Growth or Net Zero? Or NET ZERO GROWTH?

Britain’s Clear Growth Plan - Economic Growth from Net Zero

Article by Cllr. Ed Gemmell, Leader, Climate Party

22 February 2025

Chancellor Rachel Reeves is still groping around for the secrets of growth while Britain’s once great economy staggers and lurches almost to a stop.

While the chancellor flounders, the attack dogs of both left and right try to convince us that ‘economic growth’ and ‘net zero’ are not compatible. The question is are they right?

The hard left sees a growing economy as driving the continued destruction of our planet through increased emissions and pollution caused by over-consumption.

The hard right see net zero as the antithesis of a growing economy. They consistently trot out the old trope that net zero will cost us money and make us poorer. Boring us all stupid, Nigel Farage’s Reform Party is the most blatant offender1. This is usually followed by the overused get out of jail free card of ‘what’s the point when Britain is only 1% of global emissions if China doesn’t do the same?’.

Often the extreme right and left sound eerily like each other with their misguided assertions based on distortions and misrepresentations of the facts.

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British Leadership on Net Zero?

‘Net Zero’, as the phrase suggests, involves deep diving our carbon emissions. The issue is the opportunity this presents. We, Britain, should embrace this new industrial direction. We should apply ourselves to reaching net zero with the same determination, ambition, intelligence, vigour and ruthless focus which we applied as a nation when we initiated and led the Industrial Revolution.

The British government constantly lauds Britain’s progress in reducing emissions faster than any other major industrialised nation. In fact, as the government is keen to remind us, since 1990 we have succeeded in reducing our recorded carbon emissions by a hefty 50%2. Sadly though, this reduction in carbon emissions is the only positive result derived from our decadal and determined destruction of our industrial capacity – outsourcing the supply of our needs to other nations, not least of all China, while simultaneously outsourcing our profits to them as well.

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Britain – Still an Economic Powerhouse?

Just over 100 years ago, prior to the start of WW1, Britain was the World’s strongest exporter responsible for 27% of the World’s entire trade in manufactured goods with 54% of British GDP derived from exports3.

By the 1950s Britain’s share of World trade had shrunk to around 10% (only goods4). That has now dropped to under 3% (goods and services combined).

Half a century ago in the 1970s 30% of Britain’s national economy came from industry and manufacturing.

Now manufacturing is less than 10%!

Worryingly, since 1998 Britain has run a trade deficit6. We have exported less ‘stuff’ than we imported effectively losing money every month for a quarter of a century. That figure looks much worse if we strip out our financial, legal and other services and focus only on manufactured goods where we have run a trade deficit since 19837.

This decimation of our industrial capacity and connected collapse of our exports has made Britain poorer. Quarter of a century of losing money month after month has resulted in an exponentially growing national debt. Britain’s debt pile was around 35% of our GDP in 1998. Now it is equivalent to nearly 100%8. Our debt is so huge we pay ￡8 billion per month9 in interest payments alone! This becomes problematic when there are shocks such as the recent jitters of the markets after Trump’s re-election combined with Britain’s high levels of borrowing and stubborn inflation.

But what about the City I hear you say? Don’t we lead the World in financial and legal services? Yes, we do, thankfully. We are the largest global exporter of financial services10 and our legal services market is the second largest in the World after the USA11.

The picture is much worse, if we look only at our trade deficit related to the import and export of manufactured goods, where we have been losing money not for a mere 25 years but for a staggering 40! Every year since 1983 we have run a trade deficit in relation to manufactured goods.

If Britain plc was a company rather than a country, we would have gone bankrupt long ago.

Amazingly though it’s getting worse!

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Sharks in the Economic Waters

It may seem like we are in a bad spot right now but worse is to come. The UK’s Office for Budget Responsibility projects our national debt will almost triple over the next 50 years from about ￡2.25 trillion today to over ￡6.5 trillion by 207412 – the highest level since WW2. ?That massive increase of our national debt will occur even with a predicted annual increase in our national productivity of 1.5% throughout the next 50 years.

The related figure of GDP growth was only 0.1% in 202313. In 2024 GDP is likely to be 0.9 -1.1%14 with the third quarter last year actually flat at 0%15. To achieve productivity growth of 1.5% annually might seem rather optimistic considering where we are today.

