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Infrastructure Policy Watch: cost of climate change to UK finances, public views on New Zealand infrastructure

13 July 2021

- UK Office for Budget Responsibility forecasts the cost of climate change to public finances
- New Zealand Infrastructure Commission concludes major survey of public priorities for infrastructure development

Infrastructure Policy Watch: cost of climate change to UK finances, public views on New Zealand infrastructure

In this fortnightly blog, ICE's Director of Policy Chris Richards looks at developing policy landscape for infrastructure, what decisions mean, and their implications, so that infrastructure professionals can play their part in shaping the discussion.

UK public spending watchdog highlights cost of climate change, and transition, to the public finances

The Office for Budget Responsibility (OBR) in its latest Fiscal Risks Report has forecast the cost to the UK public finances from climate change (physical risks) and the transition to net-zero (transition risks) across a range of different scenarios.

Describing the challenge, the OBR states:

  • There are many other policy challenges to overcome, so the path to net zero can be expected to involve many policy levers on top of carbon taxes and emissions trading schemes, including bans and other regulations, and public subsidies and investment. These will all have economic and fiscal implications of one sort or another – either directly (via taxes and spending) or indirectly (via wider economic outcomes).

Taking early action to achieve net zero would add 21% of GDP to public sector net debt by 2050, a smaller amount than that added by the Covid-19 pandemic. This amount comes from increased spending on net-zero investment, the loss of tax revenues (such as fuel duty), revenues from tax on carbon and other costs such as increased debt interest payments.

Against the cost of early action, the OBR sets out alternative scenarios including a no-action scenario which would bring more frequent and costly shocks to UK's tax position.

ICE’s view

The OBR report echoes ICE's previous work looking at the future of road funding and motoring taxes.

In our report, we outline the need for a replacement to declining fuel duty and Vehicle Excise Duty (VED) revenues, pointing to a Pay-As-You-Go model as an equitable alternative. The forthcoming Transport Decarbonisation Plan and HMT Net-Zero Review may provide answers.

New Zealand Commission public survey shows preference for environmental investment

A new 23,000-person public survey by the New Zealand Infrastructure Commission (NZIC) has indicated a preference among New Zealanders for future decision making on infrastructure to place a priority on the 'planet' rather than 'jobs' and 'people'.

The report also found:

  • Not always having access to safe drinking water was the number one infrastructure issue for New Zealanders with four out of five wanting to see increased investment in water networks.
  • Creating too much waste and ageing schools and hospitals were the second and third most important issues.
  • Reducing the need to travel by implementing non-built infrastructure options like working from home was popular.

The survey forms part of NZIC's work leading up to a New Zealand Infrastructure Strategy, which will be presented in September.

ICE’s view

Understanding public concerns and pressures and encouraging public consultation are an important part of crafting a robust strategy for infrastructure development.

This survey, along with the linked consultation, will add legitimacy to the final Infrastructure Strategy reducing the likelihood it will be reopened in the future.

With that greater level of certainty, construction firms will be in a better position to deliver at a lower cost. We explore the role of strategic infrastructure planning.

In case you missed it...

Check back in a fortnight for the next edition of the ICE's Infrastructure Policy Watch. You can also sign up to ICE Informs to get a monthly digest of the latest policy activities from ICE, including calls for evidence to support our ongoing advice to policymakers.

  • Chris Richards, director of policy at Institution of Civil Engineers