Houses of Parliament (c) Ben Andrews rspb-images.com
Today's blog, one week on from the budget, is written by Dougie Peedle, Head of RSPB's Nature Positive Economy team
The Autumn Budget delivered last Wednesday achieved a number of firsts. The first delivered by a female Chancellor, the first Labour budget for 14 years, and the first-time taxes will rise above 37% of GDP. Unfortunately, it did not achieve the first we were hoping for. That is, the first budget to recognise the vital importance of nature to our economic ambitions and to deliver new funding for investment in our natural capital. This is the only way to reverse nature’s decline and remove the significant drag that decline places on our economy. The Budget documentation recognised that we are one of the most nature depleted countries in the world, but failed to provide the funding necessary to transform that situation.
The nature crisis is an economic crisis
The nature crisis is an economic crisis that is perpetuated by bad economic policy decisions. It can only be solved by better economic decisions and a new approach to how we manage our economy and our relationship with the natural environment. In a new series of briefing notes we highlighted that the global biodiversity crisis poses a real threat to the world economy as we are using nature’s resources 1.6 times as fast as our ecosystems can replenish them. In the UK, the nature crisis is so severe that we are depleting our natural capital, reducing the essential services on which people and the economy depend. New research shows that damage to the natural environment is already slowing the UK economy and could lead to an economic crisis of the scale of that caused by the global financial crisis and Covid 19 in the years ahead.
There is an urgent need to invest in nature’s recovery, to meet our own and international commitments. Taking account of current levels of expenditure on nature, there is an estimated nature finance gap of £5-6bn p.a. in the UK. There is a strong case for government investment in nature as without it we will not deliver the level of funding required.
Eurasian curlew in cotton grass (c) Jake Stephen (rspb-images.com)
Investing in nature makes economic sense
Filling this gap and investing in our natural capital will see benefits that far outweigh the costs and those delivered by other government investment. In the UK the benefit-to-cost ratio of closing the natural capital gap to meet the nature-related SDG targets is 34, meaning that every £1 invested in closing the natural capital gap will bring £34 in benefits. There is a strong evidence base that shows nature-based solutions provide a cost-effective means of addressing issues such as flood management, climate regulation and coastal protection, providing better value for money than built infrastructure.
The Chancellor announced two new fiscal rules that govern decision making in budgets and spending reviews. We had called for four changes to the rules that would help facilitate greater investment in nature. Rather disappointingly the two new rules do not achieve that. The first, the ‘Stability rule’, is that over time day-to-day spending must be balanced with revenues. Generally seen as a positive move, it means that the government will only borrow to invest.
The other rule is the ‘Investment rule’ which is to reduce net financial debt (as measured by public sector net financial liabilities) as a proportion of GDP. The intention is that this rule keeps debt on a sustainable path while allowing for increased investment. It captures not just the financial liabilities (the debt) of the government but also the financial assets that are expected to generate future returns. However, this excludes physical and natural assets and some have pointed out that the combination of the two new rules will continue the mistakes of previous rules and suppress public investment. It would have been more economically beneficial to recognise that investment in natural capital creates assets that deliver returns and often to a greater extent than financial or physical ones.
The narrow focus on financial assets is translated across to the National Wealth Fund which has £70bn to invest in support of its remit to mobilise investment in the UK’s clean energy and growth industries and support the delivery of a new Industrial Strategy. This too risks side-lining investment in natural capital, meaning that it will not be given its fair share of investment.
Spring into action
That said, it is not too late to change the way decisions are made even if the drinks might be being poured in the last chance saloon. The Spring Spending Review must build on this Budget and set out more clearly how we will address the nature finance gap and commit the significant public funds needed to do so. There are two key changes we would like to see. Firstly, that this and all future Spending Reviews have a natural capital action plan included with associated funding that sets out what is required to keep us on track to meet our international and domestic nature commitments. Secondly, the purpose of the new National Wealth Fund must be broadened to take a holistic approach to national wealth that allows it to invest in natural infrastructure and nature-based solutions.
The Chancellor started her speech by stating that “This government was given a mandate. To restore stability to our economy and to begin a decade of national renewal. To fix the foundations and deliver change.” Nature is the ultimate foundation of our economy. When our economy is embedded in nature there can be no national renewal unless the decline in biodiversity is reversed. The Budget has failed to recognise this and in doing so puts our economic health at risk. There is now an even greater weight of expectation on next years’ Spending Review to take action and provide the public funding necessary for nature and national renewal.