The OBR also looked at a more optimistic scenario. They found that with a growth rate of 2.5% Britain would actually see its debt drop to 65% of GDP16.

More worrying though was their more pessimistic scenario. If productivity growth was 1% lower at 0.5% then our debt would be two times higher still or over 6 times our GDP – no country in the World currently has that level of debt.

So how could we achieve productivity growth of 2.5% or more per annum? It certainly can’t be achieved through another decade of Conservative austerity nor from the current Labour government’s obsession with fiscal headroom and high taxes.

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Which Road to Prosperity?

To achieve lasting growth, it is essential we have a vibrant industrial and manufacturing sector to complement our strong financial, legal and other services offering.

How to do it?

There are two commercial megatrends in the World at present – AI and Net Zero – and they overlap. 93% of World’s economy is under a net zero commitment17 (depending on whether we now include USA or not) and over 140 countries have supplied Nationally Determined Contribution commitments under the UN’s Framework Convention on Climate Change18. The direction of travel is clear!

From a commercial standpoint it doesn’t matter too much when countries around the World intend to reach net zero but rather that they are all on their way there. Yes, there will be some bumps in the road (it is quite likely the recent flurry of misguided opposition from far-right groups in Europe and Trump’s election in the US will temporarily slow up a few western economies) but the direction of travel will not alter. In fact, as climate impacts inevitably intensify, and the loss of lives and livelihoods accelerates, while at the same time profits are shown to be made by major players in the race to net zero, most targets probably come forward.

This is where common-sense kicks in.

Britain is going to net zero anyway!

Not only is it enshrined in law but the current government, on the advice of the Climate Change Committee, has recently committed us to 81% decarbonisation by 203519.

On our current trajectory it is likely Britain’s path to net zero will involve us buying almost everything we need to get there from other countries. Most particularly China which is dominant in supplying what the World needs to decarbonise.

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World Economic Superpowers Open the Door for Britain

China already supplies 60% of all the World’s wind turbines20, 80% of all the World’s solar panels21, 85% of all battery production22, and 58% of EVs23. China is making money hand over fist from Britain’s and the World’s path to net zero. The Chinese also control 58% of the production of rare earth minerals24 and 90% of rare earth ore processing25 – they have a vice like grip on the essential supplies the UK and the World needs for the march to net zero. This vice like grip is an issue of national security as well as being costly for Britain and profitable for China.

While China was consolidating its control over the race to net zero the USA had been fighting back. The Inflation Reduction Act with its combination of big spending – $369 billion in tax breaks and subsidies for renewables and the net zero economy26 - combined with blatant protectionism favouring US based companies had started to bend many supply lines more firmly towards the USA (and away from Britain and Europe) and if the reports are right, it was beginning to pay back.

In different ways the two major economies of the World have been hugely cashing in on the current move towards renewables and more sustainable industry and practices while building what were increasingly secure foundations for future growth. So how can Britain with its more modest (but still substantial) economy fight back?

To some extent the job has been made easier by recent events in USA and China. ?In the US Donald Trump has paused the subsidies for climate related investments under the IRA while emphasising in other measures a doubling down on fossil fuels. In China there is due to be a reduction in subsidies for renewables in the middle of the year.?

Prior to this China and USA had both been effectively cherry picking the profitable new sectors to invest in and it seemed to be working well for them. As the two largest markets in the World both economies benefit from massive scale well beyond what could be achieved using the same strategy in a smaller market such as Britain.

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Pride in Britain!

True - the British market is not as big as China or USA. That means we can’t use the same cherry-picking strategy. It is though, important to note, although Britain is substantially smaller than China and USA it is still a massive economic powerhouse. Britain is the 6th largest economy27 of the World out of nearly 200 with 69 million people (21st in size). Britain is also hugely well connected in terms of international export markets and in 2022 and 2023 it was the World’s 4th largest exporter of goods and services (although only 14th for goods)28. Britain also has the City, one of the World’s top financial centres – rated number 1 in terms of Forex transactions29 and second only to New York based on a basket of other indicators30. Britain maybe smaller than China and USA, it may have less control of the World’s economy than it did a century and a half ago, but it is not small or weak!

So how can Britain overtake China and USA?

By bringing forward our net zero target substantially and thereby galvanising and focussing our entire economy on achieving that single commercial goal well in advance of other major economies which, by delaying their own net zero journeys, will become our willing customers in years to come.

