Is COP26 the “real deal”, marking the point when we “turned the corner” on climate change, or is it what Greta Thunberg calls “blah, blah, blah”? To succeed, COP26 would need to slow down and stop the increase in carbon in the atmosphere – something all the previous COPs have failed to do. For the last 30 wasted years, that concentration has gone up by roughly 2 parts per million per year, including last year, despite the great coronavirus lockdowns. 

COP26 is all about territorial carbon production emissions; it does nothing about carbon consumption, the real carbon footprints. That’s why deindustrialising, service-based economies like the UK look good, and yet still cause climate change by importing emissions and then not counting them. The world cannot wait for China (representing nearly 30% of global emissions) to peak in a decade’s time and then take another 30 years to reach “carbon neutrality”. To avoid 3˚C warming, and unilaterally stop causing climate change, the targets should be on carbon consumption, include imports, cover agriculture as well as heating and transport. We would also need to have a much bigger fiscal transfer to the developing countries. Simply setting net zero territorial targets, and mostly for 2050, is not enough, and risks the world moving on after December to other things, as it did after Copenhagen, Durban and Paris.

COP26 – progress or just more blah, blah, blah?

From April, the average household will be paying around £2,000 a year for their energy. By October it may be closer to £3,000. Many will struggle to pay. This price does not reflect the true energy costs, which are lower. Consumers are paying too much. Whilst the price of gas has gone up, this is only one part of energy costs. Energy costs from nuclear and from renewables have not increased. The costs of the network distributors are too high. The costs of supply failures are being added to the bills. Then there are all the costs from past renewables subsidies and a host of policy costs. Five years ago I carried out the Cost of Energy Review, setting out why we are all paying too much and what should be done about it. Five years later, failing to implement its main recommendations has made the situation much worse. It does not have to be like this, but it will take a rethink of energy policy and some rapid changes.

Paying too much for energy

How do we pay not just for the immediate costs of energy, but for the full transition to net zero? Right now the UK economy is around 80% dependent on fossil fuels, just as it was back in 1970 - and much the same as the rest of the world. We have 28 years to get this down to a residual, all of which needs to be sequestrated. We have the 2050 net zero target and the 2035 target for net zero for electricity - just 13 years away. This is a transition on a scale last seen in converting a peacetime economy into a wartime economy ready for the Second World War. 

We are all in this together as citizens and we have to find a way to pay for this that enables all citizens to participate fully in society and the economy. This means that we need a social tariff, to provide the basic social primary good of energy. It breaks the link between price and costs, and brings the better-off customers and the Treasury into this picture. None of the current short-term fixes is going to address the costly long haul to net zero. Sticky plasters like loans and Council Tax rebates assume that our current energy price crisis is temporary. It is not. Lots and lots of intermittent wind will increase costs, which we should pay – as citizens and not just consumers.

How to pay for energy

As the International Energy Agency forecasts another gas crisis in 2024, let’s look at the facts. There are three reasons why the IEA’s fears may not materialise. First, on the Russia–Ukraine position, it was Russia that decided to turn off the taps, and it can choose to turn them on again. There are good reasons why it may do so, not least because its economy is suffering seriously. Second, LNG (from the US, Qatar and Australia) has created a serious alternative option, and it is in plentiful supply. Third, there is the efficiency factor. The result of high gas prices has been a remarkable reduction in demand and the possibility of a global recession will reduce overall gas demand. Efficiency gains from price shocks tend to be irreversible. These three factors all lead to the real possibility that the IEA's predicted gas price shock is over-stated.

While short-term planning for emergencies is important, the wider, more medium-term, requirement is to plan for energy policy reform.

Gas next winter - no need to panic

The science on climate change is pretty clear and not new. The latest IPPC report is pretty dire in its predictions, but our understanding of the science is not new – it has been around since the 19th century.

Alongside this science and increasing understanding, however, is what is happening on the ground – a different universe altogether. 

This podcast looks at this reality, and why now is the time to get real about the implications of a world of 1.5ºC+ within our lifetimes, not only in terms of the likely costs, but also what it means in terms changing our behaviour.

