Covid 19 will clearly have significant economic and fiscal consequences, possibly on a par with the Financial Crisis of 2008, there are suggestions that it may be more costly. The costs of these government measures will add significantly to government debt. The means and length of time to repay this government debt will be significant political issues for the next political cycles. It is the working generations who will largely fund the repayment of government debt and if government spending is to continue at least at current levels then debt repayment will require increased taxation with the alternative of a further round of austerity – which looks politically unlikely.
All this is a situation where individuals will be rebuilding their personal finances after both the lock downs and the recession resulting from this.
Given these fiscal pressures, what will government priorities be? Will governments be able to afford the investments needed to reduce emissions or will this be deferred? In Zero Carbon our Choice I calculate these to be at least £1 trillion for the UK.
A further issues will be that we have a period of time when the long term trajectory of emissions is obscured by the economic slowdown which we are experiencing. This could lead to a demand for swifter emission cuts by people who enjoying the cleaner air. But equally it could lead to downgrading emission reduction, particularly by those interests who are opposed to demanding emission reduction targets, which will undermine the economics that are needed to promote the investment needed to achieve this.
How will governments finance these environmental investments given the government debt accumulated in fighting Covid 19? Given the other pressures on government spending and the the level of debt, is it credible that governments will raise taxes to fund this?
Government’s first priority is to fight the pandemic and address its immediate economic consequences. Will the result be that emission reductions down will be moved down the priorities of governments, and if so, the question is for how long will this be the case?
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