Sustainability and HM Treasury Contents

2Importance of the Treasury

7.During the last Parliament, all government departments were expected to embed sustainable development across their activities: policymaking, procurement and estates.10 In December 2015, the Former Chancellor of the Duchy of Lancaster, Rt Hon Oliver Letwin MP, told us that sustainable development had been “mainstreamed” across government.11 The current Government does not have a separate strategy for sustainable development but it does have a wide range of specific environmental and sustainable development objectives relating to, for example, greenhouse gas emissions, recycling, air pollution and biodiversity.12

8.Responsibility for meeting these obligations is split across departments, with the Department for Environment, Food and Rural Affairs (DEFRA) and the Department of Energy and Climate Change (DECC) - now incorporated into the Department for Business, Energy and Industrial Strategy (BEIS) - playing key roles. The policies of other departments - such as the Department for Transport (DfT) and the Department for Communities and Local Government (DCLG)–can also have significant environmental impacts.13

9.The Treasury is the Government’s economics and finance ministry, which oversees public spending and sets the direction of the UK’s economic policy.14 It does this by controlling government spending, allocating funds between government priorities, setting the rules for choosing and approving projects, determining how much autonomy departments will have, and approving major projects. The Treasury also has control over taxation policy and significant influence over regulation. A large number of witnesses agreed that the Treasury was the most important department for ensuring the Government met its environmental obligations because it wielded considerable power and influence over Government policy and activity, the economy and, therefore, sustainability.15 Budgets, autumn statements and, especially, spending reviews give the Treasury opportunities to engage senior decision-makers across government, draw together a range of policy relevant information, and importantly, shift the nature and direction of government policy.16

10.Its role at the centre of government puts the Treasury in a unique position to promote coordination and policy coherence on environmental policy between and across government departments. Witnesses highlighted the importance of this.17 Michael Jacobs, Visiting Professor at UCL and LSE and Visiting Fellow at the IPPR, told us that the Treasury thought its role was to “bring a degree of intellectual coherence across Government as a whole”.18 The Financial Secretary to the Treasury, said that the Treasury was in the best position of any department to look across government at how things work together and how different policies interact with each other.19

11.In its report, the NAO stated that because of its lead role in the spending review, the Treasury was in the best position to carry out a central assessment of environmental issues. The NAO reported that the Treasury expected that assessment of cross-government issues such as sustainability would be achieved through ‘joint bidding’ and coordinated work between departments. With the exception of carbon emissions, the Treasury looked to departments to determine the need for a coordinated assessment. While there was some informal cooperation and coordinated bidding, there were no formal joint bids for environmental issues. This led the NAO to conclude that, ‘the Treasury did not make the most of the opportunity to encourage departments to work across government on environmental issues’. It argued that the spending review was still largely a bilateral process between Treasury and individual departments. The Treasury could have done more to establish strong incentives for collaboration on environmental matters and take more of an overview of environmental issues.20

12.Witnesses to this inquiry highlighted the extent to which the Treasury involved itself in departmental decisions.21 Michael Jacobs told us that it could happen at a great level of detail.22 Matthew Bell, Chief Executive at the Committee on Climate Change (CCC), argued that this level of involvement could have an effect on investor confidence who are unsure of the authenticity of departmental announcements if they were not aligned with the Treasury.23 Rob Lambe, Managing Director of Energy Services at Willmott Dixon, said that his company often gave more credibility to Treasury announcements than announcements from departments with direct responsibility for that policy.24 Matthew Knight, Business Development Director at Siemens, said that:

“The Treasury has to decide is it involved in the detail of a policy, in which case it has to be shoulder to shoulder with the spending Department and engaged in that. Or if it is at a higher level it has to be genuinely hands off but supportive [ … ]”.25

13.On 2 November 2016, the High Court ruled on a case between ClientEarth and DEFRA.26 Mr Justice Garnham agreed with ClientEarth that the Environment Secretary had failed to take measures that would bring the UK into compliance with the law “as soon as possible”.27 The case explored the role of the Treasury in approving DEFRA’s air quality plans as part of the 2015 Spending Review. It heard that the Treasury blocked plans for a more extensive network of clean air zones on cost grounds. In his ruling, the Judge acknowledged that for “understandable reasons HM Treasury did not wish more public funds spent than was necessary to achieve compliance”.28 But he explained that as the law requires the Government to achieve compliance as quickly as possible, the determining factor when comparing different options should be the “efficacy of the measure in question and not their cost”.29 This is an important example of the Treasury’s view taking precedent over other departments’ objectives and favouring short-term benefits over long term gains (something we explore in more detail in the next chapter).