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Clean Industrial Revolution

Britain should lead what is a new industrial revolution - the new ‘Clean Industrial Revolution’. To do that we should set a World beating net zero 2030 target for our whole economy. If we invest and innovate our way to net zero 10-20 years before the majority of the World’s economies then we will see a huge surge in exports in the 2030s and 2040s as the rest of the World buys our innovations, licenses, and patents and engages our consultants. We know the global market in the next few decades will be crying out for low/zero carbon sustainable products and resources. McKinsey projects global spending on net zero will top $275 trillion (around 7.5% of global GDP per annum) over the next 30 years31. Britain must grab this opportunity by the horns, take first mover advantage and innovate its way to net zero first.

This will need investment. We will have to put our money where our mouth is!

Britain is already planning to invest the money but over a leisurely 25-year period – just like the rest of the World. Although in fact, some countries most notably in Europe, have already set earlier net zero targets. Germany has pragmatically set 204532 as its target and the Scandinavian nations Norway, Finland and Sweden are aiming for 2030, 2035 and 2045 respectively.

The Climate Change Committee’s 6th Assessment report projects Britain will invest between 0.5% and 0.9% of GDP annually in getting to net zero by 205033. In total equivalent to 14% to 25% of one year’s GDP. Currently much of that ‘investment’ will flow out of UK into China and USA ultimately making the citizens of those great nations wealthier and potentially creating a financial burden on citizens in Britain. There will also not be any growth in our exports or our economy (as noted before the OBR projects 1.5% annual productivity growth over this period – which currently seems optimistic).

BUT…

Just imagine what would happen if we invested all that money now, over the next five years, at the rate of perhaps 3-5% of GDP per annum (very roughly ￡75-￡125 billion per annum). Think of the upside when Britain is the first major economy to have innovated its way to net zero in 2030. We will have created and achieved everything that every other country in the World will need or will want to achieve over the coming two decades. There will be an explosion of growth in our clean industrial sector as it expands rapidly to meet the global demand for our clean exports.

What is the alternative? To achieve net zero by 2050, or if Nigel Farage gets his misguided way, even later. Where is the commercial advantage in that? We will not beat anyone, we will not have first mover advantage, and we will certainly not see growth in our industry or in our economy. In fact, it will be the opposite, we will pay China and/or USA for the next 3 decades continuing to lose what little industry we have left while ultimately making us all poorer. Lack of leadership will see our debt grow to 300-600% of GDP leading to a total collapse in our economy or at best we will be in a situation where even with higher taxes we will no longer be able to afford our NHS, and other public services will collapse through lack of funding.

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What is the upside and who pays to get there?

So, if we estimate total investment needed would be maybe ￡125 billion per annum to innovate our way to 2030 net zero - just how big could be the upside of such a target?

McKinsey already predicts that progress towards net zero at the current slow pace will be worth ￡1 trillion to Britain by 203034.

The CBI and ECIU reported that last year the net zero economy in Britain grew 9% in 2023 whereas the overall economy stagnated at 0.1% growth. Also, jobs within the net zero economy were on average 60% more productive35. Growth of 9%, if taken over the whole economy, would be the equivalent to an uplift of around ￡225 billion per annum.

So how much higher would-be growth of our national net zero economy if Britain invested at ￡125 billion per annum to reach net zero 2030. If we assume a modest doubling or tripling of the net zero economy growth rate from 2023 to 18% or 27% per annum and the incredible positive knock-on effect on the whole economy, then we could see Britain smashing the OBR’s optimistic scenario of 2.5% productivity growth leading to a generational reverse in our national debt eradicating it altogether over the coming two decades.

And would the investment even need to come from government? Initially I do not believe it would. If Britain had a clear industrial plan and economic vision based around getting to net zero 2030. If that plan and vision was set into law, then private capital would flow. The City and private investors would rush to provide cash to the most investable sustainable assets and those assets would, in turn, enable Britain’s breakneck transformation to a net zero society.? Renewable energy generation, next generation renewable infrastructure innovation, nuclear fusion and fission, circular sustainable business practices such as battery recycling, raw material mining from public waste tips, zero carbon steel and cement, and production of zero carbon meat products would be just a few among those likely to get fully funded early on. Then capital would turn to more risky or secondary sectors. The guillotine may fall on some industries and businesses practices in 2031, but a plethora of others will already have risen up from Britain’s fertile ground even before time is called on the older dirty out of date areas.

