Examination of Witnesses (Questions 1-19)
PROFESSOR TIM
JACKSON
27 JANUARY 2009
Q1 Chairman: Good morning. I am sorry
we have kept you waiting. We had rather more future business to
go through than we anticipated. We will run to about 11.15 with
you. Thank you very much for coming in. We have obviously seen
your response to the Pre-Budget Report on behalf of the SDC, which
was pretty forthright and all the more welcome from our point
of view for that. Would you just like to run through the headlines,
the main points in it for us?
Professor Jackson: I guess our
headline message was that there were bits of the right signal
in the sense that the words "green stimulus" were used,
and there were some components that could be characterised as
green stimulus, but that the scale was entirely wrong, really,
when you look at what constitutes that green stimulus, which was
pitched at about £535 million in the Pre-Budget Report; it
actually amounts to something like £200 million of spend
upon anything other than adaptation and rail; and of that £200
million, some of it was spending brought forward; so you are really
talking about a minuscule spend in relation to certainly the average
financial rescue package, and indeed the scale of the Pre-Budget
Report as a whole. So we felt that there was a good signal there
in the sense that some of those things were mentioned, but that
it could and should have gone an awful lot further. We were encouraged
by signals in relation to reducing income inequality—that
is an important element of sustainability, and the evidence suggests
that the UK is at this point in time more unequal than it was
20 years ago, so moves in that direction in terms of fiscal recovery
are sensible. We were less encouraged by the attack on employment
through higher national income contributions, and that seems to
be, again, a move in the wrong direction in environmental terms
and in contradiction to the Government's own statement on environmental
taxation in 1997, which is just a shift from labour taxes to environmental
taxes. Finally, like many other people, we felt that the £12.5
billion spend on VAT reduction was misplaced, not only from the
perspective that it may not work in terms of providing the stimulus—there
is too much leakage possibility—but also that it was problematic
to encourage households into higher levels of consumer spending
when they are already exposed to financial risk, when consumer
debt is at an all-time high, and household saving has plummeted.
It looks like too dilute a measure that is going in the wrong
direction to us.
Q2 Chairman: Have you any idea what
the Treasury thought of all these comments of yours?
Professor Jackson: We have not
had a direct engagement with Treasury on this. They do not seem
to trawl our website and respond to it as perhaps we might wish
they would! We have had some engagement with Treasury on some
of the issues, and, to be honest, I think it would be fair to
say that there is a recognition of some of those issues, certainly
around environmental taxation and the green investment; and some
of that is coming through in some of the work that is going on,
for example, in the Low Carbon Industrial Strategy. However, in
terms of the direct positive acknowledgment of our undoubted wisdom
in this area, we have not quite had what we might have hoped for!
Chairman: We sometimes have the same
feeling ourselves!
Q3 Mr Caton: Going back to your comments
on the inadequacy of the green stimulus package, how much do you
think the Chancellor should have given?
Professor Jackson: There are different
ways of putting this into context, I think. One of them is obviously
to go to the Stern review and to look at the bottom-line numbers
in the Stern review. Stern was suggesting at that time, nearly
three years ago, a 1% annual spend on climate reduction, climate
mitigation, carbon reduction. That would have amounted to about
£15 billion of spend just in the area of carbon reduction.
As I say, that was 2006. Stern's target was 550 parts per million
in the atmosphere. The perceived wisdom is that it should be considerably
lower. There are some estimates that put the spend needed to achieve
a low carbon society in the region of 3% of GDP per annum. That
is a £45 billion spend, considerably higher than the fiscal
package in the Pre-Budget Report, and clearly subject to all sorts
of difficulties in relation to financial prudence and the national
debt and so on. Our suggestion is that a spend of this magnitude,
of at least £15 billion, of the same order of magnitude as
the fiscal package in the Pre-Budget Report, is entirely in order.
We have done some preliminary costing of the kinds of things that
you might wish to see in that package, and they fit, I think,
with a sort of emerging consensus about what is needed. That consensus
suggests a rapid ramp-up of retrofitting the present building
stock for energy efficiency; investment in the Grid perhaps to
develop the smart grid; investment in public transport, for example
rolling out the Department for Transport's Smarter Choices Programme,
which is being piloted in three English towns; and perhaps making
some movement in relation to greener businesses and the greening
of the Government estate—carbon neutrality in the Government
estate. Just taking one of those options, there is a really, really
obvious case for a quite considerable spend. If you think about
the housing stock and say we have got 20 years perhaps to get
the housing stock in the UK to a decent level, that is 24 million
households; assume that you could do it at a million households
a year, at an average cost of £10,000-11,000 a year, which
might be conservative, that is a £10 billion a year spending
package that ramps up very fast into something that suddenly begins
to look like a real green stimulus. It is spending of that order!
