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The full report by Richard Werner was included in the latest edition of Policy News, and can be downloaded below.

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In the short term, government spending is needed to keep people in work as the only guaranteed way to reduce a deficit in a time of unemployment. When the immediate crisis has passed and the government needs to balance its books again, there are two options: to cut government spending or to raise revenue. As the Green New Deal Group’s briefing, The Great Tax Parachute: How to save the public finances and give the economy a soft landing shows, the first of these, does not need to be an option.

• Taken together, the Green New Deal Group estimate that more than £100 billion a year is lost because of abuse of loopholes in the tax system, tax bills remaining unpaid and from illegal non-payment of tax. Of course not all these abuses can be stopped. No tax system is perfect. But, while some of this revenue would be absorbed by the modest additional resources needed to implement the measures, by taking action to tackle these issues substantial amounts could still be made available to the public purse.

This is not about new taxes, simply collecting taxes that are due, closing loopholes in the tax system and clamping down on illegal non-payment of taxes. In addition, as the Green New Deal group show, there is an enormous range of additional taxes available that would make the UK’s tax system fairer. Those with the greatest capacity to pay tax could carry more of the burden of addressing the economic crisis whilst the taxes of those who simply cannot afford to pay more could be eased. Such an approach also stands to reduce the high social costs of inequality borne by the taxpayer.

Action on tax avoidance, collection and evasion is needed immediately, and should be followed, when the economy is ready, by changes to the tax system to make the UK tax system fairer.

In The Great Tax Parachute, the Green New Deal Group show that:

• there is an alternative to cuts in public spending – a credible programme for raising more public funds through tackling flaws in the current system and increasing tax revenue through other progressive measures.
• no politician can argue there isn’t a tax-raising alternative to cuts in public spending.

This revenue could be raised in four ways:

• First, the tax that is avoided through loopholes in tax law could be collected. This, quite extraordinarily, is the easiest solution to the problem we face. Tax avoidance – getting round tax law in a way that the Government thinks contravenes the spirit of the law – might cost £25 billion a year at present.
• Secondly, unpaid tax (bills that have been agreed, but not settled), come to even more. In November 2009 the Treasury Select Committee of the UK’s parliament reported that HM Revenue & Customs was sitting on £28 billion of unpaid tax debt.
• Thirdly, evasion (or illegal non-payment of tax) is worse still. A report by Green New Deal Group member Richard Murphy on behalf of the Public and Commercial Services Union (PCS), which represents about 80 per cent of the staff of H M Revenue & Customs (HMRC), has shown that tax evasion in the UK – that is illegal non-declaration of income on which tax might be due or fraudulent claims for tax relief for which relief is not justified – might cost HMRC £70 billion a year. The total loss is at least 15 per cent of all tax that should be paid.
• New taxes are also available to address the unfairness in our tax system – whilst taking the lowest out of tax altogether.

The briefing also reveals the unintended consequences of the HMRC’s redundancy programme. The immediate cost of cancelling the programme would be less than £10 million a year, at marginal cost to HM Treasury of keeping staff in employment. The revenue raised through taxes collected, would be likely to exceed £3 billion per annum.

As The Great Tax Parachute shows, if the political will existed, the means needed to fund the fiscal deficit without any cuts in public spending in the UK could be found.

Alongside, the range of tax measures presented here, the Group has also recommended:

• A £50 billion programme in ‘green quantitative easing’ in the short term to rebuild the economy. This is the amount of annual spending recommended by some of the most comprehensive analyses to date of the amounts needed to re-engineer the UK economy to meet the challenges of a low carbon future;

New savings mechanisms that support the greening of the economy now, create thousands of new jobs and guarantee stable returns into the future:

• Green bonds, which will be issued by the government with the explicit guarantee that the funds raised will be invested in new green infrastructure for the UK. The bonds will carry conventional rates of return for bonds.
• Local authority bonds, to invest in energy efficiency and provide renewable energy for each of the country’s three million council tenants, as well as for all other local-authority-owned or -controlled buildings, such as town halls, schools, hospitals and transport infrastructure.
• Carbon linked bonds, to align investment returns with carbon saving and create a significant body of investors who will take the risk on there being carbon savings that can be secured.