Parallel universes - climate science versus climate reality

The government would have us believe that not only can we get to net zero in electricity by 2035, but that it won’t cost very much. All the green investment needed will be paid for through borrowing, and the returns on that investment will pay back the initial outlay and the interest. The problem with this approach is that it is not us, the polluters, who pay for the damage we have caused to the environment, but rather that debt will be passed on to the next generation. This is the result of the shift from pay-as-you-go, the approach that existed from 1945 to the end of the  1970s, with each generation effectively paying through their utility bills for the investment and capital maintenance of the systems (an “intergenerational contract”), to pay-when-delivered, the approach adopted during the Thatcher government in the 1980s and the great privatisation boom. The understanding was then that newly privatised utilities would borrow and pay back from the returns they made from the future customers. Forty years later, and this appetite for debt has become addictive.

This podcast looks at the risks of this borrowing, with the result that we are living beyond our means, what this means for the next generation, and what we need to do now to mitigate this.

Borrowing to save the planet

Air traffic control, school buildings, the railways, potholes in the roads, leaking water pipes, local electricity networks failing when the wind blows from the wrong direction. Why does it feel that everything in Britain is broken? The real problem is a lack of capital maintenance. The assets need to be maintained and fixed when they break, paid for from current spending – not from new investment. Avoiding capital maintenance to save money is short-sighted. A functioning society and a functioning economy need the core infrastructures to be kept in a good condition, and the costs of not doing so are asymmetrically high. 

 Part of the blame lies with the regulators for not forcing utility companies to pay for the maintenance. But we don’t want to pay higher taxes or higher customer bills to restore the currently poorly maintained infrastructures. This problem can be solved, if we can learn to live within our means in the sustainable economy. To do this, we need a full audit of the assets we have and to budget for the long-term costs of maintaining them continually and properly.

Why does everything seem to be broken?

Network Rail, Royal Mail, and Thames Water are all examples of serious failure, with major economic and social consequences. None has lived up to the ambitions of privatisation, nor are they world-leading examples of efficient management or in good shape to deal with the challenges in their sectors. They demonstrate what has gone wrong with the implementation of privatisation. And they are not the only ones – other companies across the utilities sector have also poorly maintained their assets.

These utility failures have come at a huge cost. If productivity is to be improved, we can no longer afford to have continuing failed companies in the core utilities. The sustainable economy needs infrastructure that is well-maintained, properly financed and accessible to all. No more sticking plaster; we need a rebase now.

Network Rail, Royal Mail, and Thames Water - three failing utilities

When it comes to addressing the trilemma of energy policy in the UK (net zero, energy security and customer affordability), there are three overall policy approaches. “Policy option 1” is about setting targets: pick a year by when net zero is to be achieved, and then do whatever is necessary to get there. “Policy option 2” is the other way around, looking at what can be afforded and then at what can be achieved with the available pot of money.

There is a third set of more extreme options of stopping oil and gas now, or just assuming that science and technology will eventually solve the problem. Both are dangerous.

What is now needed is a rational debate and honesty. Politicians need to engage in an open conversation with citizens and to work out how to maximise the benefits from what can be afforded, by making hard choices between the options.

Three energy policies

Iron fiscal rules that allow borrowing only for investment might seem like a sensible strategy, but the figures have repeatedly been fiddled to make the UK appear fiscally responsible. Both main political parties have been playing this game for forty years. From Thatcher onwards, Conservatives used privatisation and PFIs (private finance initiatives) to move debt off the public books to the private sector. Gordon Brown opted for the PPP (public–private partnership) model for the London Underground, and perfected the art by re-categorising some public spending (e.g. on health and education) as “investment” in order to meet the requirement to borrow only to invest.

 

The current approach, however, is much more serious. Governments are now borrowing to maintain our assets, calling this “investment”, as are the utilities. Fixing the school roofs and the hospital buildings, and, for the utilities, the sewers, the potholes, the sad state of the railway infrastructures, patching up the electricity networks, and maintaining the natural environment, should be current expenditure, not treated as new investments. We are borrowing from the next generation to pay for the current maintenance. Capital maintenance should be a current expenditure not a capital one.

 

Sustainable public finance would (with a few exceptions) require debt to only ever be for investment that genuinely enhances assets and creates new ones, such that the next generation receives better assets. When it comes to the environment, we need to pass it on in a good state, not to simply say we will continue to borrow and live beyond our means. Government needs to explain honestly and openly how it will balance the books. Pretending that our fiscal rules are held with an iron fist whilst actually including the capital maintenance is bad accounting. The numbers are huge. The next debt crisis will follow as the unsustainable is not sustained.