14.In March 2016, the former Energy and Climate Change Committee (ECC) published a report into, Investor confidence in the UK energy sector, which highlighted that there had been ‘a dip’ in investor confidence in the UK energy sector since the election in May 2015. ECC identified a number of factors which, when combined, were having a damaging effect on investor confidence and that witnesses believed that investors’ concerns were poorly understood across Whitehall and in particular within Treasury.30 Dimitri Zenghelis, Co-Head Climate Policy at the Grantham Research Institute on Climate and the Environment at the London School of Economics (LSE), reinforced the importance of the Treasury in ensuring policy consistency in order to support investor confidence:

“[The Treasury] absolutely matters because it is central to steering the investment landscape of the country and so both the structure of the economy and the structure of physical and natural capital will depend on decisions taken, which steer private and public investment. A lot of those decisions are either directly or quite powerfully indirectly affected by Treasury decisions, so if the Treasury is not cognisant of the impact of its actions and policy decisions, it is very difficult to take a long-term view in terms of the sustainability of economic growth in this country”.31

15.The Financial Secretary to the Treasury, who highlighted that she was new to the job, said that reports about the Treasury’s impact on investor confidence were “concerning to hear” and that she was “disappointed that they feel like that”.32 She said that the Treasury took its environmental impact very seriously and that she would “read the Committee’s final report with great interest” and that it would inform her thinking in the future.33

16.The Treasury, through its control over government spending, taxation policy and regulation is arguably the most important department for ensuring the UK meets its environmental obligations. It is uniquely placed to take an overarching perspective and ensure policies across government work to promote sustainability. It is clear from the evidence, however, that the Treasury has not done enough to encourage departments to work together on this issue. This is particularly the case during spending reviews where the Treasury could have done more to establish strong incentives for collaboration between departments on environmental matters.

17.The Treasury plays an important role in ensuring policy coherence across government. However, there is considerable evidence that some of its decisions rode roughshod over other departments’ objectives. A lack of transparency over how and why the Treasury has made decisions at odds with other departments has confused businesses and impacted investor confidence. We are pleased to hear that the new Financial Secretary is concerned about the Treasury’s impact on investor confidence and we hope that this report will help identify ways the Treasury can address this issue.

10 National Audit Office, A Short Guide to Environmental Protection and Sustainable Development (July 2015), p4; Department for Environment, Food and Rural Affairs, Mainstreaming sustainable development: The Government’s vision and what this means in practice (February 2011), p2

11 Oral evidence taken on 9 December 2015, HC (2015–16) 388, Q2 [Oliver Letwin]

12 National Audit Office, Sustainability in the spending review (July 2016), p4

14 HM Treasury (SAT 0034)

15 Centre for the Understanding of Sustainable Prosperity (SAT 0039), Grantham Research Institute at the London School of Economics (SAT 0027), University of Exeter and the University of East Anglia (SAT 0010), WWF-UK (SAT 0003)

16 Q4 [Michael Jacobs], National Audit Office, Sustainability in the spending review (July 2016), p5

17 Q4 [Michael Jacobs], Q14 [Karen Ellis], WWF-UK (SAT 0003), University of Exeter and the University of East Anglia (SAT 0010) Professor Tim Jackson (SAT 0026), Grantham Research Institute at the London School of Economics (SAT 0027),

18 Q14 [Michael Jacobs]

19 Q101 [Jane Ellison], Q118 [Jane Ellison]

20 National Audit Office, Sustainability in the Spending Review (July 2016), p7 and p20

21 Q44 [Matthew Bell]

22 Q4 [Michael Jacobs]

23 Q44 [Matthew Bell]

24 Q1 [Rob Lambe]

25 Q49 [Matthew Bell], Q71 [Matthew Knight]

27 As above, para 66

28 As above, para 93

29 As above, para 50

30 Energy and Climate Change Committee, Third Report of Session 2015–16, Investor confidence in the UK energy sector, HC 542, para 9 and 17

31 Q1 [Dimitri Zenghelis], Q33 [Dimitri Zenghelis, Rob Lambe], Qq45-46 [Lord Deben], Q71 [Matthew Knight], WWF-UK (SAT 0003), Renewable UK (SAT 0009), Scottish Renewables (SAT 0017), EDF Energy (SAT 0018), Anaerobic Digestion and Bioresources Association (SAT 0019), Independent Renewable Energy Generators Group (SAT 0028), Renewable Energy Association (SAT 0035), Resource Association (SAT 0056)

32 Q101 [Jane Ellison]

33 Q101 [Jane Ellison], Q170 [Jane Ellison]

16 November 2016