The new cabinet – what it means for a fair, green economy

September 7, 2022

Liz Truss has been confirmed as the new Prime Minister, with key cabinet appointments including Kwasi Kwarteng, Jacob Rees-Mogg and Graham Stuart. What does this mean for the movement to create a fair, democratic and sustainable financial system? Read on for 3 major battlegrounds to watch this autumn.

1. Bank of England independence

Truss and her leadership opponent Rishi Sunak butted heads several times during the contest over the issue of central bank independence. Truss has repeatedly pointed blame at Bank of England governor Andrew Bailey for failing to get inflation under control, even accusing him of fuelling it through the injections of new money (known as Quantitative Easing) that helped support the economy during the pandemic.

These claims have been widely discredited, including by Bailey himself, not least because they distract from the much more pressing sources of inflation that the Bank of England has no control over, such as fossil fuel-driven energy price shocks, speculation on essential goods like food, and supply chain disruptions. After facing criticism from Sunak and Bailey over her suggestion of a Bank mandate review, Truss appeared to soften her stance over the weekend, saying she’s a “great believer” in central bank independence.

Kwasi Kwarteng, who has been confirmed as Truss’ Chancellor, also hinted at a mandate review in August. But, he assured readers of the Financial Times this week, and business leaders this morning, that he is committed to independence. Neither has given details on any specific changes, but some have speculated that tweaks to the inflation target or new instructions to promote growth could be on the table.

At Positive Money, we think that the central bank mandates shouldn’t be untouchable – it’s right that they’re periodically reviewed to make sure they’re fit for meeting the challenges of the day. That’s why we successfully campaigned for Sunak to add a green objective to the Bank’s key decision-making committees in 2021. It’s also why we’re calling for the Bank to play its part in tackling the housing affordability crisis, by keeping house prices low and stable. But reducing the money supply in a blanket way (rather than targeting money created solely to boost financial markets, house prices or other speculative activities) would be the wrong way to tackle inflation at a time when we need to see more green, productive investment to keep the economy going.

2. A Net Zero financial centre

After several weeks of deafening silence on climate from all leadership contenders, Truss has confirmed that she remains committed to the government’s legally binding goal of reaching net zero emissions by 2050, but is sceptical of some of the key policies we need to get there, such as government subsidies for green energy. She told the Times that she plans to open a round of new oil and gas licensing as Prime Minister, despite a clear international consensus that fossil fuel expansion must stop this year. Although by no means a ‘green’ advocate, immediate pressure to relieve the energy bill crisis and secure our energy supplies in the face of ongoing Russian aggression in Ukraine may tip Truss in favour of climate action.

Truss will also be closely influenced by Kwarteng, who has generally been seen as a greener voice in the Conservative Party, proposing an energy efficiency scheme that was blocked by Sunak, and delivering the UK’s new Energy Security Strategy back in April. The Strategy was generally considered a step forward on renewables, although it also contained provisions for further dangerous extraction of North Sea oil and gas. He has paid lip service to the need for a greener financial system, arguing for the government to play a role in creating a “virtuous cycle” for green investment, creating investor confidence through a robust regulatory framework.

Kwarteng’s support for renewables will soon come up against the anti-climate zeal of Jacob Rees-Mogg, now confirmed as Business Secretary, who famously wants to squeeze “every last cubic inch of gas” out of the North Sea. In 2014, he got in trouble for supporting oil and gas without declaring financial interests in the fossil fuel industry.

Other key green appointments include Graham Stuart as Minister for Climate, who has described himself as a “deficit hawk” and recently voted against key proposals to green pension funds and financial regulators. He has mixed positions on fracking, subsidies and green taxation. Longer ago in 2012, he supported the establishment of a new Green Investment Bank (which was then controversially sold off to Australian bank Macquarie) but voted against mandating it to support the UK’s carbon emissions reduction target. Ranil Jayawardena, the new Environment Secretary, is a former manager at Lloyds Banking Group – the latest in a long line of Conservative ministers with deep ties to big finance. Alok…