We did some estimates in relation to the transport spend, which
could easily absorb a half billion pound spend a year, but could
generate returns, in terms of carbon savings, which the DfT estimates
could be 10 times that amount of spend. We are saying that there
is plenty of room to spend £15 billion if you wanted a fiscal
stimulus package in the green measures that we know we need in
order to achieve the carbon targets that we are facing, that are
now in legislation; and, most importantly perhaps, we also know
that that kind of spending generates carbon savings, financial
returns and jobs.
Q4 Mr Challen: Following up this
point about the overall spend, the Government in the Pre-Budget
Report said it would be spending £50 billion over the next
CSR period, starting in this financial year. I have a breakdown
of this figure, which I thought was perhaps slightly on the high
side, and they include things like Cross Rail, spending on rail
and the National Grid infrastructure investment, which might be
simply replacing, in the case of National Grid, existing transmission
lines and so on. Is it correct to include things like Cross Rail
in something described as "driving a low-carbon economy"
when it was already in the pipeline? It seems to me that the key
question is if Nick Stern, for example, is saying you only need
to spend an extra 2% of GDP, can you really transfer projects
already in our system as extra, or should we have two Cross Rails
rather than one Cross Rail, if you get my point?
Professor Jackson: I would not
want to say you should not be spending on Cross Rail—of
course you should be spending on public transit, and on approved
public transit, and to the extent that that is going to be brought
forward, accelerated, fantastic—but it is essentially already
in the baseline. You cannot claim it, I would argue, as an additional
fiscal stimulus or green stimulus over and above what is already
in that baseline. That is the criterion against what was set out
in the green stimulus, should be judged. All of these programmes,
the Community Energy Savings Programme, the Cross Rail public
transport stuff, Ofgem looking at the Grid—all of these
are incredibly important programmes; but the question that the
stimulus package was asking is where now should Government address
additional investment and additional spend in order to achieve
what we intend to do, both in terms of jobs in the economy and
in terms of meeting carbon targets. We would argue quite strongly
that the criterion should be additional spend over and above baseline
commitments.
Q5 Mr Chaytor: You have a particular
concern about debt levels in the United Kingdom, having huge personal
debt levels and public sector debt and national debt, at the same
time as the economic downturn, and clearly you think this places
us in a particularly vulnerable position. Can you expand on that
a little bit?
Professor Jackson: There are three
areas of debt where one should be concerned. The first is national
level, what the public sector owes to the private sector, which,
as we know, at the moment is about 40% of GDP and predicted to
rise to something like 60%. That might be conservative once financial
rescue packages, re-capitalisation of the banks, is taken into
account. Actually, that area of debt, although it has broken the
Treasury's own rules and is rising fast, is still lower than several
other advanced countries. It is a cause for concern, and particularly
the rate at which it is rising is a cause for concern; but in
a sense it is less of a concern than perhaps the consumer debt
position, where we stand at one of the highest consumer debts
in the world. Household saving has plummeted so that the position
that households find themselves in, going into a recession, is
incredibly precarious—borrowing against declining assets,
the value of their houses going down, and their exposure to economic
risk going up, their savings having declined over a decade. This
is a position of financial imprudence at the household level that
households are now being encouraged into in order to escape from
the economic downturn. That, I think, is a deep concern. It is
particularly a concern that our economic stability rests on encouraging
financial imprudence at the household level over quite a long
period of time. We believe that that is something that needs to
be addressed both in terms of the signals that are sent to consumers,
the options that are available to consumers and indeed the model
of economic stability that relies on pushing people into high
levels of debt in order to maintain high-street spending to keep
the economy going. That is a structural concern. The third level
of concern is what is called the external debt. The UK has the
highest level of external debt at around 40 to 50% of GDP, other
than the US, at absolute levels in the economy—although
that is balanced by a similar level of overseas assets. That precarious
position of having a high level of overseas assets and a very
high level of overseas debt is exacerbated in volatile markets
with the fall of the pound and really does put the economy, as
a whole, in the very precarious position of having lent a little
too much, engaged in financial risk in the financial markets a
little too heavily, and will make it difficult to maintain and
to find economic stability in the future. We are concerned about
all three levels of indebtedness in the UK. Perhaps the least
of those is the one that has had the most attention, which is
the national debt, but it is still a concern because it is rising
so fast.
