The Guardian view on net zero: a bank-led green transition won’t work for Britain

Theresa May and Boris Johnson both argued for levelling up and for a state-supported green transition undergirded by an industrial strategy. Neither delivered and their successor, Rishi Sunak, has repudiated their legacy as prime minister. He looks to the City to deliver growth, with banks determining the rate of investment to meet the challenge of the climate emergency. This is a recipe for failure. The Climate Change Committee (CCC), the government’s independent advisers on cutting carbon emissions, warned last year of “worryingly slow” progress to meet net zero targets. The government is not engaging on what it will take to decarbonise.

Weaning the country off fossil fuels and on to green energy is a complex transition that should be a job for the state, not the free market. Yet Britain is bottom of the league for state spending on renewables in the Organisation for Economic Co-operation and Development. In the offshore industry alone 30,000 workers could end up with nowhere to go by 2030 without new roles in green industries. Relying on big finance to meet that gap will entrench today’s failing model, which emphasises the need to attract significant capital flows through deregulation and privatisation, strengthening the hand of boom-and-bust financial services and weakening labour rights. The flipside is a bigger trade deficit and a destructive politics of redistribution to asset holders and to London.

In many advanced economies there have been shifts from manufacturing to service sector employment. But Britain’s deindustrialisation went further and faster. In 1990, the UK was ranked seventh in the world for manufacturing competitiveness. It slipped to 15th by 2021, way behind its G7 peers. Reversing this trend is vital to Britain’s economic and environmental prospects, as made clear in an important report by the Institute for Public Policy Research (IPPR) released last week. It makes the case for a green industrial strategy that can leverage the country’s existing strengths in wind, heat pumps and green transport to reduce carbon output, produce cleaner growth and redistribute employment opportunities away from the south-east. While Britain’s share of global green products exports has halved since the 1990s, the report says focusing on its clean tech exports could help the country reindustrialise.

The CCC says meeting the 2050 net zero goal will cost an extra £50bn annually by 2030. The IPPR shows Britain can get an economic return on that outlay. The tension between state-backed industrial growth and a private financial model is real. Those who favour banking say that it can be spread around the country. The historical risks are documented: the harbinger of the financial crash came a year earlier in 2007 when Newcastle’s Northern Rock experienced the first bank run in the UK since 1866.

Labour should see, in a fair green transition, an opportunity to change the country from one dominated by private and selfish interests. The myth that Britain developed without state interference is surprisingly enduring. The 19th-century German economist Friedrich List astutely saw through British claims that it was a free-trade, free-market economy fighting against dirigiste European competitors. He concluded instead that Britain was the first country to ruthlessly perfect an industrial strategy of “restrictions, privileges and encouragements” to become wealthy. The country will have to regain such smarts to reach net zero and in doing so avoid becoming collateral damage in the brewing US-China trade war over clean technologies.