Funding the £100 billion a year needed for the Green New Deal from UK ISA and pension savers
Colin Hines is a Convenor Green New Deal group
Richard Murphy is Professor of Practice in International Political Economy, City University of London. He campaigns on issues of tax avoidance and tax evasion, as well as blogging at Tax Research UK
The Green New Deal is the political issue that will dominate the decades to come. It is the term used to describe the wide range of policies required to transform our economy and society to both tackle climate change and the negative impact that austerity has had on so many communities and public services.
At its core the Green New Deal is a massive investment programme that will create well-paid, long term, skilled jobs in every constituency of the UK while modernising almost every aspect of our infrastructure. But that, of course, comes at a cost. We estimate the investment needed to be up to £100 billion a year, which is a little less than 5 per cent of UK national income at present. The inevitable question that always arises is ‘how will you pay for it?’
In this briefing we suggest that the Green New Deal need not be paid for out of tax. Indeed, we suggest that to fund investment of the sort required out of tax would be inappropriate.
We also suggest that we do not expect that the Green New Deal will be paid for with quantitative easing, because that might only be required if there is another major economic downturn, and whether that will happen is not known.
Instead we suggest that the government borrow the funds required to finance the Green New Deal by issuing bonds.
Most importantly the issue that we address is how to find buyers for those bonds. Whilst there is already a existing markets would buy more of them, we think that it is important to ensure not only that all the bonds that will fund the Green New Deal will be sold, but also that that people be given the chance to become involved directly in this vital process of change. As a result we propose some simple rule changes to ISAs and pension contributions that could ensure that all the investment required for the Green New Deal could come from these two sources,if need be.
ISAs are tax free savings accounts available to people tax resident in the UK. Collectively, £70 billion a year is saved in different kinds of ISA accounts. If, to secure this tax free status these funds had to be invested in Green New Deal bonds paying an average of1.85per cent, which is the current average cost of UK government borrowing,then we have no doubt that all this sum would be available for investment in the Green New Deal.
In addition, if pension rules were changed so that in exchange for the tax relief given on these contributions, which costs£54 billion a year at present, 25 per cent of all contributions had to be invested in Green New Deal related bonds then more than £25 billion could come into the Green New Deal programme from this source as well.
In other words, two straightforward changes in savings rules could provide all the funds required to purchase the Green New Deal bonds that will be issued to finance this programme. It really is that simple.
As this briefing shows, the Green New Deal need not cost the earth and absolutely any saver will be able to have a role in it.
We could, quite literally, save for the planet.