Q6 Dr Turner: You also call for much
greater public spending on low-carbon investments. How do you
square that with the concern about the level of public debt, because
we would all love to see massive investments in low-carbon infrastructure
projects whether transport projects or electrical engineering—whichever;
but how do you propose to finance them, given that you want to
restrict the level of public debt?
Professor Jackson: Everybody wants
to restrict the level of public debt, even the Government, and
there is a recognition at this point, and there is a recognition
in the recession that public debt is likely to expand. I think
that is almost inevitable. The question of financing that debt,
as both a short-term and a long term aspect—in the short
term it is about making prudent choices about what we invest in.
To be honest, the debt is expanding at the moment not through
anything remotely like green investment, but through financial
rescue packages, and to some extent through a long programme of
public spending. We are saying essentially that you have to target
where you are spending that public money, and if you target that
public money at things where you are simply throwing public revenues
into something like a dilute incentive like the VAT measure, you
really have no chance of clawing that back except through higher
tax levels at some point in the future. It may be then that higher
tax levels at some point in the future are going to be necessary,
but the two things that promote the case for a green stimulus
rather than simply a fiscal stimulus, is that many of these measures
are cost-saving to the nation over a short time period, so that
improving insulation in the housing stock, improving energy efficiency
in business, improving the efficiency of appliances, improving
the efficiency of cars, generating fuel savings, generating economic
savings—these are real savings to the nation. They do not
all necessarily come to Government—that depends on fiscal
structure, but they are savings to the nation, and as savings
to the nation they ease the constraints on households in terms
of their indebtedness and spending and they also ease the possibility
for getting money back into the public coffers and reducing the
burden upon public debt.
Q7 Dr Turner: Can you put rough numbers
on the amount of public indebtedness you would like to see in
-loosely—green infrastructure projects, and what sort of
projects you would prioritise?
Professor Jackson: I mentioned
this very quickly before, but we believe that at least at this
point in time it is appropriate to have a green stimulus package
of a size comparable with the 15.5 that was in the Pre-Budget
Report, and that that spending should be prioritised certainly
on a retrofit programme for the domestic housing stock to bring
it up to SAP80 to 85. SAP81 is the agreed rating that would improve
fuel poverty and put us on track to achieve an 80% carbon emission
reduction. The cost of that would be quite high, depending on
how long you did it for. If you are going to hit the whole 25
million households in the UK, you would have to be spending around
£10 billion a year, so there is a big potential spend there
and it would need some time to ramp up and it would generate returns
on some of that money quite quickly. Some of it would be longer
over 20 years. We also think that there is a need to prioritise
something like the Smarter Choices Programme, the DfT's programme,
trialled in three English towns to reduce car travel and to improve
public transport, access to walking, cycling and to develop personal
travel plans, personal mobility plans, that reduce car use; and
that estimated cost would be something less than half a billion
pounds per year. The smart grid, which has been talked a lot about
by various people in the US—the costs for the development
of the smart grid in the UK is very difficult to get a clear handle
on, but certainly rolling out the development of a grid that is
able to take on distributed renewable energy projects and to allow
for active management through smart metering, could reduce energy
consumption by 10 to 15% per annum and begin to do that quite
fast. That is a big investment. It is going to need substantial
thought about how to work that through, but, again, the cost savings
on that in terms of the total energy bill to the nation are very
substantial. A fourth priority area that we have identified is
in relation to bringing forward the Government's own ambitions
for carbon neutrality in the public sector itself as well as in
the Government's estate.
Q8 Dr Turner: Your comments about
the Grid do not seem to extend to remodelling the Grid to accommodate
far-flung sources of renewable energy, which is a major problem,
as you know.
Professor Jackson: Absolutely,
no. That idea of making the Grid accessible to distributed and
far-flung renewable energy sources is absolutely key to this.
That would be about strengthening, redesigning and smartening
the capacity of the Grid to do the job.
Q9 Dr Turner: To what extent would
you want to see the green stimulus package applied at the household
level, given that you want to encourage households to save?
Professor Jackson: It does apply
at the household level. As we go into possibly quite a lengthy
recession, the plight of households, particularly poorer households,
is something that should be at the forefront of concerns. Again,
this is one of the self-reinforcing aspects of the green stimulus,
particularly if it is focused properly; it is mainly the poorer
households that find themselves in fuel poverty and unable to
maintain even basic living conditions under higher energy prices
and threats to their income. So it is absolutely appropriate,
we would argue, that you focus attention on easing that burden
on households. That will put money into the pockets of householders,
but some of that legitimately, they will want to spend on the
high street, which could provide a stimulus effect to the economy.
