Economists Urge UK to Invest £26bn in Low-Carbon Economy

Leading economists are advising the UK government to prioritise investing £26 billion per year in a low-carbon economy to revitalise prosperity. This recommendation contrasts with proposed tax giveaways that are deemed likely to contribute to further stagnation. The suggested investment would target areas such as energy infrastructure, transport, innovation in technologies like AI, and the natural environment, ultimately fostering rapid economic growth.

According to a major paper authored by Lord Stern, former chief economist of the World Bank, and colleagues from the London School of Economics (LSE), public investment at this level could attract approximately twice as much private sector investment. The returns on such investments are anticipated to manifest in higher productivity, efficiency savings, economic growth, and carbon reductions.

In contrast, the economists argue that the government’s current plans to stifle investment would result in a continuation of stagnant productivity and weak economic growth. The findings align with commitments made by Labour leader Keir Starmer, who has advocated for a £28 billion per year “green prosperity plan.” The opposition’s commitment is currently under review amid criticism from the Tories.

The LSE paper, titled “Boosting Growth and Productivity in the UK Through Investments in the Sustainable Economy,” independently arrived at its conclusions by examining the UK’s infrastructure, challenges and benefits of low-carbon investment, economic conditions, and international competition.

Dimitri Zenghelis, lead author of the paper, noted that the suggested investments, equivalent to around 1% of GDP, align with both Labour’s and former Prime Minister Boris Johnson’s proposals. Zenghelis emphasised that allocating fiscal headroom to investment rather than tax cuts would give the UK the best chance of staying competitive globally.

Economic experts outside the study echoed the importance of increased public investment, emphasising its role in achieving net-zero targets, restoring nature, and fostering confidence in the private sector. The call for heightened public investment aligns with a broader consensus that the UK has been underinvesting for decades, resulting in failing infrastructure, costly energy, and environmental depletion.