Sustainability and HM Treasury: Government’s Response to the Committee’s Fifth Report Contents

Appendix: Government Response

The government takes long-term sustainability seriously. It takes account of sustainable development as part of how it develops its policies, how it runs its buildings and how it buys its goods and services.

Reflecting this, the government has a strong record on sustainability. Provisional estimates indicate that, between 2010 and 2015, the UK reduced domestic greenhouse gas emission by 17% - the biggest reduction in a single Parliament. We have trebled renewable electricity capacity since 2010 and are on track to exceed our ambition of delivering 30% of the UK’s electricity from renewables in 2020/21. In the environmental sector, we will plant 11 million trees by the end of the Parliament and almost £100m of capital funding will be invested over the next five years in projects to support England’s natural environment.

The Treasury is always open to feedback on how it can improve its processes relating to the Spending Review and more broadly on how it can contribute to achieving the government’s sustainability objectives. The Treasury welcomes the Environmental Audit Committee’s report on ‘Sustainability and HM Treasury’ as an important contribution to that discussion.

The role of the Treasury

Responsibility for meeting the government’s sustainability targets and objectives falls primarily to the department responsible for the policy area in question. The Department for Environment, Food & Rural Affairs (Defra) has a role in overseeing sustainability across central government. The forthcoming 25 Year Environment Plan will set out the government’s vision to achieve a cleaner, greener, healthier and more prosperous place to live and work.

The Treasury has an important role to play by controlling public spending, setting tax policy and making sure government spending delivers value for money. As the economics ministry, the Treasury sets the direction of the UK’s economic policy and works to achieve strong, sustainable economic growth. The Treasury strongly rejects the claim that it “rode roughshod” over other departments’ objectives. The Treasury’s central role necessarily requires trade-offs in the allocation of spending across government departments, and the Treasury has strong processes in place to ensure that the full impacts of policies are captured in the appraisal process (see below).

The Treasury works closely with other government departments on an ongoing basis. A wide range of cross departmental platforms exist as part of business as usual policy development and implementation. The Spending Review did not seek to duplicate this cross departmental working - instead, existing platforms were used to ensure bids were reflective of the latest cross-departmental information. This was recognised by the National Audit Office (NAO) in their report on Sustainability in the spending review .2

During the Spending Review, the Treasury also encouraged joint and co-ordinated bids. The Spending Review guidance to departments explicitly stated that “Where a government objective depends on more than one department, departments should work closely to deliver it in the most cost effective manner”. The Department for International Development (DfID), Defra and the then Department for Energy and Climate Change (DECC) submitted a coordinated bid on the International Climate Fund (ICF), building on the work of the ICF board from the previous five years.

The Treasury will continue to encourage and take part in cross-government discussions on environment and sustainability matters; and recognises the importance of these platforms in the context of developing and implementing environmental policy. We will consider what more could be done to proactively identify opportunities for joint bids, and whether existing processes could be adapted to better support these.

Understanding and accounting for environmental sustainability

The consideration of long-term impacts is ingrained in the policy making and spending allocation process in the Treasury and across government. The Spending Review allocated billions of pounds on policies to further the government’s long term environmental and climate objectives. These include doubling government spend on the low carbon innovation programme; making over £1bn of capital funding available to support electric vehicles, heat networks and public sector energy efficiency; and protecting funding for 250,000 ha of public forests and woodland.

The Treasury has a robust framework in place for evaluating the long term impact of policies. The Green Book, the Treasury’s manual for the evaluation and appraisal of policy proposals, is regarded as a gold standard internationally for objective and transparent appraisal of public value. The Green Book is clear that all proposals should be considered over their entire life cycle; and that this assessment should include environmental and sustainability impacts.

Alongside this, potentially significant long term and irreversible effects must be considered and carefully assessed beyond the period covered by the initial intervention. Where significant intergenerational effects are involved, the Green Book allows for a sensitivity calculation to indicate the effects of removing the pure time preference component of the discount.

While all proposals that come to the Treasury are required to adhere to the Green Book’s methodology, we recognise that some of the new processes put in place for the 2015 Spending Review may need time to fully bed in, and could be further improved. We will keep under review the Spending Review guidance provided to both Departments and internal Treasury teams on accounting for environmental impacts.

The government draws on a range of expert advice when developing policy. On natural capital, it is grateful for the expert advice brought by the Natural Capital Committee. Its recommendations and analysis contributed substantially to decisions taken during the Spending Review. The Treasury is working closely with Defra to ensure that the role of natural capital is incorporated into the Green Book, by providing clearer advice, ensuring consistent application, and placing increased emphasis on the natural capital ‘stocks’ as well as the ecosystem services ‘flows’. Natural capital and the valuation of non-market environmental goods and services are evolving areas of research, and the Treasury and Defra will work together to improve the consideration of natural capital when a revised Green Book is published later this year.

