Sustainability and HM Treasury Contents

5Improving performance and ensuring accountability

Industrial strategy

62.The Government has recently signalled a renewed focus on industrial strategy. Following the Prime Minister’s appointment in July 2016 she abolished the old DECC and created a new Department for Business, Energy and Industrial Strategy (BEIS). In his first speech Rt Hon Greg Clarke, Secretary of State for the new department, set out what he thought the use of the word strategy implied:

- That we should take a long-term, predictable and sustained approach to policy making.

- That we should recognise that our government should be actively engaged in promoting, and also defending, those things that contribute to a successful environment in which businesses can be founded, can expand and can prosper.

- A strategy makes connections between what might otherwise be disparate forces. Aligning them, rather than leaving them isolated or even opposed–between government policy and business decisions, between government departments, between industries and places, between research and practice.

- That we should be aware of and capitalise on our strengths while constantly seeking new opportunities that, together, will determine how we make our way in the world.131

The Financial Secretary to the Treasury said that the Government’s new focus was about, “trying to look holistically at what are the conditions we need to create and put in place in this country to deliver sustainable economic growth”. She highlighted as an example focusing on skills gaps and education policy to ensure the “UK would be successful and world-leading in international terms in a particular area that we have perhaps intrinsic strength in”.132

63.Dimitri Zenghelis highlighted that the Treasury “tends not to like broad strategic visions if possible” and that “it doesn’t like picking winners”.133 Indeed the Financial Secretary made it clear that the Government’s new focus was “not any sort of return to the days of trying to pick winners”.134 When asked about what the Government’s new focus on industrial strategy would mean for the Treasury specifically, she said that, “it is quite obvious if that is going to work well then clearly we do need to be working right across Government, because by the nature of it, it is going to be a cross-government strategy”.135

64.Some witnesses to our inquiry were supportive of efforts to develop an industrial base especially in the low carbon sector.136 The Grantham Research Institute at the London School of Economics argued that while ‘policies should be as neutral as possible, to allow a broad range of technologies to emerge and compete, and to avoid the problem of picking winners’, ‘governments cannot avoid making strategic choices [ … ], given that there are a range of technological options that will be available over the coming decades with specific barriers and opportunities that may require targeted assistance’. He argued that, ‘choices should be well-informed, open and transparent, made in collaboration with civil society and the private sector’.137 Lord Deben also emphasised that in the context of rapid technological progress, “there will need to be some much greater concentration on how we help the technologies we need”.138 Claire Jakobsson told us:

“One of the things EEF is currently really pushing for is an overarching industrial strategy. We feel that we are currently lacking something where we can work across all government departments, so that industry and business can be given that clear signal and message—“This is the direction of travel. This what we are going to do and look to achieve for the longer and medium term”—rather than it just being very short-term, quick decision-making that can upset or, conversely, change behaviour”.139

65.The Government’s new focus on industrial strategy has the potential to improve long-term policy-making. The Treasury could use its position to ensure that strategic choices made by the Government work across the economy to promote sustainability and in particular carbon reduction and resource efficiency. However, the analysis in the previous chapter shows the Treasury failing to support a coherent, green industrial strategy and take a long-term, predictable and sustained approach to policy making. If the Treasury is going to contribute constructively to industrial strategy it will have to reflect on, and learn lessons from, its recent past and make decisions which help, rather than hinder, investor confidence. It should commit to work with BEIS and other departments with environmental policies so that the Government’s new industrial strategies explicitly explain how the potential of the UK’s green economy will be realised and how environmental sustainability objectives will be supported. Doing so would help develop and protect skills and jobs in the construction, waste, and Scottish offshore industries, as well as their associated supply chains.

Monitoring Treasury performance and ensuring accountability

66.Treasury officials argued that the Treasury already received a good level of scrutiny.140 But during our inquiry a number of witnesses claimed that the Treasury was not transparent in the way it made decisions and in its influence over other departments. The Aldersgate Group described its decision-making as ‘opaque’ and Friends of the Earth claimed that its ‘behind the scenes’ influence was ‘considerable but rarely subject to public scrutiny’.141 This view supports a theme we have heard repeatedly throughout this inquiry: the basis upon which the Treasury makes its decisions is not always clear and transparent.

