Greening the Financial System

Matt Rodda Excerpts

Wednesday 30th November 2022 Westminster Hall

[Matt Rodda (Reading East) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Bone. I thank my hon. Friend the Member for Sheffield, Hallam (Olivia Blake) for securing today’s important debate, and I commend colleagues from across the House for their contributions. We are speaking about the most important issue facing humanity and looking at some very specific, important and positive aspects of the contribution that the financial services community can make through wise investment.

I will focus on the potential contribution of the pensions industry in the UK and in other countries. I believe the contribution is entirely positive and should be commended. I praise the work of the Minister I used to shadow, the hon. Member for Hexham (Guy Opperman), who took me to a site where solar farms were being built on reclaimed land, which was previously a landfill site. That is a fantastic example of this type of positive investment, and it illustrates the enormous potential to use onshore wind and solar in the UK to reduce carbon emissions. Pensions investments can be used in a highly constructive way to support and protect the environment and drive this important agenda.

The site that we visited is right next to the M4. It is in Berkshire, but not in my constituency—it is in the constituency of the right hon. Member for Wokingham (John Redwood). It is on a site that used to contain gravel pits and landfill, and the solar panels are next to a motorway, so it is in no way an eyesore or a problem for the local community. In fact, it is an entirely benign development. I believe that there are many more such sites that have enormous potential for solar and onshore wind, and I hope the Minister addresses the Government’s policy on these important issues when he responds.

There is the potential for a win-win: pension savings can be invested constructively in an industry that offers great long-term returns for savers. The industry is aware of that and is working with the Government. What is needed now is a firmer steer from the Government, particularly on the benefits of onshore wind and solar in the UK. They need to make that clear to the industry to help in its planning process and thinking ahead. This area of investment needs a long-term perspective, and greater reassurance from Ministers would be helpful. I urge the Minister to respond to that point. I also reassure Government Members that such sites are plentiful. There is a lot of brownfield land in the UK. There are lots of other sites where solar and wind need not be a visual intrusion to local communities, which may well welcome them as a source of green energy.

On the contribution to pension savings, some funds are actively looking for illiquid long-term investment that can provide a reliable return in the future, and investment in the sector is just what they are looking for. They are looking at similar sectors such as social housing and other forms of infrastructure, but I believe there is particular value in investing in green energy. It would be wonderful if the Minister could do more to reassure the sector when he responds today and, in particular, to move on from the rather negative comments made by some of his colleagues about onshore wind and solar, which have an enormous contribution to make. They are cheaper to deploy than offshore solutions. They also have the advantage of greater accessibility, and are often nearer to the grid. The site that I mentioned was right next to a line of pylons running across the country, so it was easy to plug into the grid, and other sites in other parts of the UK are similar. I hope the Minister will come back on that point.

I appreciate that other colleagues want to contribute—indeed, my hon. Friend the Member for Bristol East (Kerry McCarthy) is due to speak for the Opposition—so I will sum up by urging the Minister to be clear about the Government’s intentions on onshore wind and solar. They can make a very important contribution to this vital issue. There is a real desire on the part of the pensions industry to see that change from Government, so I look forward to hearing what he says. I hope he will be able to reassure us and our constituents across the country.

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[Kerry McCarthy (Bristol East) (Lab)]

It is a pleasure to see you in the Chair, Mr Bone. I see that the Financial Secretary to the Treasury is on her feet in the main Chamber, so we may be interrupted, but let us see how we get on. I congratulate my hon. Friend the Member for Sheffield, Hallam (Olivia Blake) on securing the debate. Having served on the Environmental Audit Committee, I know that this is a complex area. We did inquiries into green finance, and there are many aspects that could be covered.

My hon. Friends the Members for Sheffield, Hallam and for Reading East (Matt Rodda) said that the financial sector needs a sense of stability from the Government—that has obviously been lacking somewhat in the past year, if not previously—so that it knows what the future direction is and feels safe in taking a long-term perspective on investments. As my hon. Friend the Member for Reading East said, pension funds very much need a firm steer from the Government on where policy is heading. My hon. Friend the Member for Sheffield, Hallam talked about the lack of investment in green infrastructure, whether it be transport or home insulation—she mentioned many things. That is because, again, the market does not have confidence that that is where it should put its money. I hope that can be rectified.

I was interested to hear what the hon. Member for Rother Valley (Alexander Stafford) said about the APPG report that is due out tomorrow. I was not aware that that work was in progress, and will certainly be reading it. It is sad that we lag so far behind the EU on green taxonomy. Anything that we can do to root out greenwashing would be appreciated across the board.

As the indefatigable hon. Member for Strangford (Jim Shannon) said, we very much agree on the nature side of things; we agree on quite a few things, perhaps surprisingly. He talked about the Amazon, as did the right hon. Member for Epsom and Ewell (Chris Grayling), who I know is doing good work with the APPG on global deforestation. It is crucial that UK financial institutions are not contributing to that by financing such activities in the Amazon and other places around the globe, and we should definitely seek to stamp that out in supply chains.