A new publicly owned ‘Green New Deal Investment Bank’ to allocate the capital provided by green quantitative easing, and new bank lending to government:

• Green New Deal Investment Bank, a publicly owned bank to hold and disburse capital provided by ‘green quantitative easing’. It will be used exclusively to fund companies and projects designed to accelerate the transition towards a low carbon economy.
• Treasury Deposit Receipts, like those issued during the Second World War, a mechanism whereby banks were forced to use their ability to create credit to lend to government.

The cuts won’t work, the Green New Deal Group’s second report shows how, contrary to the policy of all the major political parties, cutting public spending now will tip the nation into a deeper recession by increasing unemployment, reducing the tax received and limiting government funding available to kick-start the Green New Deal.

Instead a bold new programme of ‘green quantitative easing,’ rather than simply propping up failing banks, could help reduce the public debt and kick-start the transformation of the UK’s energy supply while creating thousands of new green-collar jobs.

Drawing on evidence from the great depression in the UK and the USA, the Group show how cuts in public spending then, before the economy had recovered, tipped both nations deeper into depression.

Now, the Group say, the Chancellor must announce a plan that updates the lessons from history for the challenges of the modern world, and spend to reduce the public debt by investing in the long-term restructuring of the UK’s energy infrastructure needed to meet the challenges of climate change and the inevitable peak and decline of oil.

To illustrate the potential of ‘green quantitative easing’, new calculations produced by nef (the new economics foundation) for the Group reveal that:

A sample of £10 billion in green quantitative easing invested in the energy efficiency sector could:

• Create 60,000 jobs (or 300,000 person-years of employment) while also reducing emissions by a further 3.96MtCO₂e each year;

• This could also create public savings of £4.5 billion over five years in reduced benefits and increased tax intake alone;

A sample of £10 billion in ‘green quantitative easing’ invested in onshore wind could:

• Increase wind’s contribution to the UK’s total electricity supply from its current 1.9 per cent to 10 per cent (39 TWhe) and;
• Create over 36,000 jobs in installation and direct and indirect manufacturing This is a total of 180,000 job-years of employment - here we have described each ‘job’ as providing stable employment for an average of five job-years. Create a further 4,800 jobs in the operations and maintenance of the installed capacity and other related employment over the entire 20 year lifetime of the installation (equivalent to 96,000 job-years)
• And, if this directly replaced energy from conventional sources, it could decarbonise the UK economy by 2.4 per cent – reducing emissions from the power sector by up to 16 MtCO₂e each year  This corresponds to a £19 billion reduction in environmental damage

Or, a sample investment of £10 billion could:

• re-skill 1.5 million people for the low-carbon skills of the future, bringing 120,000 people back into the workforce, and increasing the earnings of those with a low income by a total of £15.4 billion.

The Group recommends:

• A £50 billion programme in ‘green quantitative easing’ in the short term to rebuild the economy. This is the amount of annual spending recommended by some of the most comprehensive analyses to date of the amounts needed to re-engineer the UK economy to meet the challenges of a low carbon future;
• Next, planning must begin for all of the new forms of bond finance detailed in the Group’s report to ensure the long-term stable funding needed for the long-term transformation of UK infrastructure.

Once spending on the green economy of the future has breathed life back into the deflated economy, the Green New Deal will require a whole new savings and investment infrastructure to meet the long-term investment needed to underpin the Green New Deal and to meet the needs of a new generation of investors who are fed up with all that has gone before.