Fiddling the figures – iron fiscal rules are not what they seem

The privatisation casualties are starting to stack up – earlier failures included Railtrack, and more recently there is Thames Water. Royal Mail is struggling to deliver the post; Bulb and over half the energy supply companies failed; and BT is struggling to find a way forward. Is there a trend behind this, and what does it mean for the UK’s core infrastructures?

 

As real interest rates rise, the financial engineering that regulators allowed to happen has started to unravel. Thames Water geared up to 80%, Heathrow even higher, and most of the energy distribution companies are carrying a lot of debt. Their priorities risk becoming the servicing of their debt over and above their capital maintenance and the performance.

Some think that it’s simply a question of reversing the privatisation, but it’s hard to see how nationalisation will resolve the issues. Abolishing dividends does not abolish the cost of capital. Finding the money for investment just gets a whole lot harder. The Treasury has other competing priorities in a highly constrained public finance context.

 

Proper regulation is what is needed now to deal with the casualties and to prevent a trickle becoming a flood. Failing companies need to be taken into special administration and restructured, with a proper balance sheet and with new owners brought in to run the company. This needs to happen to Thames Water – if it doesn’t, a terrible precedent will be set. Clear performance and environmental requirements need to be reimposed. A line needs to be drawn, with companies regulated to operate in the interests of their customers; nationalisation simply kicks the can down the road.

Privatisation casualties piling up

The uninspiring ideas and promises from both main parties since the election was announced make for a depressing read. In trying to get our votes – promising not to put up taxes and to look after pensioners – they are seeking to deliver the cakeism we, the consumers and voters, want: more and better services, without paying for them. It is our votes they are bidding for, and the election campaigns reflect what they think we will vote for.

In the face of the massive capital maintenance and investment needs across many sectors (infrastructure, the NHS, education, water, energy), someone has to pay. Not only do we not want to pay higher bills, we want to borrow to finance the investment, rather than saving to pay for it. Net of capital depreciation, saving in the UK is negative.

It would take a brave political leader to spell out what would really be needed to re-industralise the UK (to manufacture all the wind turbines, nuclear reactors and solar panels), to transform our health and education services, to provide a proper defence system, and to restore our natural environment.

All of this costs, but we don’t want to pay. We want a free lunch. This is not sustainable for our citizens, societies and businesses. The opinion polls suggest that people don’t buy this empty promise, yet they seem set to vote for it. Because it is not sustainable, it will not be sustained. All the promises we like hearing will turn out to be empty – we will have to pay for our lunch.

The free-lunch election

The Labour government is on a mission to grow the economy to pay for all the public expenditure needed. But where will this growth come from? Previous major economic growth (e.g. in Germany, Japan and China) has had two common factors: exports and high levels of domestic savings.  Labour’s plans don’t include anything about exports or export growth, and savings net of capital depreciation are less than zero in the UK.

 

How does Labour’s strategy of building new houses and wind turbines, and fitting lots of solar panels, cause economic growth?  The need for more houses comes from the sharp growth in the UK population, and with higher population, GDP growth itself doesn’t necessarily raise GPD per head. On the wind turbines and solar panels, we’re replacing one capital stock (gas and coal power stations) with another (off- and onshore wind and solar panels) that provides exactly the same services. As new technology replaces old assets, this is capital maintenance not investment.

 

The stuff to build the houses, turbines and panels comes from overseas supply chains – the opposite of export-led growth. The economic growth calculation is based on the assumption that the costs of renewables will fall. But with the net zero card being pushed elsewhere, the costs are higher for all those competing countries wanting to go faster.

 

The main source of finance is overseas debt markets. This dash for growth is in effect a dash for debt. The cost of capital is key to this, and it’s been rising in real terms. How will the government get to a position of no current deficit and debt falling as a percentage of GDP by the end of the Parliament? Calling anything investment, especially capital maintenance, is no real, long-term solution. If the government’s strategy goes wrong, the dash for debt will leave finances even worse than it inherited. Let’s be realistic about what we are truly facing.

Dash for growth means dash for debt

‘Easy money’ (quantitative easing and low nominal/negative real interest rates) has left a legacy of lots of zombie companies that should not still be in business, because they are not genuinely profitable. Cheap debt washed through the banking system keeps them afloat.

For the utilities, easy money has had a devastating impact, encouraging widespread financial engineering. Thames Water is the extreme example, but there are many others among the unlisted, privately owned, UK utilities. The result is a set of companies that are highly vulnerable to economic shocks being kept on life systems.

