Current government plans to stifle investment, by contrast, would lead to a continuation of stagnant productivity and weak economic growth

 In a recent report from leading economists, it is recommended that the UK redirect its focus towards a low-carbon economy by investing £26 billion annually instead of pursuing tax giveaways that might worsen economic stagnation. The experts emphasise the potential for significant economic revitalisation through investments in energy infrastructure, transport, cutting-edge technologies like AI, and a focus on the natural environment.

According to Lord Stern, former chief economist at the World Bank, public investment of this scale could attract double the amount from the private sector, resulting in notable gains in productivity, efficiency, economic growth, and carbon reduction. Conversely, the current government’s plans to impede investment are predicted to perpetuate stagnant productivity and weak economic growth.

The findings align closely with the repeated commitments by Keir Starmer, the Labour leader, to inject £28 billion annually into a “green prosperity plan.” However, these commitments face scrutiny from the Tories, with a potential review by the opposition leadership this week as some within the party contemplate dropping the pledge.

The insights come from a paper titled “Boosting Growth and Productivity in the UK Through Investments in the Sustainable Economy,” published by the LSE on Monday. Independently examining the UK’s infrastructure, challenges and benefits of low-carbon investment, economic environment, and international competition, the authors conclude that Labour’s £28 billion annual green investment plans are appropriately scaled for the structural changes needed for a sustainable transition.

It’s worth noting that the required investments, equivalent to around a 1 per cent increase in public investment of GDP, mirror the stance of former Prime Minister Boris Johnson during his G7 presidency. Dimitri Zenghelis, one of the authors, underscores that any “fiscal headroom” resulting from better-than-expected economic performance should be allocated to investment rather than tax cuts, as planned by the Conservative government.