Below is the full text of John McDonnell’s speech today on the economy and Labour’s plans for sustainable investment.
In May, Labour secured in parliament the declaration of a climate emergency. We became the first parliament to do so.
Every one of Labour’s shadow ministerial teams has been charged with producing a programme of action defining their department’s contribution to tackling climate change. With the real prospect of an autumn election, we want to be fully prepared to roll out this climate change emergency programme as soon as we take over the controls of government.
The target is to secure net zero carbon emissions by at least 2050. We aim to be as ambitious as possible in seeking to bring that target date forward.
I have paid tribute to, and indeed joined, those people who have been campaigning and protesting to force the issue of the climate emergency more firmly onto the political agenda. The relatively minor disturbance to everyday life caused by the demonstrations by Extinction Rebellion and the school student strikes has definitely been worth it.
These forms of direct action have secured the publicity that clearly has focussed people’s minds, not just on the threat of climate change but importantly on the solutions available to us. A space has been created for an ongoing creative and constructive dialogue on the key issue facing current generations.
I have invited representatives from Extinction Rebellion to brief my ministerial team on their assessment of the climate change crisis and their ideas on how to address it. In addition, we have received detailed briefings from the Committee on Climate Change and I am meeting representatives from the National Infrastructure Commission to explore the links between its programme and the Committee on Climate Change’s proposals for change.
So to be absolutely clear, I view the absolute priority of the next Labour government to be the challenge of overcoming this existential threat to our planet.
Therefore in my role as Shadow Chancellor my overriding aim is the preparation of a policy programme that will harness the full might of the Treasury in government to tackle climate change. This is the key priority of the Treasury’s role under Labour.
To achieve this objective, we are marshalling the resources and levers of power available to the Treasury to fund and drive the climate change emergency programme. Of course, both state and private sector resources will need to be harnessed to invest in the infrastructure of the Green Industrial Revolution envisaged by Labour.
As the Committee on Climate Change has set out so clearly, this includes the large scale development of alternative energy sources, establishing a carbon neutral transport system, the conversion of our industrial sector to low carbon production, radical reform of agriculture and land use, and delivering energy conservation in residential and commercial property.
Delivering the investment needed to transition at pace to a net zero carbon economy will be my responsibility as Chancellor of the Exchequer. I want to concentrate today on how I will achieve that.
If recent experience in tackling major problems have taught us one thing, it’s that coordination is central. That’s why based upon the Turner Report recommendations I will be setting up a Strategic Investment Board, retitled the Sustainable Investment Board, bringing together the role of Chancellor, Business Secretary and Bank of England Governor, to oversee the productive investment programme the country needs.
And make no mistake – the most urgent investment, and often the most productive – will be that which is needed to keep us within our climate commitments.
That’s why we in Labour talk about a Green Industrial Revolution. A movement that encompasses everything and touches every part of our lives. How we travel to work, what we do when we arrive there, and how we spend the money we earn there.
Just as the first Industrial Revolution transformed all aspects of people’s lives, we can only imagine yet how our lives will have changed in a few decades’ time – but they will. And if we don’t make that transition for the better, the climate will make it for the worse.
The Sustainable Investment Board will have the responsibility for delivering the investment necessary to meet our climate targets, whether by government or the private sector.
Let’s set out the range of government resources to be made available. Leaving it to the market just won’t succeed.
So the first role of government in delivering our Green Industrial Revolution will be through our National Transformation Fund. We will spend an additional £250 billion over 10 years, funded by government bonds, on productive investment to transform Britain.
We have already set our investment objectives. Embracing the fourth Industrial Revolution, rebalancing our economy regionally. And thus tackling our chronic productivity crisis.
And at the heart of this nationally transformational investment programme will be environmental transformation. Solar power and retrofitting homes, actually saving people money. Wind turbines delivering power through our publicly-owned national grid network. Marine power from a potential series of tidal lagoons and barrages around our coast.
And delivering all that: well-paid jobs on union rates – 400,000 jobs, in every part of the country.
For our part, the Treasury will look at the so-called Green Book and other rules on project evaluation to make sure they capture the environmental benefits and costs of acting – and costs of not acting.
But not all of the investment will come from government spending, of course. We are to construct a new banking ecosystem.