The impact is most obvious in the boardroom, where the focus is on servicing the debt, rather than on customers, future investment and R&D. As these are the elements that drive productivity growth, the long-term economic growth opportunities are seriously impaired.

Facing up to the consequences of zombie companies in the utilities sector means Special Administration, pulling the plug on the zombies, restructuring them, and selling them on to new owners. The debt holders will have to take a haircut. But what’s not to like about more productivity, more investment, better customer service, boards focused on their customers and the business? This has to be done now if we’re serious about turning around not only the utilities sector but the wider British economy. Instead of endlessly kicking the Thames Water can down the road, Ofwat should call in the Special Administrator now. The costs of not doing so are serious.

Zombie utilities

The government’s overriding objective is economic growth, and it plans to get there by building lots more houses, and a dash for net zero electricity with the implausible target of 2030. There may be some merit in both, but economic growth is not caused by houses or wind turbines. What inhibits Britain’s economic growth is altogether more profound. The four fundamental problems are: not enough production, too much consumption, too little savings, and too much debt.

We import rather than produce, and have almost no supply chain domestically for the net zero target. We live beyond our means, with imports exceeding exports, and calling capital maintenance “investment” supported by debt rather than paying as we go. We have virtually no savings net of capital depreciation, and hence rely on foreign investors not domestic savings. The result is too much debt, exacerbated by failing to realise that the great financial crisis of 2007-08 and the Covid-19 pandemic left us poorer, but without the willingness to accept an adjustment to our consumption.

Britain's four fundamental economic problems

The government is planning radical transformation, to health, education, rail travel, and with a view to achieving net zero electricity by 2030. These bold plans raise questions about what is going to be achieved, by when, and how. The politics is key, as is the timing. Such transformation takes years (many more than Starmer is anticipating). Thinking through the politics of what happens between now and when the election takes place in 2028–29, the government needs to face the difficult reality that radical reform will, in essence, mean that things will get worse before they can start to get better. Thatcher’s reforms in the 1980s, for example, took a decade to begin to turn the economy around.

So, it’s worth looking at what is going to get worse through the period until 2030 before it gets better (as a result of transitioning to net zero, and turning around the NHS, education, housing and transport). To ensure that this transformation is embedded and to bring the public with it, the government needs to be honest with us and manage our expectations while we experience the pain and disruption of the transition in the interim.

Transformation – a case of blood, sweat, tears … and many years

The British economy is going to see more regulators, more regulatory bodies, more intervention in the private sector – all requiring businesses, on the other side of the regulatory rules, to spend more time dealing with regulators and regulation. While all governments promise to “cut red tape” – and the new government is no different – sadly, the opposite appears to be happening. There are plans not only to beef up existing regulatory bodies (Ofcom, HMRC, Ofgem, Ofwat possibly, and the EA), but also to add new regulators, including NESO, the Regulatory Innovation Office, the Fair Work Agency. No doubt there are more to come.

Why does regulation grow and grow? Do we need yet more regulatory bodies, on top of the government departments, the various offices of regulation, the plethora of quasi-regulators that surround them, and the regulators that regulate them? Does it lead to better outcomes? Not only does the new government want to do more, so, too, will the regulators themselves, as they tend to seek to expand in order to increase their budgets and make their mark. Hence the growing regulation industry, despite the efficiencies that one might expect new digital technologies to bring. But as regulation in the UK mushrooms, with this additive (not substitution) approach, what does it mean for the UK economy ahead?

The UK’s new growth industry – regulation

As the many tens of thousands fly back home from Baku after this year’s COP, where have the 29 attempts among the world’s nations to tackle climate change got us? The concentration of carbon in the atmosphere continues to rise; 80% of the world’s energy still comes from fossil fuels; and the 1.5 ⁰C target is being passed.

But why? What’s causing the relentless increases in emissions that are feeding through to the continual, year-on-year 2ppm+ increase in carbon the atmosphere? 

 

COPs are based on the failed objective of achieving a legally binding set of emissions targets, measured in carbon production and not carbon consumption. They encourage net zero targeting, which is at best ineffectual. Why would anyone think that another 29 COPs are going to crack the climate problem? It’s time to re-set climate policies, build bottom-up coalitions of the willing, and face up to the full scale of our carbon consumption.