This means secure new forms of saving which promise stable returns over the longer-term. The Group put forward a range of new measures to help public borrowing and encourage public investment by individuals, local authorities and companies in greening and reviving the economy. The foundations for these must be laid now. These include:

Measures on tax that are explicitly designed to re-gear the UK economy and transform energy infrastructure:

• Tax incentives on green savings and investment, so that future ISA tax relief – costing more than £2 billion a year – is only available for funds invested in green savings (tax relief for ISAs was more than the whole green stimulus package announced in the 2009 Budget, estimated to be worth just £1.4 billion).
• A general tax-avoidance provision to end the abuse of tax allowances. If just half of the tax avoidance in the UK was stopped by this provision, it would raise more than £10 billion a year.
• A Financial Transaction Tax, commonly known as a “Tobin Tax”. Such a tax, applied internationally at a rate of about 0.05 per cent has the potential to raise more than £400 billion a year. This could be the basis for a Green New Deal in the Global South, playing a significant role in enabling the majority world to adapt to climate change as well as breaking the carbon chains of fossil fuel dependence.

New savings mechanisms that support the greening of the economy now, create thousands of new jobs and guarantee stable returns into the future:

• Green bonds, which will be issued by the government with the explicit guarantee that the funds raised will be invested in new green infrastructure for the UK. The bonds will carry conventional rates of return for bonds.
• Local authority bonds, to invest in energy efficiency and provide renewable energy for each of the country’s three million council tenants, as well as for all other local-authority-owned or -controlled buildings, such as town halls, schools, hospitals and transport infrastructure.
• Carbon linked bonds, to align investment returns with carbon saving and create a significant body of investors who will take the risk on there being carbon savings that can be secured.

A new publicly owned ‘Green New Deal Investment Bank’ to allocate the capital provided by green quantitative easing, and new bank lending to government:

• Green New Deal Investment Bank, a publicly owned bank to hold and disburse capital provided by ‘green quantitative easing’. It will be used exclusively to fund companies and projects designed to accelerate the transition towards a low carbon economy.
• Treasury Deposit Receipts, like those issued during the Second World War, a mechanism whereby banks were forced to use their ability to create credit to lend to government.

The Green New Deal group believe that despite the appearance of calm, the need for the implementation of the Green New Deal is greater than ever. When the Group launched their first report, new analysis suggested that from 1 August 2008 there were only 100 months, or less, to stabilise concentrations of greenhouse gases in the atmosphere before we hit a potential point of no return. The climate clock is still ticking and nothing like the scale of reform needed to rapidly re-engineer the economy has been implemented, anywhere.

This could be a real opportunity for the UK to show global leadership by implementing an interlinked package that recognises the need for targeted public spending in a downturn.  Not to further fuel an economy hard-wired into ever increasing use of fossil fuels, but to revitalise the productive economy and lay the foundations of the low-carbon infrastructure of the future.

The opportunity for action is even more pressing than it was when President Franklin Roosevelt instigated his bold New Deal programme that touched almost every aspect of economy and society. The timescale is limited by the urgent need to stabilise concentrations of greenhouse gases in the atmosphere before the risk of uncontrollable global warming increases significantly. Today, there is a plan on the table that could revitalise our damaged economy while also radically restructuring it for a low carbon future. Now the vision is needed to implement it before it is too late.

For more information, or to arrange an interview with a member of the Green New Deal Group, please contact Ruth Potts, co-ordinator, the Green New Deal Group, on:

t: 020 7820 6357    m: 07749 026 203    email: ruth.potts@neweconomics.org

Download the report (PDF1,353KB)

Andrew Simms, nef policy director: ‘When the banking crisis hit, the Government understood, eventually, that something fundamentally different had to be done. Old dogma about public ownership of banks was quickly thrown out and financial resources were found on a previously unimaginable scale. Approaching the Budget, the Government now has to show that it has properly understood the scale and depth of the threat posed by climate change and energy security. This is not about a few new electric cars or green painted bungs to vehicle manufacturers in the form of ’scrappage’ schemes. First, electric cars still need power, and its source must be green. Second, there is no evidence that ’scrappage’ schemes will do anything to lower emissions overall, they could even make things worse.

“A truly green budget will begin to imagine the comprehensive re-engineering of our energy, transport and food systems, and begin the overhaul of our building stock. It will set the UK on a path to living within its environmental means and ensure that the policies and resources are in place to set out on that path. The good news is that the effort to preserve the climatic conditions under which civilisation emerged will keep the economy dynamic, and us all in work, for many decades to come. That is the once-and-only chance that the Government must grasp.”