At this point in time, in the short term, with the economy declining,
it is absolutely clear that there is a need to stabilise the economy
as a whole, and that is probably going to mean a change in consumer
confidence. That change in consumer confidence has to come through
both the ability of households to spend and their confidence that
they are spending in a financially prudent way. So although offering
energy efficiency frees up funds to households and allows them
to spend where they want, they will not begin to do that unless
they are confident that it is financially prudent; so at this
point in time I think that is both right in terms of financial
prudence, and right in terms of a moral choice that people should
be looking to their future financial and economic stability, and
that the Government should be encouraging that kind of prudence.
So along with the idea of stimulating household spending through
improved energy efficiency, which has national savings, is the
idea of encouraging financial prudence at the household level,
doing something about the plummeting savings rates and reducing
debt.
Q10 Dr Turner: You have criticisms
of conventional measures of economic growth.
Professor Jackson: Yes.
Q11 Dr Turner: Would you wish to
see some refined measure of economic growth that took into account
environmental considerations, so a green measure of economic growth,
if you like, so that you can redirect the economy?
Professor Jackson: That is something
that personally I have worked on over a number of years, and I
do believe that it has a role to play. The failings of GDP are
well known. It does not account for changes in the asset base
properly, whether that is financial assets, social assets or natural
capital. There are some ways of improving those measures. There
are a number of pilot measures that have been developed over 20
years or so. The Stiglitz Commission in France is looking at those
measures and the idea of measuring social progress and environmental
performance in a more accurate way. It is our position that a
sensible long-term position going forward beyond recovery from
recession is to address very firmly that relationship between
economic growth and sustainability and take on board those criticisms
of GDP as the simple single measure of economic progress; and
indeed a green measure of some kind, some kind of programme that
looks at those limitations of GDP and adjusts for the most obvious
ones, at least, is very long overdue.
Q12 Chairman: Given the external
debt figure of 450% of GDP, external debt is defined as the borrowing
by British individuals and corporations from overseas sources—is
that right?
Professor Jackson: Yes, indeed.
Q13 Martin Horwood: Can I draw you
on the subject of the banking sector, where obviously the British
Government now has a surprisingly large interest and degree of
control. Do you think the Government has been right to exercise
that kind of control for the moment at reasonable arm's length;
or do you think we should get involved in using environmental
priorities to determine the policy of the banks we now control,
for instance, either by disinvesting from the unmentionable Bank
of Scotland's less than wonderful record of investing in fossil
fuel projects, or lending to consumers for green mortgages and
energy efficiency or lending to businesses that were in green
industries? Do you think that would be an appropriate way to go?
Professor Jackson: It is a really
tough call in terms of politics and in terms of financial prudence.
What I would say is absolutely clear is that we need mechanisms
for investment in green infrastructure, and some of the things
that have been talked about, for example, are a green infrastructure
bank where everyone from Deutsche Bank to Greenpeace, or Greenpeace
to Deutsche Bank, whichever way you go, has argued for something
along those lines, and there is rather a strong case for something
that would be a public infrastructure bank able to lend into the
green sector and to stimulate that kind of investment. Another
of the options that has been put on the table, which is an interesting
one, is the idea of raising green bonds, essentially bond issues
which were specifically dedicated to the idea of investment in
green technologies, green businesses, renewable energy, energy
efficiency and so on and so forth. As the bond market looks to
have some signs of possibly saturating, actually the idea of a
green bond attains a nice market distinction, which might make
it something quite attractive as the years go by, and as this
year goes by even. The question of what you should do with these
now part-nationalised banks in terms of managing how they lend
and where they lend is much more fraught than that general principle
that we need this kind of green infrastructure. It is about the
precise way in which the mechanisms of rescue, re-capitalisation,
the housing market, lending into the housing market, separation
of toxic assets—all of that plays out. It is enormously
complicated and I would not pretend to sit here and offer you
financial expertise at that level. What is really important is
that there is an examination of the appropriate mechanisms for
both protecting against the toxic debt and ensuring that lending
is going into the appropriate places in households and businesses,
and something which directs green investment towards the kinds
of things we know we need in terms of carbon reduction.
Q14 Martin Horwood: Would the kind
of green infrastructure you are talking about be created out of
existing banks or would it be an entirely new institution?