The great COP-out

The government’s number one mission is to grow the economy, by building more houses and sprinting to net zero by 2030. On the energy side, we’re told that investment in renewables will lower our electricity bills – costs come down, investment goes up. But despite the UK’s claim to be world leader in tackling climate change, the reality is that it has amongst the highest energy costs in the developed world and global warming is still rising.

 

This podcast examines the challenges that the government is facing that run counter to its objective to reduce energy costs. These include the massive demands on the system that come from the new data centres that need to run 24/7, the back-up supplies required when the wind doesn’t blow and the sun doesn’t shine, and the materials needed to build the new green infrastructure, much of which needs to be imported and paid for by whatever it costs as a result of the sprint to achieve net zero in just 60 months. These high costs are making the UK a much less attractive place for investors, who are not flocking to its shores for its claimed low-cost electricity.

Energy costs and economic growth

Economic growth is the government’s new mantra, but what exactly does it mean, and how exactly is it achieved? Who is going to pay for it? The government does not appear to have answers – at least, not ones that are credible and likely to create sustainable economic growth.

Growth involves a more than simply announcing big projects: three new runways and nine new reservoirs and the largest theme park in Europe – the government’s aspiration is to announce 150 projects by the end of this Parliament. Despite Tony Blair’s description of politics as being “and/and”, the reality is that it’s “either/or” – there are always trade-offs to be made.

This podcast explores what really lies being these announcements: the real choices and the trade-offs that need to be made, and what actually causes economic growth.

Crossing the Rubicon – what it really takes to grow an economy

The UK has very expensive electricity for both the industrial sectors and consumers, despite the government’s policies that are intended to deliver the exact opposite. It’s damaging not only the dwindling remaining energy-intensive industries in the UK, but also any potential future ones, including all the AI and data centres.

A quick look at the existing energy generation assets in the UK, and the high energy costs are perhaps not such a surprise. These assets are relied upon to deliver secure, firm power, but fast-tracking the renewables generation route by 2030 means that all the energy sources become intermittent. While Ed Miliband, Secretary of State for Energy and Climate Change, continues to tell us that renewables costs are nine times cheaper, this is far from the reality of what the true system costs of energy are. If they were, the UK would already be outcompeting the US. It obviously isn’t.

In this podcast, Dieter Helm looks at an alternative approach to setting competitive electricity prices, going back to how energy prices were set in the days of the Central Energy Generating Board, before privatisation.

Why are UK energy prices so high?

The UK government and the Climate Change Committee (CCC), with its 7th Carbon Budget, are keen to portray a "cakeism" narrative, suggesting that economic growth and net zero emissions are easily achievable together, without net costs and us having to change our lifestyles. The CCC even claims that it can reduce electricity bills by £700 by 2050. How would it know the prices in 25 years' time? This misleading narrative downplays the significant costs and consumption changes necessary to really address climate change.

 

The political framing of the net zero targets on territorial emissions rather than consumption-based emissions pretends that when net zero is attained we will no longer be causing climate change. Politicians claim progress while potentially worsening the overall climate impact by shifting polluting industries overseas. Not only is this approach ineffective but it’s also dishonest, as it avoids confronting the public with the real costs and lifestyle adjustments required.

Time for an end to this spin surrounding climate change. We need to acknowledge the difficult realities of climate change and increased costs. Cakeism, “win-win” narratives and the avoidance of inconvenient truths will not lead to meaningful reductions in carbon consumption.

Climate cakeism

Retreats on manifesto promises (electric vehicles and gas boilers), alongside the plans for carbon-intensive housebuilding and airport expansion, as well as renewal of the DRAX subsidy, are putting the UK’s ambition to achieve net zero electricity by 2030 at serious risk. Additionally, the cost of capital for renewable energy projects has increased, making it more challenging to meet the promised targets for offshore wind, solar, and nuclear energy. 

All of the above mean that the UK will almost certainly miss the 2030 target. That is before the big new challenge to net zero – defence. The sector is highly carbon-intensive. Think of all those missiles, submarines, tanks and all the infrastructure that goes with the sector. Decarbonising the defence industry is impractical; it relies on firm power and high-grade materials such as steel – no good if your tank needs recharging in the middle of the battlefield. The UK's energy infrastructure, including offshore wind farms and interconnectors, is also highly vulnerable to attacks, highlighting the need for a robust energy defence strategy.