Ann Pettifor, Director of Advocacy International: “The Green New Deal set out to replace and transform the broken global financial system, which has little regard for financial and ecological limits. We want to subordinate what Abraham Lincoln called ‘the money power’ to the interests of both society and the ecosystem. We want to ensure money is no object when it comes to financing the transformation needed to guarantee the future of human and other life forms on the planet. The Green New Deal spells out the ways and means. Some have been selectively adopted. However, G20 leaders continue to back ‘the money power’ and resist change. They seek only to protect, patch up and restore the current, broken system. We need a new political alliance of Greens, Labour and Industry to challenge the ‘money power’ and build a more stable, just and liveable international order.”

Caroline Lucas, MEP: “What do we expect from Darling?  Too little, too late – and falling far short of the Green economic transformation that we so urgently need. The Green New Deal is meant to be a first step to a very different economy.   It’s not a question of giving the old economy a greenish tinge, it’s about laying the basis for a new sustainable economy – so that means making big decisions now. We need to put the economy on a war footing, invest massively in the renewables technology that delivers far more jobs per megawatt than coal or nuclear, and which could start delivering those jobs today. Give the same treatment to energy efficiency measures, green agriculture, green transport, and a zero waste strategy, and each of these things will deliver far more jobs than the less progressive alternatives, whilst simultaneously making significant cuts in emissions.”

Richard Murphy, Director of Tax Research LLP: “A critical part of the Green New Deal is reclaiming control of our finances. To everyone’s surprise the UK is leading the fight against tax havens that the Green new Deal calls for, but there is much still to do. Tax avoidance has to be beaten, as well as tax evasion, and changes in accounting as well as tax rules are required to do this. The result of that change would be country by country reporting of corporate financial results. This resulting data would also let us trace an organisation’s real activity – and measure its global impact and responsibility. When we know what corporations do we can hold them to account. That’s a key part of the Green New Deal.”

Tony Juniper, Environmental Campaigner: “While trillions are pumped into the banking system, the investments into the low carbon and resource efficient transformations needed to avoid a real disaster are still far too tiny. It seems that our leaders are hell bent on keeping the 20th century economy on life support, instead of bringing forward the 21st century system we need to create jobs, increase social welfare, promote energy and food security and to protect natural capital. We will have to change in the end, the only question is whether it will be a planned transition rich in opportunity, or whether it will be forced on us through resources scarcity and environmental change. We still have a choice, but not for much longer. That is why we need some inspired leadership for change – not more of the same with a few green knobs on.”

Jeremy Leggett, Executive Chairman, Solarcentury: “The G20 Communiqué downplayed the green new deal that has begun to feature of late in some leaders’ rhetoric. What is the point of stimulus packages if they boost carbon that fuels greenhouse warming that ends up destroying more wealth than it creates? Society needs green jobs, and the low-carbon fruits thereof, not high carbon infrastructure, and enhanced risk of runaway greenhouse warming. In all the stimulus packages to date, only South Korea seems to understand that. Their actions – 80% of funds go to low carbon activities – match their rhetoric. Messrs Brown and Mandelson have the same rhetoric as the Koreans, but that is all. In solar energy, for example, the UK’s current policies are on course to actually destroy jobs in the fastest growing clean-energy industry of them all. The politics of this situation are incomprehensible: a massive own goal, and a political gift to the Tories, in a flagship green new deal industry, right before the budget.”

The UK economy faces a triple crunch: a recession triggered by a major credit crisis, the looming reality of runaway climate change and critical resource depletion. As a result we face serious challenges to our livelihoods and increasing threats to our fuel and food security. Whatever the mistakes that allowed this situation to arise, there is growing international consensus that the best way out is via a Green New Deal policy package.

Parts of the UK economy are in freefall with unemployment rising rapidly. At the same time, with less than 100 months to go before the world enters a new, more dangerous phase of global warming, there is an urgent need for the rapid environmental transformation of the economy.

