, would grants for the fuel poor to insulate their homes or investment in electrifying rail lines really be on the chopping block?
There are certainly some savings to be had from the net zero budget. GB Energy with its £8.3bn price tag would be an obvious project to cut, as it is investing in projects in which the private sector is already comfortable financing. Similarly the eye-watering sums paid for burning wood pellets in power stations should be phased out.
But these do not add up to anything close to £45bn per year.
Farage’s botched attempt at economic policy follows Richard Tice’s disastrous energy policies of taxing and banning various clean technologies. Both interventions show that Reform does not have serious solutions to the problems that the UK faces. Having harnessed the public’s rightful anger at politicians’ failure to deliver their commitments to lower migration, Reform risks falling into the same trap on the cost of living.
By seeking to park his tanks on Starmer’s lawn and move his party to the left economically, Farage has torched his standing on economic competence. While individual policies like restoring the winter fuel payment may poll well with voters, the electorate fundamentally wants prudent stewardship of the public finances. Scrapping net zero to increase welfare spending would certainly mean we leave environmental debts to future generations, but it would mean bequeathing substantial financial debts too.
Sam Hall is the director of the Conservative Environment Network