By Bob Lyddon – 3 minute read

LABOUR’S ‘borrowing for investment’ will part-finance the Net Zero transition in a repeat of New Labour’s Private Finance Initiative and the EU’s InvestEU, and cost the UK nearly £7 trillion.

The Labour Government’s Climate Change Committee’s Carbon Budgets are a dangerous fiction in that they exclude these financing costs.

That is the upshot of my paper, ‘‘Borrowing for investment’ – what signs we have of how this will manifest itself under the current Labour regime’ published today by Global Britain and available at the foot of this blog.

Compliance with Labour’s new ‘iron’ fiscal rules will mean that only a small portion of the total cost of the Net Zero transition will be borrowed by the government, injected into Great British Energy and the National Wealth Fund, and in turn ‘invested’ into Net Zero projects.

Most of the investment cost – which is put at £50 billion per annum up to 2050 – and only stopping then because the Climate Change Committee’s chart goes no further – will be raised by the projects themselves in a form of shadow debt, for which businesses and individuals will be made responsible, but without the debt featuring in any of the measures of the UK’s national debt.

Even the debt taken on by the Labour Government will not raise the national debt, under Labour’s new measure of the national debt – Public sector net liabilities – which allows the Government to net off the debt against the assets the proceeds were spent on. That gives Labour an infinite capacity for new debt, as long as it fools investors and public credit rating agencies.

We can look forward to many new debt-laden, zombie enterprises emerging, such as for carbon capture and electric vehicle charging, just as we have had Robin Hood Energy and Robin Hood airport in the past.

The Net Zero schemes will borrow most of their financing as expensive debt. That translates into a high cost for the scheme’s product – green energy – which UK businesses and individuals will be compelled to pay.

The Climate Change Committee’s Carbon Budgets only reflect the investment cost of the schemes, and then the supposed benefits. They fail to project the financing costs which, if New Labour’s Private Finance Initiative of 1997-2010 is to be repeated, will be over five times the investment cost.

The investment cost is around £50 billion per annum every year until 2050, a total of £1.125 trillion, against which the benefits look suspiciously linear. The benefits also fail to outweigh the costs either by a significant amount in any year, or at all in any individual year before the 2040s.

The Climate Change Committee’s budget is an irresponsible fiction in that it fails to factor in the financing cost of Net Zero schemes. These are likely to be a multiple of the investment cost itself, if the indicators are correct in pointing to a repeat of New Labour’s ‘Private Finance Initiative’, and of the EU’s InvestEU.

The relationship of total cost to investment cost of New Labour’s previous ‘Private Finance Initiative’ is projected by HM Treasury to be 556%. If that is repeated and against an investment cost for Net Zero of £1.125 trillion, then the total cost will be £6.95 trillion, or just over 2.5 times the total size of the UK economy.

The cost will be felt until well into the 2060s. Even these figures assume that the Net Zero investment will reduce to zero at the end of 2050.

Labour’s plan will lock in a disastrous, punitive burden of energy costs on businesses and individuals and one sustained for decades to come.

Bob Lyddon is an independent financial analyst specialising in international and central banking.

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FULL PAPER

‘Borrowing for investment’ – the signs point to this being the basis of financing the Net Zero transition at colossal cost to the UK

21 May 2025

Introduction

THIS IS A SUMMARY of the final one of four papers on the UK’s public finances, written in the first quarter of 2025, published through Global Britain and entitled ‘‘Borrowing for investment’ – what signs we have of how this will manifest itself under the current Labour regime’.

This one projects the practical application of part of Labour’s new ‘iron’ fiscal rules, namely what the shape of its programme of ‘borrowing for investment’ will become.

The upshot is that the Net Zero transition will bring a huge increase in the UK’s shadow public debt, hidden inside schemes modelled on New Labour’s Private Finance Initiative of 1997-2010 and the EU’s InvestEU.

The government will borrow some money itself to inject into these schemes, and then the schemes will take on most of its financing as expensive debt.

That translates into a high cost for the scheme’s product – green energy – which UK businesses and individuals will have to pay.

The Climate Change Committee’s Carbon Budgets only reflect the investment cost of the schemes, and then the supposed benefits. They fail to project the financing costs which, if New Labour’s Private Finance Initiative is to be repeated, will be over five times the investment cost.

To that extent the Climate Change Committee’s Carbon Budgets are a deception.

Recap of the financing template, ‘unlocking’ and ‘mobilisation’

The shape of the schemes through which the Net Zero transition is to be achieved has not yet been fixed, but a clear outline exists. When Labour uses the same terminology as does the EU for InvestEU, one can predict that the scheme will be the same.

The scheme involves public entities injecting money into the high-risk layers in the scheme’s financing – normally the shareholders’ equity or the subordinated debt – and then the scheme borrows a multiple of that amount from investors.

The public entities will have obtained their funding from government, which has borrowed it. This is the meaning of the government’s ‘borrowing for investment’.

The public funding ‘unlocks’ the much larger amount of private funding, and in total the full project cost is ‘mobilised’. This Labour Government’s plan is that the private funding should come in large part from UK pension funds, hence its keenness to see pension funds consolidate and to invest in assets that are not listed on a stock exchange. 

The key is leverage: the total amount of money raised is a large multiple of the amount injected by public entities.

Governance arrangements for public involvement

The governance arrangements are already being put in place, with the establishment of Great British Energy and the National Wealth Fund, and with these entities being capitalised by the government at low amounts compared to what the Climate Change Committee has calculated as the investment cost for Net Zero: £50 billion per annum up to 2050, and possibly only a small annual drop-off after that.