Public capital through incentives, subsidies and tax breaks may be needed later, but only after private capital has satiated itself on the most investable assets and companies. Public capital may be required to support the growth of initially less attractive industries and sectors. Even then the attractiveness of these sectors will rapidly increase as export markets open up. Public capital would also be required for areas where we may not want private capital to dominate such as parts of the National Grid.

There has never been as exciting a moment commercially in modern times as now and certainly not since reg start of the original Industrial Revolution. It has also never been so obvious what direction to take. Now what is required is for the British people, and most specifically its politicians and business leaders, to be brave, roll up their sleeves and go for it!

What is the alternative?

We could continue to do the same as we are now. Conservative austerity and Labour’s fiscal rules – all designed to politely manage our economic decline while a massive untenable national debt burden bears down on us which will result in a collapse of our health and other services. If we continue to do what we are doing now, we will get the same result, and it will not be prosperous and it will not be pretty.

As if she is trying to get with the programme, the measures announced by Rachel Reeves recently were not stupid. There’s nothing wrong with improving transport connections between our oldest universities, building some reservoirs or investing in a raw material factory. But these are simply cherries picked out randomly from a very large bowl.

There is another option. We could choose to opt for Farage and Reform’s wish to ignore the opportunities of the new clean industrial revolution and to double down on the old fashioned and soon to be dead industries. More drilling for fossil fuels, less action on net zero – a simple and deeply flawed economic philosophy based on misperceptions and misinformation which would see us retrench Britain to the back of the queue with the inevitable result we would pay China, USA and everyone else for everything. If Farage and co. get their way the phrase “Made in Britain” will consigned permanently to history. ?

Alternatively, we do what Britain does best. We fight back. We innovate and we invest.

The future is Britain’s! The future is British!

The path to prosperity, is net zero and is laid out in front of us as plain as day – we just need to get up earlier, pull together, take calculated risks and believe in ourselves and our country!? ???

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REFERENCES

1 Page 8 Reform Manifesto

2 Government Announcement 6 Feb 24

3 Walking wounded: The British economy in the aftermath of World War I. Nicholas Crafts, 27 Aug 2014 ?

4. Commons Library Briefing 2020

5 Section 4 The UK economy in the 1970s. House of Lords Library

6 Trading Economics

7 UK trade in 2018: Trade deficit widens, 08 January, 2020

8 ONS Public Sector Net Debt as % GDP

9 The budget deficit: a short guide, Research Briefing, 04 September, 2024

10 The Global City: Exporting Financial Services to the World

11 The City UK: The UK Remains Global Hub for International Legal Services

12 OBR Fiscal risks and sustainability – September 2024, 12 September 2024

13 ONS GDP first quarterly estimate, UK: October to December 2023

14 Treasury and OBR Estimates Dec 2024

15 House of Commons Library GDP international comparisons: Economic indicators, Research Briefing, 23 December, 2024

16 Guardian Analysis. Can UK avoid national debt almost tripling over next 50 years? Larry Elliott

17 Net Zero Tracker report

18 UNDP State of Climate Ambition 2022

19 UK Government Press Release

20 Reuters Explainer: China's dominance in wind turbine manufacturing?Andrew Hayley April 10 2024

21 IEA Report 2022

22 IEA Report April 2024

23 Al Jazeera Are Chinese electric vehicles taking over the world? April 2024

24 Statista Distribution of rare earths production worldwide as of 2023, by country

25 Oxford Institute for Energy Studies China’s rare earths dominance and policy responses

26 UN Trade and Development Investment Policy Hub

27 Safeguard Global: Top 15 Countries by GDP in 2024

28 Department for Business and Trade: Official Statistics, Trade and investment core statistics. 20 December 2024

29 Global City: We are the UK: working with you. The UK: the heart of the world's financial market

30 CityAM: Z/Yen Global Financial Centres Index

31 McKinsey, Decarbonize and create value: How incumbents can tackle the steep challenge. October 24, 2023

32 Climate Action Tracker Germany

33 Climate Change Committee: The Sixth Carbon Budget The UK’s path to Net Zero Dec 2020

34 McKinsey: Opportunities for UK businesses in the net-zero transition, October 21, 2021

35 CBI Economics: UK net zero economy grows 9%, 27 Feb. 2024

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