UK Pension Funds Advocate for Alteration of Borrowing Regulations to Enhance Green Expenditures in the Government
The UK government is pushing forward with ambitious plans to attract £60 billion in investment for GB Energy, with a focus on achieving clean power by 2030. The government is collaborating with private sector investors to double onshore wind, triple solar power, and quadruple offshore wind, as outlined in a recent blueprint.
The blueprint, launched in Westminster, proposes reforming Public Sector Net Debt (PSND) by including the net worth of illiquid infrastructure investments. This reform is being spearheaded by the Office for Budget Responsibility (OBR), an institution that has previously warned about the rising debt in the UK and the need for stringent fiscal measures. The OBR has highlighted the increase in government borrowing and the abandonment of fiscal consolidation plans by recent governments.
The blueprint also outlines policy reforms such as overhauling the UK's planning system and extending the duration of Contracts for Difference (CfDs) to lower the cost of capital for renewable energy projects. IFM Investors, a pension fund-owned asset manager, created the blueprint and signed a Memorandum of Understanding with the UK government last year to invest £10 billion into infrastructure projects by 2027.
Gregg McClymont, executive director of IFM Investors, emphasized the importance of pension funds investing in the best interests of their members. McClymont suggested that the government should account for infrastructure assets more like a long-term investor rather than a commercial bank.
However, not all economists are in agreement with these proposed reforms. Some are questioning the rules, arguing for a review. Paul Johnson, director of the Institute for Fiscal Studies, expressed caution about the feasibility of valuing infrastructure assets for government borrowing.
Despite these concerns, the initiative has received backing from several institutions. The blueprint received support from USS, Nest, Border to Coast, LGPS Central, the North East Scotland Pension Fund, HESTA, Aware Super, and CBUS. At a Westminster roundtable, pension fund representatives reiterated their commitment to investing in the UK's energy transition.
The UK Chancellor, Rachel Reeves, has also weighed in on the matter, warning of a £22bn black hole in public finances. As the debate continues, it remains to be seen how these proposals will shape the UK's economic and energy landscape in the coming years.
