Treasury 'warns of diminishing returns from green investment'

Treasury 'warns of diminishing returns from green investment'
Treasury 'warns of diminishing returns from green investment'

The Treasury has been warning of 'diminishing returns' from more green investment and the need for a tax overhaul amid signs of tensions between Rishi Sunak and Boris Johnson.

A leaked briefing ahead of the COP26 summit says the spending needed to achieve Net Zero was 'uncertain', although it could help improve the UK's lagging productivity levels.

However, it warned that the positive impact of 'ever more investment' in greening the economy is likely to reduce. 

The document, which according to the Observer accompanied a presentation to key groups outside government, also cautioned that tax rises could be required to balance the 'erosion of tax revenue from fossil-fuel related activity'.

Meanwhile, Treasury officials have been complaining about 'economic illiteracy' at No10 over lavish spending promises and the danger of inflation running out of control. 

The sniping emerged as the PM tries to position the UK at the forefront of the battle against climate change, with the UN summit taking place in Glasgow in a fortnight.

Rishi Sunak

Boris Johnson

The Treasury has been warning of 'diminishing returns' from more green investment and the need for a tax overhaul amid signs of tensions between Rishi Sunak (left) and Boris Johnson (right)

The Treasury briefing stated: 'The investment required to decarbonise the UK economy is uncertain but could help to improve the UK's relatively low investment levels and increase productivity. 

'However, more green investment is likely to attract diminishing returns, reducing the positive impact of ever more investment on GDP. Some green investments could displace other, more productive, investment opportunities.' ' 

The document highlighted the potential for businesses to shift abroad if the burden of green measures is too great.

'Climate action in the UK can lead to economic activity moving abroad if it directly leads to costs increasing, and it is more profitable to produce in countries with less stringent climate policies,' it said.

The briefing warned that the cost of moving towards net zero could mean tax rises because of 'the erosion of tax revenue from fossil fuel-related activity'. 

'The government may need to consider changes to existing taxes and new sources of revenue throughout the transition in order to deliver net zero sustainably, and consistently with the government's scal principles,' it warned.

A Whitehall source told the Observer that Mr Sunak seemed to be positioning himself to take advantage of a backlash against the costs of Net Zero.

'Rishi clearly sees an interest in showing he is not really down with this green stuff. He wants Boris to own the whole agenda.' 

Meanwhile, Treasury officials have accused Mr Johnson of 'economic illiteracy' as tensions grow in

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