Achieving a strong defence capability requires reindustrialisation, which will in turn mean more carbon emissions and reverse the UK’s progress towards net zero territorial emissions. Integrating defence costs into the energy sector will significantly increase overall costs, necessitating a reassessment of current energy policies.

Defence versus net zero

The recent fire at an electricity substation shut Heathrow Airport for 24 hours, causing chaos in the skies and across international airports. In doing so, it highlighted the broader critical condition of the UK’s major infrastructure and its lack of resilience. “Just in time” and “just enough” have replaced secure, ready and prepared.

The incident at Heathrow prompted calls for inquiries, in the search to find someone to blame – not the more obvious economic regulator of the airport, the CAA, but instead the National Energy System Operator (NESO). The key lesson to be learned from this is that robust systems are needed to support modern requirements, including from all the new data centres that depend on continuous electricity supply, before such failures become normalised.

To ensure the future stability of the economy, proactive measures need to be taken to reinforce these essential systems, prioritising investment and innovation that can cope with the evolving demands of our modern society.

Heathrow Airport shutdown - a lesson in resilience

How have investors managed to turn Thames Water, despite its extraordinary debt, inefficiency and poor performance, into a company that offers rich financial rewards, at least for some? The roots of this began with the privatisation of water in England and Wales in 1989. At the time, the sector was in need of significant repairs to its infrastructure, and privatisation promised renewed assets and improved efficiency. Since then, with weak regulation, practices like gearing up balance sheets and extracting dividends have led some (not all) water companies to undertake financial engineering, without proper regulatory checks on balance sheets and corporate plans. To some, Thames Water appears to have prioritised financial gains, possibly to the expense of capital maintenance and the interests of customers and the environment. It has become the unacceptable face of water privatisation. Regulatory neglect is linked to broader public dissatisfaction and the erosion of the social licence to operate.

Distressed debt players have taken control, with a £3billion loan to keep Thames Water afloat and at very high interest and associated  “costs”. They are planning to sell out the equity to a sole preferred bidder, KKR, for around £4 billion. This move raises serious questions about the terms and the interests of the A-class bondholders versus the public interest, about transparency and public accountability. It is likely to be profitable all round, given the value of the Thames Water regulatory asset base is around £20 billion. The irony is that it probably will not save Thames Water, and there is the possibility that it could lead eventually to the nationalisation the government has been so determined to try to head off.

Thames Water – the unacceptable face of water privatisation

The economic outlook for the UK is bleaker than the government would have us believe. The government's ambition to be the fastest-growing economy in the G7 by 2030 faces significant challenges. Starmer and Reeves blame the Conservatives for the current economic mess, citing a £20–£22 billion gap. They argue that, once constraints are addressed, the government will push towards net zero and build 1.5 million new homes, with growth solving public expenditure problems through increased tax revenue. If only…

The IMF predicts 1.1% GDP growth, but even this meagre number overstates the prospects, for three reasons. First, it is flattered by increasing population, with GDP per head lower. Second, borrowing is larger than expected, with a debt-to-GDP ratio already at around 100%, making the cost of debt a significant constraint. Third, the Autumn Budget increased the cost of labour and capital, and savings taxes were increased.

More fundamentally, the government's balance sheet is damaged by consuming capital rather than investing in infrastructure. Core infrastructure is not fit for purpose, and building houses and achieving net zero are not the panaceas they are claimed to be. Accounting ruses such as more PFI-type schemes and treating capital maintenance as if it is investment to push stuff off the government’s books do not make the problems go away. True national debt should add all this back, painting a very different and even more unsustainable picture.

A fundamental rethink is needed to put the economy on a sustainable consumption and sustainable economic growth path, and thereby reduce the burden on future generations.

The dark economic clouds revisited

The UK’s national debt now stands at around 100% of GDP, meaning that the country has borrowed the equivalent of an entire year’s economic output. Under current fiscal rules, the government aims to stop borrowing for day-to-day spending by 2030, but borrowing for investment is exempt from these limits. This creates a loophole: by reclassifying current spending as “investment”, the Chancellor can continue borrowing without breaching her fiscal rules. Even routine maintenance of infrastructure – fixing potholes, school buildings or bridges – is being labelled as investment, when in fact it’s simply capital maintenance. This accounting sleight of hand allows for open-ended borrowing while giving the illusion of fiscal discipline.

