Why are Boris Johnson and Rishi Sunak at odds over net zero plans?

Publication of the government’s blueprint to hit net zero by 2050 has opened up a rift between Boris Johnson and Rishi Sunak over spending.

The chancellor is concerned on many levels about the prime minister’s tendency to believe that “everything is for the best in the best of all possible worlds”, a phrase Voltaire used in his novel Candide to lampoon the optimists of mid-18th-century France. According to Treasury insiders, Johnson is far too sanguine about Britain’s ability to emerge from the pandemic and tackle the climate emergency without meticulous planning and careful management of the public finances.

Sunak used his Conservative party conference speech – which made no mention of the environment or net zero – to warn that excessive government borrowing and “stacking up bills for future generations to pay” was immoral.

There is a long list of spending on transition arrangements to reach net zero that Johnson wants to push ahead with and is willing to put on the UK’s credit card if necessary. They range from grants to install low-carbon heat pumps to new nuclear power stations. This is not as reckless as it sounds when interest rates are at rock bottom, and economic theory says there is a huge potential return on investments in a modern infrastructure, especially when they also happen to be green.

It varies from one industry to the next, but commonly government can expect to get back £1.20 to £1.80 for every £1 spent when it invests in infrastructure. もちろん, this multiplier effect only works if the money is invested wisely. The aim is not just to replace out-of-date equipment, buildings and technology, but do it in such a way that the people who use it are more productive without warming the planet.

Subsidies can create a market for green projects where none existed before, mainly because the upfront costs deter private companies in search of a profit. Once the market is thriving, prices tend to come down and the subsidies can be withdrawn. Later the funds can be deployed elsewhere. Sunak and Johnson agree on the need to provide subsidies and attract private investment but disagree on the amount of government cash that should be on offer and for how long.

The Treasury is an anxious beast. It may appear arrogant, especially when resisting attempts to devolve financial decision-making away from Westminster. But it is distrustful of other Whitehall departments, which are viewed as spendthrifts lacking the financial discipline to manage complex projects. Green public transport should be the goal of any net zero strategy, but Treasury officials are known to despair of their counterparts in the transport ministry after significant cost overruns on London’s Elizabeth line, also known as Crossrail, and HS2.

Treasury officials also like to avoid taking risks. Investing in the north of England, the Midlands and the south-west as part of Johnson’s levelling up plans are deemed perilously uncertain when compared with the guaranteed returns to be made in London and the south-east. The same thinking is prevalent when net zero initiatives are considered. Johnson’s record of splashing cash on friends and Conservative business contacts when the pandemic hit, much of which was wasted, has only underscored concerns about the prospect of wasteful spending if No 10 moves too quickly.

Sunak objects to further increases in borrowing, arguing that the extra debt will need to be paid by future generations. It is a common thread running through the speeches of most free-market Conservative MPs and ignores the benefits for future generations of a less polluted, more biodiverse environment supported by green jobs. Young people will not thank today’s policymakers if a refusal to borrow limits the speed of transition.

In a paper on Tuesday to accompany Johnson’s spending plans, Sunak said a rebalancing of the tax system would be necessary once fossil fuels begin to be phased out. Just as it would dent the exchequer if people stopped smoking or drinking alcohol, a reduction in petrol and diesel use will hit fuel duty receipts, currently worth £37bn to the Treasury. Sunak did not say where he was looking to get an alternative source of revenue, but there is no sign he will increase income tax. The road user lobby expect the chancellor to back pay-as-you-drive charges once electric cars dominate the roads.

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