The government has borrowed all the money it has injected into Great British Energy and the National Wealth Fund.

Public sector net liabilities as the measure of national debt

The money the government has borrowed will not increase national debt under the new measure that Labour has adopted for this purpose: Public sector net liabilities.

As the borrowed money is ‘invested’ into an asset – the equity in Great British Energy and the National Wealth Fund – the nation’s ‘net’ liabilities can be said not to have increased. The asset is netted off against the debt, within Public sector net liabilities, although the debt would appear in the old measure of Public sector net debt. On top of this the debt is interest-bearing and has to be repaid.

Great British Energy and the National Wealth Fund: equity investments, loans, guarantees and equity commitments

The operations that Great British Energy and the National Wealth Fund will undertake can be expected to mirror those undertaken by the European Investment Bank and European Investment Fund within InvestEU.

The European Investment Bank makes loans; the European Investment Fund injects equity, issues guarantees to other providers of cash to the schemes, and issues commitments regarding the equity in the schemes:

  • To buy the existing shares of current shareholders;
  • To buy new shares as and when they are issued.

Both these occurrences will take place when the scheme is failing. In all cases the European Investment Fund is used to take on the risks that private financiers will not take on unaided.

Tapping of private sector pension fund surpluses and of the core assets of public sector pension funds

Labour’s desire to deregulate pensions, get schemes to consolidate and so on are masks for its desire to free up money to be injected into the Net Zero transition, and into schemes designed by authorities and financed predominantly by debt.

Zombie enterprises now: Robin Hood Energy, Robin Hood Airport, Thames Water

We have several examples of enterprises now that have either been conceived by Labour authorities, or which they want to revive, or which conform to the financing template.

Robin Hood Energy is the bankrupt scheme of Nottingham council to provide the city with cheap energy. Robin Hood Airport is the defunct, commercially unsuccessful airport serving South Yorkshire and which Labour – as government and as Doncaster’s sitting mayoral authority – want to resuscitate with public money. Thames Water is the debt-laden water utility for the south east of England that cannot be allowed to go bankrupt for fear of an interruption in the supply of a critical service: water and sewage.

These all rank as zombie companies: incapable of forging a successful economic life of their own, but fulfilling a public policy objective and therefore supported in their zombie existence by money tapped from the general public, one way or another.

Future zombie enterprises: carbon capture, electric vehicle charging

We can look forward to a proliferation of zombie enterprises being created for Net Zero, replicas of Thames Water: supplying a critical service, over-indebted, producing at high cost, and having a captive market in which businesses and individuals are denied the choice to shop elsewhere. The government’s £20+ billion carbon capture project and the National Wealth Fund’s ‘investment’ into Connected Kerb Limited will be the first of many.

In order to prepare the ground the Energy Secretary has announced plans to regionalise electricity supply, creating a series of supply compartments, each with franchised suppliers into it. Businesses and individuals will no longer have the freedom to buy from a supplier of their choice: they will have to buy from one of the suppliers who has bought the franchise for their area. Such an allocation of markets would breach Competition Law if it were attempted by private suppliers acting in concert, but it appears to be acceptable if the government ordains it. The outcome is what the relevant Competition Law is designed to preclude: high prices fixed by suppliers, rather than prices determined via free competition.

How much extra debt could be added

The Climate Change Committee foresees £50 billion of ‘investment’ per annum up to 2050 (and it only stops there because its chart goes no further out). If 90 per of that is raised through debt, the result is £1.125 trillion of new, shadow debt. On top there will be £125 billion of ‘borrowing for investment’ by the government, to insert the remaining 10 per.

Responsibility for payment of capital and interest will in all cases, one way or another, fall on businesses and individuals.

The Climate Change Committee’s Seventh Carbon Budget

The budget only contains the investment costs, and the supposed benefits – which are suspiciously linear and which fail to outweigh benefits by a meaningful amount in any year prior to 2050.

The missing element is the financing costs associated with the investments if they are done using the financial template described above. The term of such a financing would typically be 20 years, and the Energy Secretary has announced plans to lengthen the term of supply contracts to this period, so as to facilitate the financing of the schemes.

It would be wrong to claim to have a definitive figure for the financing costs, as there are many variables. All we have as a guideline is the total cost of PFI as a factor of the capital cost of £50 billion. HM Treasury projects the total cost to be 556 per of the capital cost.

If the capital cost of Net Zero is £1.25 trillion up to 2025, then the all-in cost will be £6.95 trillion, or just over 2.5 times the total size of the UK economy.

The cost will be felt until well into the 2060s. Even these figures assume that the Net Zero investment will reduce to zero at the end of 2050. That seems highly unlikely, and that instead there will be further ‘investments’ beyond 2050 and with no obvious point of cessation.

Conclusions

The Climate Change Committee’s budget is an irresponsible fiction. It fails to factor in the financing cost of Net Zero schemes. These are likely to be a multiple of the investment cost itself.

All indicators about the financing of Net Zero point to a repetition of New Labour’s ‘Private Finance Initiative’, and of the EU’s InvestEU. A small portion of the financing will be inserted through public bodies, based on Labour’s ‘borrowing for investment’. The majority will be borrowed, probably from UK pension funds, at high cost: 10 per per annum or more.

This will lead to a disastrous, punitive burden on businesses and individuals and one sustained for decades to come.

Bob Lyddon is an independent financial analyst specialising in international and central banking.