In a world where the cult of austerity and balanced budgets dominate politics, it would be all too easy for sustainability funding to get lost. That, however, would be a disaster, not just for our long-term future but also for the current economic situation and government finances. Yet there is an option attracting increasing attention that might address all these issues simultaneously; the use of green quantitative easing (GQE).

Most people will by now have heard of quantitative easing (QE). The UK government committed £375bn to its QE programme from 2009 to 2012. This involved the Bank of England printing new money that was used to repurchase government bonds from the banks and other financial sector institutions that owned them.

As a result of that programme, £375bn of government debt was effectively cancelled. There is almost no chance that any of the bonds the Bank of England purchased will ever be sold back to the financial markets when there is so much new debt to sell each year. The downside is that this new money has been used to fund speculation in the stock market, property market and commodity markets. How else could those markets (and bankers’ bonuses) be booming when the real economy is not?

GQE builds on the logic of QE, but fundamentally changes its objectives. In a GQE programme, new money is created – literally out of thin air – and used to buy bonds, but in this case they would be bonds issued by a government-owned Green Investment Bank, local authorities, housing associations and other similar organisations, such as drainage boards.

The bonds need not carry interest as the money provided by the Bank of England would be equivalent to cash creation. This is important: it means that the loans could behave like share capital and so underpin what would conventionally be considered either higher risk or low-yield projects, as many sustainable projects are in their early days. There is another advantage to this: capital of this sort usually allows projects to be taken over by lenders to restore good order if there are signs of things going wrong. Good governance is, therefore, built into GQE.

So what would these funds be used for? The aim should be to make every building in the UK energy efficient and turn many of them into power stations. An army of workers could insulate and double-glaze every building still pumping heat into the atmosphere. Solar panels could be installed where possible and smart metering could ensure a fair split of the gains between householders and funders.

Funding could be provided to build the sustainable new homes this country needs, with a rental flow to provide a return on capital. Investment could also be made in new, sustainable technologies for tidal energy and transport systems.

None of this energy saving and job creating activity would create new debt as the programme would be paid for using electronically printed money. The programme would not overheat the economy because of the current levels of underemployment in the UK. The results of the QE programme demonstrate that the economy can absorb this kind of intervention without inflation.

The organisations provided with funding would spend this new money into the economy, creating real infrastructure that the country needs. There would be new jobs in every constituency in the UK, and those jobs would all result in tax paid and benefits saved. Not only does this programme not create new debt, it actually delivers a mechanism to reduce existing debt through additional tax payments, at the same time as delivering new work and a sustainable infrastructure for future prosperity.

There is a fear of printing money that is preventing politicians from embracing GQE, and yet those same politicians had no difficulty in creating money to save the capital markets. Now they need to do it again to transform the economy, create jobs, reduce debt, build green infrastructure, create new housing and deliver hope to future generations – all by the magic of using money creatively. It’s time for some courageous politicians to embrace the bold step of adopting GQE. No one will regret it.

Richard Murphy is director of Tax Research UK.



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