The Treasury is supportive of the valuable work being done by the Office for National Statistics (ONS) and Defra to work to incorporate natural capital into the UK Environmental Accounts by 2020, and the Treasury sits on the Steering Group for this project. The published Road Map shows that we are on track for 2020. The first ecosystem accounts were released in 2013, and there have been new accounts (e.g. freshwater) and updated accounts (e.g. woodlands) since then. The latest revision to initial national estimates was published in November 2016. These are ground-breaking developments and the UK is leading the way internationally in this field. The government’s understanding of environmental priorities is improving in light of this information, and the government will update its guidance on environmental topics and natural capital in line with the latest emerging evidence and scientific understanding. The Treasury, alongside the rest of government, looks forward to making best use of the finalised national environmental accounts in 2020.

On stakeholder engagement, the Spending Review guidance is clear that Departments should lead on stakeholder engagement and factor this in to bids they present to the Treasury. It would not have been appropriate for independent bodies to comment on the specific design of the Spending Review process or bids which have not been seen by ministers, and could be commercially sensitive. The Treasury therefore considers that its engagement with stakeholders was appropriate at the Spending Review.

Delivering environmental sustainability

The government is committed to meeting its climate change targets. The level of ambition and clarity of the UK’s climate legislation is seen as a model internationally and is being replicated in other countries, such as France. As noted in this report, our domestic carbon budgets can be met through a range of policy mechanisms, including tax and regulation, not just spending. The Spending Review extended policies such as the Energy Company Obligation (ECO) and electric vehicle funding, and provided new funding for policies such as heat networks; all of which will make a positive contribution to meeting carbon budgets. The government’s forthcoming Emissions Reduction Plan will be informed by analysis to ensure we stay on track to meeting our 2050 target while keeping costs low for families and businesses.

Carbon capture and storage (CCS) has a potentially important role in the long-term decarbonisation of the UK, but its costs must come down. The decision to cancel the CCS Competition was taken as part of a particularly tight Spending Review which sought to identify the areas of spending which would deliver the most significant benefits to households and businesses. This involved tough decisions, including to no longer proceed with the £1bn capital funding support for the CCS Competition. The costs to consumers from the Competition would also have been high and regressive. The government will set out its future approach on CCS in due course.

The energy performance standards for new buildings in the Building Regulations were improved by over 30% over the course of the last Parliament. In 2015, following an uplift in energy standards in the previous year, the government decided to give the house building industry a breathing space to get used to building to the new standards as well as to enable a better understanding of potential discrepancies between design and actual performance and the risks of unintended consequences like overheating. This year the government will conduct a review of the current standards and see whether there are opportunities to do more cost effectively.

On waste management, landfill tax has successfully reduced the amount of waste going to landfill and the Treasury has set out rates to 2019. The Treasury continues to work with Defra to consider further options to meet the government’s recycling targets. The government is investing £3bn from 1997 to 2042 in grant funding to Private Finance Initiative local authority waste infrastructure projects.

On investor confidence, the UK is fundamentally a strong and open economy with a first class regulatory regime. The Chancellor made clear in the Autumn Statement 2016 that his priority is to ensure that Britain remains the number one destination for business. In the energy sector, the government has provided clarity for investors by committing to build the first nuclear power station in a generation at Hinkley; reaffirmed its commitment to allocate up to £730m of annual support on renewable electricity projects over this parliament; committed to set out the future of the Levy Control Framework at Budget 2017; and maintained the Carbon Price Support rates to 2020–21.

Ensuring accountability

There are robust processes and institutions in place to ensure that both the Treasury and the government more widely are held to account by Parliament and the public on the environment and sustainability. Scrutiny of government is provided through Parliamentary mechanisms including departmental and cross-departmental Select Committees. These include the Environment Select Committee, the Business Energy and Industrial Strategy Committee, and the Environmental Audit Committee. The NAO and Public Accounts Committee play an important role in scrutinising public spending, including its value for money, taking account of the benefits to society of such spending as well as the costs.

Delivery bodies such as Natural England, the Environment Agency and the Forestry Commission provide government with expert advice on the environmental implications of policies and on the state of the natural environment. The Committee on Climate Change provides independent advice to the government on climate change and publishes regular reports on the government’s progress against its climate change goals. The government is also grateful for t he expert advice brought by the Natural Capital Committee.

2 Sustainability in the spending review (National Audit Office, 2016), available at

2 March 2017