67.We have found that the Treasury could be more forthcoming with information that supports its decision-making processes. For example, the Treasury hasn’t agreed to publish the information it compiled during the 2015 Spending Review on carbon budgets.142 The Treasury has also performed worse than other departments in its accountability to this Committee. Treasury Ministers declined to attend our inquiry into The Government’s Approach to Sustainable Development. Requests for the Chancellor or Chief Secretary to give evidence to us have also been declined, during this inquiry and in the last Parliament. The repeated refusal of Cabinet-level Ministers to give evidence to the Committee is not something we have experienced from other Government departments and reflects poorly on the Treasury’s commitment to environmental concerns and sustainable development principles.

68.There are a number of external scrutiny bodies. These include the Office for Budget Responsibility, the Institute for Fiscal Studies and, of course, Parliament. There was concern, however, that the Treasury’s impact on the environment was not scrutinised by these bodies.143 WWF suggested that the Government could establish a new Office of Environmental Responsibility (OER)–something for which our predecessor Committee has also called.144 Both Dimitri Zenghelis and Michael Jacobs thought that there was merit in having an institution or organisation which could think about long-term issues.145 The Financial Secretary to the Treasury, however, did not thing such an institution was necessary.146 Rather than establish a new organisation there could be scope to utilise existing bodies such as the CCC, the NCC and the NAO. These organisations already publish reports which assess the Government’s performance on environmental impact in certain areas. We will consider scrutinising future fiscal events for their environmental impact.

69.The value of internal processes, which the Treasury and external stakeholders could use to assess the Treasury’s impact on the environment, was questioned. Single Departmental Plans (SDPs) set out a high level overview of the Government’s objectives, and sustainability reports, produced as part of the department’s annual reports and accounts, reflect the Treasury’s impact in a given year. In its report, the NAO said that the role SDPs could play in improving public accountability over environmental commitments was limited.147 It said that the commitments in the plans are ‘vague, lacking targets or timeframe in most cases and rarely made intended actions clear’.148 In another report looking specifically at sustainability reporting, the NAO identified that, while reporting had improved overtime, there was ‘room for further improvement’ in areas such as reporting on a department’s wider impact on sector sustainability issues.149

70.WWF argued that assessing environmental impact could be improved by utilising and developing existing metrics and indicators established and monitored by the Office for National Statistics (ONS) (i.e. National Well-being and Sustainable Development indicators) and the NCC (i.e. natural capital). The ONS will also develop and publish regularly a set of nationally relevant indicators on the UK’s progress towards meeting the UN Sustainable Development Goals (SDGs), and we will be scrutinising the Government’s plans to implement these at home in the UK over the coming months.150 These metrics would provide a broader perspective on prosperity unlike, for example, Gross Domestic Produced (GDP).151 WWF argued that the Treasury’s focus on GDP was not conducive to setting policy that delivered the best long-term outcomes because it did not provide an assessment of the economic risks of natural capital depletion and degradation. WWF proposed that the Treasury should incorporate a new section on natural capital into the annual Budget including information on stocks, service/benefit provision, risks, liabilities and future outlook. It could also introduce a new natural capital ‘stress test’. These would help to assess future natural capital investment requirements, potential impact of other policies on natural capital stocks/risks and exposure of the UK economy to risks associated with potential future changes in natural capital stocks. .