We announced our plans for a National Investment Bank back in 2016, straight after the referendum, to leverage government guarantees to attract low-cost finance for small business and infrastructure.
Since then we’ve been developing our plans further. We published an independent report at the 2017 general election. And another independent report earlier this year, on linking up the National Investment Bank with a network of regional development banks, a publicly-owned RBS, and a new Post Bank based in post offices across the country.
By leveraging the balance sheet of the government, our National Investment Bank will build up to a balance sheet of £250 billion over the first two terms of a Labour government.
I hope it will go further but we’re starting from behind other countries. Germany, South Korea and – yes – the USA are among those with national or regional state investment banks already.
With management independent of government – and with the involvement of local politicians, community groups and trade unions – our regional development banks will be mandated to make a profit, not to be a tool for subsidies. Instead they will support the missions of our industrial strategy as laid out by Business Secretary Rebecca Long-Bailey.
They already include our target to have 60% of energy from low or zero carbon sources by 2030. And to raise research and development spending to 3% of GDP by the same point. So where there are projects that the National Transformation Fund isn’t financing, and which provide a return on capital, the regional development banks will do just that.
Of course, decarbonising isn’t just about those big projects: the big investments by the National Transformation Fund and the regional development banks. It’s also about thousands of small-scale transformational changes.
Start-ups, local co-operatives and community projects in towns and villages across the country. So the Post Bank we’ll create – as well as providing banking services in every community – will have access to funding from the regional development banks to finance the Green Industrial Revolution at the local level.
Small businesses and social enterprises creating jobs and making our world liveable for future generations in their local communities.
However, if we are to transition to a net zero carbon economy effectively and fast enough the role required of government goes beyond marshalling the public resources and institutional framework.
We need to make sure all of the finance sector is pulling together if we’re to meet the challenge. GFC Economics’ independent report last year recommended expanding the Bank of England’s toolkit to drive lending into productive investment, rather than real estate speculation.
It opened up a debate about the role of the Bank of England in ensuring bank lending flows not into housing and land speculation but productive investment.
The Financial Policy Committee has responsibility for financial stability through its macro-prudential regime. And excessive credit for the real estate sector is part of the problem.
The Bank already has the power to adjust its requirements on bank loans to avoid destabilising lending. Now we know that the environmental crisis could be a financial crisis too.
The inflated value of carbon assets that will have to be left in the ground has to be addressed at some stage. So we will give the FPC the tools needed to tackle the risk to financial stability which comes from investments in polluting assets.
And the Sustainable Investment Board will have responsibility for ensuring that the Bank of England is doing its bit to stop money flowing to projects that will kill the planet or destabilise our economy.
I’m grateful to those who attended the recent workshop run by the Progressive Economy Forum to thrash out these questions. Credit guidance might not seem like the most exciting topic to everyone. But making sure our regulators have the power to play their part is crucial.
With that power, I believe the Sustainable Investment Board can meet the 3% productivity target as well as our decarbonisation targets. Despite all the work done by the finance sector, we will still be pushing against the tide if others are funding the firms that pump greenhouse gases into our atmosphere.
There’s no point carefully limiting bank lending if other parts of the finance sector are inflating the value of brown assets.
Much large scale investment is undertaken in the largely unregulated and opaque shadow banking system. So there’s a real need to look hard at the so-called shadow banking sector.
Millions of us have our pensions invested directly or indirectly in firms under little scrutiny, who may be putting money into the very companies that are causing the climate emergency. And putting at risk the retirements of millions. Pension funds are put at risk, whilst the planet is heating up.
I believe that the Treasury has a responsibility to assess and improve the fitness of financial institutions operating in the UK to contribute to our climate commitments. This means mobilising private sector resources for green investment.
But it also means preventing financial institutions from actively contributing to planetary heating or exposing our economy to financial instability.
So today I am launching an independent inquiry into the role and activities of shadow banking in our economy to examine what state intervention may be required to increase the transparency and accountability of this sector to ensure it plays its full role in addressing the climate change emergency that we face.
I am setting up a review group to overview the financial system as it currently relates to the climate emergency, in terms of both: where and how it is causing or exacerbating the problem of climate change; and where and how it could be providing solutions to problems.
