Purpose on Payday: SEC Newgate's View

By Sophie Morello

The cost-of-living crisis continues to dominate the headlines, with UK inflation hitting a 40 year high of 9.1%, the highest inflation rate in the G7. This raises a key question, will the UK be able to meet its net zero targets while battling such economic headwinds? With household budgets being squeezed, consumer decisions will be increasingly driven by cost before sustainability. Businesses will need to make tough budget decisions, potentially to the detriment of investments to improve sustainability. And demand for government funding to ease the rising price pressures is growing by the day.

There are already worrying signs the Government is rowing back on some green measures. This month its Food Strategy was released, but £800m previously committed to farmers for a Landscape Recovery scheme, to help them restore natural habitats and boost biodiversity, was quietly slashed to just £50m. The strategy shifted its focus to food production, in response to surging food costs, but long term biodiversity is a key ingredient to our food security and the strategy received widespread criticism.

Also, the £1,500 subsidy for purchasing a new electric car was suddenly scrapped. The Government said the money would be put towards charge point infrastructure and incentivising other types of EVs, but when household budgets are under pressure, consumers may be less inclined to go for an electric car without this incentive.  The move was not welcomed by the Society of Motor Manufacturers and Traders (SMMT). Mike Hawes, chief executive of the trade body, said: “….we are now the only major European market to have zero upfront purchase incentives for EV car buyers yet the most ambitious plans for uptake. With the sector not yet in recovery, and all manufacturers about to be mandated to sell significantly more EVs than current demand indicates, this decision comes at the worst possible time…” And Mike Coulton, EV consultant at Volkswagen Financial Services, said it’s “hugely disappointing that more is not being done to encourage and support lower-income households in the transition to EVs.”

A recent report suggests that solid progress has been made in the last year by businesses investing in their sustainability. Figures from Aldermore show over half of the UK’s SMEs have invested in environmental sustainability over the past 12 months, up from less than 20% during the previous financial year. But will businesses stay on track in the face of supply-chain pressures, inflation and reduced consumer spending?

In times of hardship it is easy to focus on immediate and short-term priorities. But one thing the energy crisis should teach us is that governments, businesses and individuals must resolutely plan for the future if they are to protect themselves from the challenges it may bring.

Making decisions to tackle current economic challenges at the expense of future risks is understandable. But we must not give in to this temptation. The risks posed by climate change are simply too great, and if not addressed with urgency, will result in problems that dwarf the current cost of living crisis.