Treasury urged not to backslide on climate promise in Budget

London, 24 February 2020 – Research and campaign group Positive Money has called on the Chancellor to add climate responsibilities to the Bank of England’s mandate in the March Budget, after the Treasury today admitted failure to act on its commitment to do so in November.

In its Green Finance Strategy, published in July 2019, the government committed to clarifying responsibilities for the Bank of England’s Prudential Regulation Authority (PRA) and Financial Policy Committee (FPC) “to have regard to the Paris Agreement when carrying out their duties”. The government committed to including these clarifications in the next remit and recommendations letters that the Treasury sends to the Bank of England, but no mention of the Paris Agreement nor climate was made in such letters sent alongside the last Budget in November 2019.

In an answer to a written question from Green Party MP Caroline Lucas, City Minister John Glen on Monday admitted a failure to act on this commitment, and attempted to excuse it, citing the 2019 election. “Given the pre-election period was about to begin, the Government decided to roll over the existing remits”, Glen said, adding that the “The Government continues to recognise the importance of making clear the responsibilities of these bodies in relation to the COP21 Paris Agreement and will set this out in their next remit letters.”

The Treasury’s remit and recommendations letters to the Bank of England are typically sent alongside the Budget. Positive Money is therefore calling on the Chancellor to send letters to the Bank of England updating its responsibilities in relation to the Paris Agreement as part of the Budget scheduled for 11 March.

As the institution overseeing Britain’s financial system, the Bank of England has a key role to play in helping the government meet its climate goals. It has already recognised the significance of climate change for its financial stability responsibilities, but action to align UK finance with the government’s climate targets has been hindered by fears of the Bank of England overstepping its mandate and a lack of clarity over policymakers’ responsibilities.

The clarifications promised in the Green Finance Strategy would end uncertainty and give a clear signal to the Bank of England that it needs to take a more proactive approach on climate. This could mean the Bank of England using its powers to steer finance away from fossil fuels and towards the greener investment needed to meet the Paris Agreement, such as the introduction of ‘brown penalising factors’ for high-carbon lending.

Fran Boait, executive director of Positive Money, said:

“The Bank of England warns that the financial system is currently funding warming of more than 4C, which is more than double the targets the government has committed to via the Paris Agreements. Yet there has been inertia from policymakers in the face of crisis due to confusion over whose responsibility greening the financial system falls under.

“With time running out to avoid irreversible climate breakdown, it is extremely worrying that the government is dragging its feet on a measure which would end uncertainty and empower the Bank of England to take the action necessary to decarbonise our financial system. There is no time to waste – the Chancellor must not miss another opportunity to deliver on its commitment with the Budget next month.” 

Caroline Lucas MP said:

“There is no real justification for the Treasury’s failure to clarify the Bank of England’s climate responsibilities so that its activities align with the Paris Agreement. Without a rapid reorientation of the UK’s financial system, shifting investment out of fossil fuels and into the zero carbon economy, the Government’s puffed-up promises on climate will be all but worthless. With the UK hosting the critical UN climate summit in November, we need to get our own house in order and the actions of our financial sector are a key part of this. The Treasury needs to wake up and make the transition to zero carbon Britain its top priority.”

Notes

1. The Treasury’s response to Caroline Lucas’ question can be viewed here: https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2020-02-11/597/

2. The government’s green finance strategy can be viewed here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/820284/190716_BEIS_Green_Finance_Strategy_Accessible_Final.pdf

   Commitments to update the mandate for BoE policymaking bodies are set out on pages 8 and 22.

1. The Bank of England Act 1998 requires the government to write a Letter of Recommendations to the Prudential Regulation Authority’s Prudential Regulation Committee (PRC) at least once in each parliament and a Letter of Remit and Recommendations to the Financial Policy Committee (FPC) at least once a year. This is typically timed alongside the Budget, with the last letters sent in November 2019: https://www.gov.uk/government/publications/recommendations-for-the-prudential-regulation-committee-2017-to-2019-parliament
   https://www.gov.uk/government/publications/remit-and-recommendations-for-the-financial-policy-committee-2019

2. Positive Money campaigns for a money and banking system which supports a fair, democratic and sustainable economy. Set up in the aftermath of the financial crisis, Positive Money is a not-for-profit company funded by charitable trusts and foundations, as well as small donations from its network of over 65,000 supporters. www.positivemoney.org

3. For any questions or to arrange an interview with a spokesperson please contact Simon Youel at simon.youel@positivemoney.org.uk or on 07817765517