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Jul 6, 2021 10 tweets 6 min read Read on X
What risks does #climatechange pose for government finances? 🌍

OBR Economists Rachel and Tom explain some of the risks we’ve considered in chapter 3 of our 2021 #OBRfiscalrisks report 📗

Read more: obr.uk/frr/fiscal-ris…
The Government has committed to achieving net zero by 2050. Since 1990, the UK has cut its CO2 emissions by 243 million tonnes, more than any other G7 economy and faster than the EU average.

#OBRfiscalrisks
But the UK will need to cut emissions by another 365 million tonnes over the next 30 years to reach net zero emissions by 2050. The reductions will need to come mainly from decarbonising power, industry, buildings, and transport.

#OBRfiscalrisks
The total cost to society of achieving net zero could be significant, with £42 billion a year of investment required to decarbonise power generation, household & commercial heating, and manufacturing.

#OBRfiscalrisks
The shift from fossil-fuel-driven to electric vehicles, on the other hand, offers the prospect of both lower emissions and financial savings thanks to lower running costs. This may be one reason why take up of electric cars has consistently outpaced our forecasts.
Fewer fossil-fuel-driven cars, which will be banned from sale in 2030, will erode £35 billion a year (1.5% of GDP) of fuel duty and VED receipts. This could be, temporarily, offset by taxing carbon more heavily, which could also help pay for some of the transition costs.
The #OBRfiscalrisks report draws on @theCCCuk and @bankofengland scenarios to estimate the net fiscal impact of reaching net zero by 2050. An early action scenario adds 21% to the debt/GDP ratio – a lot, but less than either the 2020 pandemic or the 2008 financial crisis.
The economic and fiscal consequences of getting to net zero are uncertain, and there are choices about how much of the cost is borne by the state vs. households and businesses. We therefore consider alternative scenarios and sensitivities and their effect on debt. #OBRfiscalrisks
Policy settings are crucial to the long-term fiscal impact of getting to net zero. Debt falls below our baseline if net zero transition costs are funded from within existing public investment plans and fuel duty is replaced by another tax on motoring.
Read more in Chapter 3 of the #OBRfiscalrisks report 📗

obr.uk/frr/fiscal-ris…

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More from @OBR_UK

Jul 6, 2021
The Government’s elevated debt stock is both a product of past fiscal risks and a source of future risks to the public finances. Two-thirds of the 80% of GDP increase in debt since 2000 happened in the wake of the 2008 financial crisis and 2020 pandemic.
Despite the stock of debt reaching its highest level since the early 1960s, the cost of servicing that debt remains near historical lows thanks to falling interest rates.

#OBRfiscalrisks
But there are no guarantees that interest rates will remain low, so in Chapter 4, we test the impact of different factors that could push up government borrowing costs.

#OBRfiscalrisks

obr.uk/frr/fiscal-ris…
Read 5 tweets
Jul 6, 2021
The global economic downturn brought about by the pandemic has been the worst since the Great Depression of the 1930s. World GDP fell by 3.3% and almost 90% of economies experienced a decline in output in 2020.

#OBRfiscalrisks
The UK experienced one of the deepest recessions among advanced economies, with output falling almost 10% in 2020. This was due to being relatively hard hit by the virus, spending more time under stricter restrictions, and our large share of social consumption in output.
However, the economy also proved to be surprisingly adaptable and resilient as the pandemic unfolded, with each successive lockdown taking less off output.

#OBRfiscalrisks
Read 9 tweets

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