The review will cover commercial banks, investment banks, pension funds, hedge funds, private equity, asset managers, derivatives and securities traders and exchanges, and any other aspect of the finance sector of relevance.
I want the review to examine how the proposals for an enhanced Bank of England toolkit in GFC Economics’ report on the financial sector could be adapted specifically to tackle the financial stability threat of climate breakdown.
These proposals relate to the Financial Policy Committee and therefore to the commercial banks whose lending practices already fall within the scope of the Bank of England’s supervisory remit and are subject to the existing macro-prudential regulation framework.
The policy framework for regulation and supervision for the non-bank financial institutions may require wider reforms to the regulatory architecture.
The review group comprises experts with an interest or background in environmental and climate questions from academia, policy-making and finance sectors, and includes:
- Professor Daniela Gabor, expert on shadow banking
- Lord Kerslake, former head of the civil service
- Ann Pettifor, Progressive Economy Forum
- Peter Rice, Clearpoint
- Graham Turner, GFC Economics
I have asked the review group to provide its final report by October 2019.
Of course, the UK is and will remain a hub for finance. That gives us all the more responsibility to make sure that the lending that takes place here aids the tackling of the climate crisis rather than fuelling it.
For those abroad looking to invest in the UK under Labour, there will be plenty of opportunities.
To fund a just transition – led by, but not delivered just by, a Labour government. Through the bonds that will fund our National Transformation Fund, the green bonds issued by our National Investment Bank, and by supporting all the industries that need finance to build a Green Industrial Revolution.
So we will provide many large scale beneficial investment opportunities.
But we will also fulfil our responsibility to ensure adequate policing of investments using the mechanisms available to us to require companies to live up to their climate change responsibilities.
Regulation as well as incentives will be required to divert investment away from fossil fuels and into environmentally sustainable activities.
One mechanism I have proposed is to legislate so that any company listed in London is required to contribute to tackling the climate change crisis and if it fails it should be delisted.
This means that when we de-list companies that fail to meet environmental criteria from the London Stock Exchange, investors can be confident that their money is not going on making the world uninhabitable for their children.
Finally, I want to highlight the historical responsibility the UK has to make sure the costs of climate transition don’t fall on countries in the global south, some of whom are already being hit by the effects of climate change and have little resource to respond.
The first Industrial Revolution began in Britain and we were the first to commence leading the world down the path of potential planetary destruction.
It will be the height of moral irresponsibility if we were to abandon those in the global south to the ravages of climate change.
But it will also be grotesquely unfair if we force their decarbonisation to happen in a way that denies them the rising living standards enjoyed by the West.
So we will ensure that the technologies developed here in our Green Industrial Revolution are made available free or cheap to the global south.
This may go some way in addressing – if not redressing – historic injustices.
In two weeks I’ll be convening an International Social Forum where we will be discussing this with activists, economists and environmentalists and others from across the world.
The aim is for the Social Forum to be the launch of a dialogue over the next 12 months leading to a programme of reform of our global economic policy making architecture to address climate change.
As always, I am completely open about our plans as we prepare for government.
I have set out a comprehensive programme on how we will marshal the public and private resources to meet our responsibilities and the powers we will need to harness the finance sector to this task.
This is a classic example of the necessity and the opportunity for the state and civil society to work together to face up to a common threat.
The only peace-time equivalent historically on this scale has been the post war Attlee government’s huge exercise of converting the British economy from war to peace, with not just a fundamental reconstruction of our economy but also a transformation of society itself.
That took an active interventionist state alongside a reviving business sector drawing upon the financial resources of the City.
In that spirit, with that same sense of urgency, we need to start work now. The alternative of climate crisis is unimaginable.
Yes, between us all we need to create a stable economy. But we need to create a sustainable economy, with broad political support. Including from communities that have been torn apart by the economic changes of recent decades.
We are living today with the consequences of past failures to manage economic and societal change. The Brexit vote was a stern reminder of that.
Launching a society and economy-wide climate change campaign could be a unifying factor in bringing our country back together again. United to face a common challenge. To overcome the existential threat of this climate emergency.
If there is one message I want you to leave today’s gathering with. It is that we are certainly up for this challenge. Thank you.