71.The Financial Secretary to the Treasury and her officials were positive about developing existing metrics and indicators especially natural capital. Susan Acland-Hood told us that the Treasury was “very supportive of the work that is being done by the ONS to incorporate natural capital into the environmental accounts by 2020”.152 Neil Kenward said that the Treasury had been supporting WWF and their work on ‘stress tests’. The Financial Secretary said that that “this is an area I am personally very interested in”. She also stated:

“I think it goes without saying that the Treasury is clearly going to make sure that all these things are at the heart of how it thinks and go into the mix, but it is a mix in terms of how we look at things inevitably—just reflecting where we started this session and the need to make sure that things offer good value for money and that they are sustainable in their funding. Obviously the perfect policy solution is something that offers great value for money, does what it sets out to do and plays into those longer-term ambitions”.153

72.A common theme throughout this inquiry has been that existing accountability arrangements are not adequate, making it difficult to hold the Treasury, and Government as a whole, to account on its environmental impact. This is something our predecessor Committee explored in the past, in light of the abolition of the Sustainable Development Commission, advocating the creation of an Office of Environmental Responsibility. The Treasury needs to be much more transparent about the reasons for its decisions which impact on environmental objectives. Recognising this deficit we propose the following arrangements to increase the level of scrutiny.

73.In response to this report, the Treasury should set out concrete actions which demonstrate how it is working with the Office for National Statistics (ONS) and the Natural Capital Committee to integrate natural capital into environmental accounts by 2020 and how this will influence Treasury decision-making. The ONS will also publish nationally relevant indicators as part of the UN Sustainable Development Goals. We intend to look into how these new metrics could supplement traditional metrics such as Gross Domestic Product (GDP).

74.Fiscal events such as budgets and autumn statements are key moments in the setting of a Government’s short-term agenda. The Treasury did conduct an analysis of the net impact of the 2015 Spending Review on carbon budgets. We welcome the fact that this analysis took place. However, the Treasury has refused on several occasions to publish it so it is difficult to determine how the analysis influenced the Treasury’s decisions. Members of Parliament and the public should have access to this information so that they can hold the Government to account for the decisions it takes. We therefore request that the Committee on Climate Change publish, as part of its annual progress report to Parliament, an analysis of the net impact of measures announced during the previous year’s Budget and Autumn Statement on meeting carbon budgets.

75.Spending reviews are also key political and fiscal events for setting the Government’s medium-term agenda. The Treasury did take steps in 2015 to encourage departments to put forward information on environmental risks, impacts and obligations as part of the process. However, the Treasury did not use the opportunity to encourage departments to work across government on environmental issues. We therefore request that the NAO repeats its assessment of sustainability in the spending review after each future spending review so that the public and Parliament can monitor the Treasury’s progress on incorporating environmental information into its future spending decisions.

131 Department for Business, Energy & Industrial Strategy, ‘New ministerial team to develop industrial strategy,’ accessed 21 October 2016

132 Q132 [Jane Ellison]

133 Q13 [Dimitri Zenghelis]

134 Q132 [Jane Ellison]

135 Q133 [Jane Ellison]

136 Q33 [Karen Ellis], Anaerobic Digestion and Bioresources Association (SAT 0019), Grantham Research Institute at the London School of Economics (SAT 0027), Aldersgate Group (SAT 0030), EEF (SAT 0041), Confederation of Paper Industries (SAT 0048)

137 Grantham Research Institute at the London School of Economics (SAT 0027)

138 Q56 [Lord Deben]

139 Q12 [Claire Jakobsson]

140 Q170 ff.

141 Aldersgate Group (SAT 0030), Friends of the Earth (SAT 0006)

142 Qq140-142

143 Friends of the Earth (SAT 0006), Independent Renewable Energy Generators Group (SAT 0028), Chartered Institution of Wastes Management (SAT 0029), Christian Aid (SAT 0033)

144 Q8 [Karen Ellis], Q15 [Karen Ellis], Environmental Audit Committee, Fifth Report of Session 2014–15, An environmental scorecard, HC 215, para 58

145 Q15 [Dimitri Zenghelis, Michael Jacobs]

146 Q175 [Jane Ellison]

147 National Audit Office, Sustainability in the Spending Review (July 2016), p9

148 As above, p30

149 National Audit Office, Sustainability reporting in central government: An update (February 2016), p5

150 Office for National Statistics (SDG 0026)

151 Q32 [Michael Jacobs, Karen Ellis, Dimitri Zenghelis]

152 Q173 [Susan Acland-Hood], Office of National Statistics, ‘Natural Capital,’ accessed 2 November 2016

153 Q172 [Jane Ellison]

16 November 2016