A Green New Deal demands a comprehensive array of new checks and balances on the financial sector and a range of new economic instruments ranging from new bonds to business incentives and taxes. At its heart is an environmental stimulus package designed to begin the rapid environmental transformation of UK businesses, while simultaneously softening the worst impact of the recession, creating countless jobs in the environmental and renewable energy sector and laying the foundations for a truly green recovery.

The way that the UK government handles this challenge will reveal its aptitude for crisis management. The simple, telling test of this aptitude is the answer to the question: what is the government doing that is new and additional to stimulate the economy by spending on the environment?

As Green Stimulus or Simulus? shows, the government could be missing a huge opportunity - the chance to boost the economy, ensure energy security and act on climate change, by directing new and additional resources into the environmental transformation of the economy.

The report reveals that:

• New and additional green spending included in the green stimulus package of the government’s Pre-Budget Report (PBR) is astonishingly small compared to other recent spending commitments, at just 0.6% of the UK’s £20bn recovery plan. This key element makes up just 0.0083% of UK GDP, but in the wake of the banking crisis nearly 20% of UK GDP has been provided to support the financial sector.
• Just over £100m is being allocated to spending that is genuinely new and additional; this is a fraction – less than 13% – of the annual bonus package given to staff at the failed Royal Bank of Scotland (RBS) which is estimated at approximately £775m. £100m represents just 0.0083% of UK GDP. Estimates for necessary new annual spending on environmental economic stimulus and transformation range from £11bn to £50bn.
• Several of the government’s measures are, in fact, in conflict with the environmental stimulus. By comparison with the new and additional spending of the PBR’s green stimulus, £2.3bn – around 22 times – has been put aside to assist the car industry. If spent on energy efficiency measures this would save about 3 MtCO₂ annually.
• New and additional green measures could save just one tenth of a megatonne of carbon dioxide (MtCO2) from the atmosphere each year, and will only delay the accumulation of UK carbon emissions by less than half a day by the end of 2011.

Given the state of the economy, the imminent threat of climate change and the impending energy shock from peak oil, massive investment in environmental transformation is both necessary and hugely economically beneficial.

John Sauven, executive director of Greenpeace UK, said “Brown’s high-flying green rhetoric just isn’t matched with real action. His support for green industries when times are tough is nothing short of negligible.”

Andrew Simms nef policy director, Green New Deal Group member and co-author of the report said: “We face a unique alignment of economic and environmental interests. Investing in rapid transition away from the UK’s fossil fuel dependence could provide a parachute for a troubled economy. But, it feels like the government has cut the parachute strings and pushed green energy, efficiency and conservation from the plane.”

Estimates for necessary new annual spending on environmental economic stimulus and transformation range from £11bn, according to Lord Stern, to £50bn, according to the Green New Deal Group. According to Nobel Prize winning economist Joseph Stiglitz, toward the end of 2008 the Iraq war had cost the US around $3tn. When the political will exists, money can be found.

Gordon Brown has been calling for a ‘global Green New Deal’, but so far he has done little to put his words into effect.  As renewable energy projects are forced to close through lack of funding and millions of people face unemployment, the need for a Green New Deal has never been more critical.

That’s why over 140 organisations – from faith groups and trade unions to environmental campaigns and social justice NGOs – will be gathering in London this weekend to demand, among other things, a Green New Deal.

The Put People First march is an unprecendented coalition of campaigners, joining forces to remind Gordon Brown and the rest of the G20 leaders that going back to business as usual is no longer an option. We need real change and leadership at this time of economic and environmental turmoil.

The demonstrations will begin at Victoria Embankment, near Temple tube station, in London, at 11am on Saturday 28 March 2009. To find out more, and to book a place on one of the coaches coming from all parts of the country, visit www.putpeoplefirst.org.uk.

The coalition’s document of recommendations, which was written with input from Green New Deal Group members Colin Hines and Richard Murphy, calls on the UK government to:

Ensure a massive investment in transformative action to deliver a low-carbon economy and push other developed countries to do the same. A green new deal is needed to create jobs based on decent work and pay through alternative energy development, sustainable transport systems, and energy saving and conservation. This shift to a low-carbon economy must be a ‘just transition’ based on democratic involvement of those groups most affected by that shift.