Beyond these reclassifications, a deeper fiscal fiddle is the long-standing trend of moving public spending off the government’s books through privatisation and private finance initiatives (PFIs). Infrastructure once funded and owned by the state—like power stations, water systems, and telecoms—has been shifted to private hands, masking the true scale of national indebtedness. While this may reduce the official debt-to-GDP ratio, the financial burden still falls on the public, now as utility customers rather than taxpayers. With rising interest rates and growing infrastructure needs, the cost of this hidden debt is mounting. 

What is needed now is honesty, through greater transparency of public finances. Without it, future generations will bear the brunt of the current delusion, and the fact that we are living beyond our means.

Fiddling the books on debt

In the mid-2030s, historians may look back and note that, despite numerous COP meetings and agreements like the Paris Agreement, global carbon emissions continued to rise, with significant contributions from countries like India, China, and Indonesia. The world failed to meet the 1.5°C target, making 2°C and even 3°C more likely. In this podcast, Dieter Helm looks at why the COP process has not delivered the desired outcomes, and the immediate imperative to shift strategies to tackle climate change from territorial net zero targets in the UK to more realistic approaches to reducing global emissions.

 

Renewable energy sources like wind and solar, despite their growth, still contribute a small fraction to global energy supplies compared to fossil fuels. The increasing demand for electricity – in particular, from new technologies and data centres – and the intermittent nature of renewables have led to higher system costs, with nuclear power emerging (once again), but this time as a more viable option for stable and continuous energy supply. Looking ahead, more radical measures, including geoengineering, might be necessary to address climate change effectively. Whatever strategy is adopted, the net zero path being pursued in the UK is unlikely to be successful, as our historians in 2035 will no doubt have discovered.

The changing net zero zeitgeist

Why when solar and wind are supposed to be nine times cheaper than gas are electricity prices in the UK amongst the highest in the world?  Why when the UK is supposed to be a fast track to this promised cheap net zero electricity by 2030 are large industrial users struggling? Why is Grangemouth in trouble? Why is the steel industry in such bad shape that it has be bailed out and nationalised? Why have fertiliser and petrochemical companies and now biofuels all reached for the exit? The UK’s dash for renewables is supposed to be creating a clean-energy superpower, based upon “home-grown” energy, whereas in fact almost all of the supply chain is imported.

Renewables are not cheap when their system costs are properly measured. Marginal costs might be near zero, but a renewables-based system already needs almost twice the capacity as the old coal plus gas plus nuclear system, even though demand has fallen. To produce roughly the same amount of firm power, a renewables-based system already requires lots of new transmission lines, which were not needed in the past for the same demand, as well as a host of upgrades. It requires batteries and storage and lots of back-up gas standing mostly idle, as well relying heavily on imported electricity via the interconnectors to keep the lights on. Renewables are not like-for-like and the wholesale price for firm power should not be compared with the contract for differences (CfD) price for intermittent generation. The nine times cheaper claim relies on leaving almost all the relevant costs out of the comparison.

It's time for some energy and climate realism and some honesty about the costs and consequences of the net zero 2030 target.

Why electricity prices are so high and why renewables are not cheap

Few people have much good to say about the water industry, and the blame game is fully engaged. But what to do? There are four possible options: continue with minimal reform; implement the recommendations of the recent Independent Commission on Water, led by Sir Jon Cunliffe; nationalise the industry; or adopt a catchment-based regulatory model. The Cunliffe Commission advocates: abolishing Ofwat, merging its functions with the Environment Agency, and introducing a supervision model akin to banking regulation. The former is not thought through, not least its neglect of the EA. The latter adds even more layers of regulation. It will be costly and there is a serious risk of regulatory capture, all the while not addressing the core issues of public distrust and investor reluctance.

 

The right approach is Catchment Regulation Model, using digital mapping and AI-enhanced data to guide environmental interventions. It encourages participation by all the parties, including through competitive bidding for projects (as opposed to financial engineering). It is the one route that can create a sustainable, transparent, and inclusive framework for the next 35 years. However, as the government reflects on the recommendations in the final Cunliffe Commission report, continued superficial reforms, particularly in the case of Thames Water, sadly look more likely, kicking the problems down the road.

Water: what to do after Cunliffe?

Helm Talks is full of short, 'pull no punches' insights into:
Energy & Climate; 
Regulation, Utilities & Infrastructure; 
Natural Capital & the Environment.

Professor Dieter Helm is Professor of Economic Policy at the University of Oxford.

Helm Talks - energy climate infrastructure & more

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