The hon. Member for Strangford also talked about EV charging points, a subject that is dear to my heart. Most people who own EVs know the pain of trying to charge at a public charging point, particularly if they have to venture into rural areas. Reliability used to be the issue, but now it is that everybody else wants to charge at the same time. I had to head down to Somerset at the weekend for work reasons, and I was in that situation. It is said that in England, we are never more than 20 miles from a charging point, which is not necessarily okay because we might get there and find we cannot use it and then have to drive another 20 miles. In Northern Ireland, it is 50 miles. We will inevitably get private sector investment where there is quicker market return—in other words, where there are more people to use the charging points and where there is that critical mass. The Government need to do more to pump-prime the market in rural areas and ensure that the public infrastructure is there. That can be done with the help of private finance, but the Government need to step in.

The contribution that the City makes to the UK economy cannot be overstated. It represents 8.3% of all economic output. It is one of our most successful exports and has been so for centuries; it has been at the heart of our economic life. Some people think there is a disconnect between what they call the real economy and the City, but allowing the City to thrive will deliver the tax receipts we need to repair our public services, to support people through the cost of living crisis, and to spearhead and finance economic growth.

Labour is committed to supporting the City to retain its competitiveness on the world stage. We support the principle of a new secondary statutory objective for regulators that prioritises both nature targets and long-term growth, but that in itself is not enough. We need to do more to harness the power of the City to drive growth in the real economy, and that means putting the right incentives in place for financial services to provide capital, credit, insurance and other services to firms in every sector and every region and nation of the UK.

Of course, sustainable growth in the 21st century means green growth. Climate change is the defining social challenge of our times, and we have seen this year what happens when we are overly reliant on fossil fuels and foreign dictators for our energy needs. Globally, the risks associated with climate change from the ever increasing frequency and severity of extreme weather events will require insurance and reinsurance, as well as sustained investment in climate adaptation.

Labour does not see the transition to a green economy as a risk. We see it as an opportunity for both the City and the wider economy to reverse over a decade of stagnant growth and to create hundreds of thousands of green jobs. The financial services industry will have a key role to play. As my hon. Friend the Member for Sheffield, Hallam explained, UK public financial institutions such as the UK Infrastructure Bank must be aligned with predetermined sustainability aims and objectives.

There are numerous examples of the financial sector already supporting green innovation in British industries, yet too often businesses—especially SMEs—struggle to access the green capital they need. That goes back to what I was saying about the lack of market confidence to invest in the green transition. Leaving aside the political and economic instability of the past year, there have been specific moves by the Government that have undercut market confidence. In 2013, for example, the Government cut energy efficiency programmes, which saw home insulation rates fall by 92% in that year alone.

[Matt Rodda]

My hon. Friend is making an excellent speech. I just want to draw out some detail in relation to that final point from my constituency. It is a tragedy that the Government have made that mistake, because there are many people—often older people—living in terraced houses who do not have adequate home insulation. They have been failed by the Government, and that is a real tragedy.

[Kerry McCarthy]

Yes, and if the Government had kept that home insulation programme, they would now be having to spend a lot less money on bringing down energy bills, because people would be saving hundreds of pounds a year by having warmer homes.

There was a series of sudden changes to low-carbon energy policy in 2015 that undermined investment confidence. The moratorium on new onshore wind programmes in 2015 effectively destroyed the market. In the same year, the Government slashed solar subsidies, causing a huge crash in private investment. We are still not quite sure where the Government are on onshore wind or, indeed, on solar. There is the move to reclassify grade 3b agricultural land, bringing that out of solar use. As we have heard, the Prime Minister has not been able to give an answer, and at Business, Energy and Industrial Strategy questions yesterday, the Business Secretary was not able to give a clear line on onshore wind. I know that a vote will happen soon if a consensus is not found, but the market wants confidence. It wants to know whether it is time to invest in things such as onshore wind. That does not mean just a temporary lifting of the ban, subject to local consent; people need a long-term vision to be able to do this.

The Prime Minister did not inspire confidence in his initial approach to going to COP27; he was eventually dragged there. On the issue of international climate finance, there was the groundbreaking announcement of a loss and damage fund to assist developing countries, in response to the damage that they have incurred through climate change. There was a call for financial institutions to raise the ambition, to change the models and to create new financial instruments to increase access to finance. We ought to be at the heart of that global transfer of funds from developed countries that have polluted to countries that need support. Yesterday, I was with representatives of the overseas territories who are really struggling to get finance just to switch from fossil fuels to renewable energy production in what are very small territories. We ought to be looking to support that through finance from the City of London.

The Government promised radical action on a green transition, and we were promised that the UK would become the world’s first net zero financial centre. Instead, as we have heard, we are falling behind global competitors. A recent report from the think-tank New Financial revealed that in both share and penetration of green finance in capital markets, the UK is a long way behind the EU. It found that green finance penetration in the UK is at half the EU level and roughly where the EU was four years ago.

I will say this very briefly, particularly because we are expecting the Division bell to go. Labour has given clarity through its green prosperity plan: £28 billion a year until 2030 for green investment. It is that sort of certainty that the Government need to adopt.