Professor Jackson: It could be
that that is the best way to do it, with all this other stuff
parcelled up in the mix. It is really difficult to answer off
the top of your head and you really do need to look at that incredibly
carefully. There have, for example, been calls, largely from within
the more mainstream financial sectors, that the only bit that
should be nationalised is toxic debts; that you take that out
and keep that and clean up the rest of it and take away the liabilities
from the private sector and let it do its job. That is one way
of addressing where the banks stand at the moment. It is not one,
I think, that addresses the difficulties associated with getting
investment flowing into the green areas that we know that it needs
to go into. My point to you is that from that end of the spectrum,
where you just take away the nasty liabilities and say to the
financial sector "okay, boys, off you go", as it were
before business as usual, to one where you say, "RBS is the
target now to become a green infrastructure bank and that is what
we are going to turn it into". That is a huge range of options
in the banking sector, and to some extent it would be cleaner
to say, let us start from scratch with a national infrastructure
bank and build what we need out of that, rather than saddling
it from the word "go" with the toxic liabilities that
are associated with part nationalised banks.
Q15 Martin Horwood: You are happy
with the idea of the Government running banks, are you!
Professor Jackson: Happier at
this point of time than the way they have been run up into this
crisis.
Q16 Mr Challen: You have been critical
of the Pre-Budget Report for not doing enough to reverse inequality
in the UK. Can you explain the importance of tackling equality
issues in the context of sustainable developments?
Professor Jackson: It is really
important to acknowledge that sustainable development is not just
ecology, not just environmental limits. What environmental limits
do in terms of social well-being is that they put a finite bound
around the pie, what can be divided up between people. The distribution
of that pie is incredibly important both in terms of its environmental
components and environmental qualities divided up and environmental
resources divided up and are deeply unequal across the world and
even to some extent within the UK. Of course, they are the social
goods that those resources are used to produce. As I mentioned
before, inequality is higher now than it was 20 years ago. There
is a need to address that inequality. What do we know about unequal
households, or those at the lower end of the income distribution?
We know that they have lower life expectancy, higher morbidity;
they report lower satisfaction with life and typically live with
lower environmental quality. These are real standards of living
differences between huge sections of the population, and that
cannot be characterised as a strong, healthy and just society—one
of the principles of the UK sustainable development strategy.
The important of inequality to us is absolutely central, and it
is inequality now; it is intra-generational inequality that matters
as a priority in sustainable development. We all know that inter-generational
or cross-generational inequality also matters in the ability of
future generations to achieve a decent standard of living and
are also compromised by promiscuous resource use and breaching
of environmental limits. Both of those, now today—inequality
as we see it in the country at the moment, is unacceptable from
the sustainable development point of view, as is the risk to future
generations.
Q17 Mr Challen: What sort of redistributed
measures would you suggest to tackle this?
Professor Jackson: There are various
issues. The statement of intent on environmental taxation in 1997
does provide the basis for shifting taxation from income to taxes
on environmental bads, from goods to bads. It is a fairly basic
principle. We know that there are all kinds of difficulties with
it, but we also know that in some cases it can have some progressive
impact because typically higher income households use more energy
and emit more carbon, so that in itself is a measure that hits
both the needs of reduced environmental resource use and throughput,
and to some extent addresses the inequality issue. It is not necessarily
the only one—I have mentioned already that we have praised
the idea of a shift in taxation to higher income earners, at least
as a recovery measure and possibly as a way of achieving more
income equality in the longer term. There is also a role for caps
on executive remuneration, perhaps a range of income levels from
not just minimum income level but maximum income level. These
are measures that are deeply contentious and fiercely argued against
by liberal market economists; but from a social welfare perspective
something like this looks like it must be in order at this point
in time, in order to achieve the social well-being goals that
sustainable development has at its heart.
Q18 Mr Challen: Do you think in this
context the Government was right to downgrade its interests in
personal account analysis?
Professor Jackson: I am not sure
I understand why that might be right.
Q19 Mr Challen: They said it was
an idea before its time but most people say it is redistributive.
Professor Jackson: It could be
redistributive. What we know about the evidence in relation to
that kind of measure is that you have to look after the poorest
households incredibly carefully because it is not typically—it
is not always, across the board, exhaustive in terms of its progressive
impact. It can be regressive on the most fuel poor. The only way
really to address the impact of that is to target very strongly
investment measures in the building—particularly the building
fabric in the poorest houses. That comes out very clearly from
all the analysis. In terms of, was it before its time—I
do not think it can possibly be regarded as being before its time
in the context of the carbon targets that we are now in legislation
permitted to achieve.
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