Why and How the UK Can and Should Invest Now in Grid-Upgrade and Solar Power
The national debt is a perpetual and festering sore in any discussion of our economy. The more we borrow, the heavier the millstone we pass on to future generations. Yet, without taking on more debt, we find ourselves trapped in an austerity riven with inequality—a situation that seems unjustifiable in a world where a small number enjoy improbable riches. Some economists argue that taxing the rich is not only a just measure but would stimulate growth. The idea, however, has not gained enough traction with the public in recent times. There is a lingering fear, stirred up by segments of the conservative media, that punishing the rich would risk stifling the very individuals who drive economic growth.
Economics can seem like a strange blend of superstition, alchemy, astrology, and religion. Consider the financial crash of 2008. Only a handful of economists saw the tidal wave coming. Even Gordon Brown, who is credited with orchestrating the rescue package, admits to mistakes in the lead-up to the crisis. Given his expertise, it’s reasonable to assume he understood the risks posed by the financial products flooding the market. While they made many wealthy, they contributed little in the way of meaningful goods or services for ordinary consumers. I suspect Gordon knew a crash was inevitable—he just didn’t know when it would arrive and hoped it wouldn’t happen on his watch. But it did.
Since the financial crash of 2008, our economy has grown at a slower pace, while national debt has increased significantly. Is this debt burden really a necessary evil, or a symptom of deeper failures of vision and economic policy?
Dharshini David, the BBC’s Chief Economics Correspondent, hosted a very penetrating radio programme summarising The Story Behind National Debt. She interviewed a series of luminaries, beginning with Sir Robert Stheeman, former Chief Executive of the UK Debt Management Office. It has been his job to organise the auctions which sell government bonds—also known as gilts—that are used to provide the finance which makes up our national debt.
Apart from explaining these technicalities, Sir Robert had a number of striking things to say about the inscrutable character of government debt. Just to begin with: it is “utterly different to every other kind of debt.” It is “all about credibility.” It’s not just about the numbers. In the context of Covid, huge sums were borrowed—but he said, “That was relatively easily absorbed…the market was willing to give the Government of the day the benefit of the doubt.” In this statement the role of “the market” i.e. primary and secondary traders in bonds, can be seen as crucial. If the markets don’t like what is happening that spells trouble for the government. At a later point in the programme Sir Robert says he doesn’t know whether we are approaching the limits of debt—“Nobody does!” He goes on to say that he does not think increasing debt is sustainable and concludes: “Something may have to give.”
I’d like to focus for a moment on the importance of credibility. What Sir Robert is saying is that if government debt is used to finance investment that is in the clear and immediate interest of an economy then investors will recognise this. They will see their investment as secure. Sale of bonds to finance the investment may be possible on the back of a credible plan, one which will clearly lead to increased growth and productivity.
Thinking about the current situation of the UK for a moment, it is clear that some infrastructure investments have been bedevilled by delays and cost overruns. Inevitably, this has undermined their credibility. HS2 was one such infrastructure black hole. There are signs that a third runway for Heathrow could be another. It will take years to complete, is likely to meet with consistent opposition and to cost vastly more than was first supposed.
Perhaps that is an unnecessarily gloomy projection but the point in this case is that the bond markets will almost certainly be influenced by that gloomy view of the matter. The Labour Government has been attempting to mitigate this problem in the case of new nuclear power installations. A range of measures has been introduced to facilitate the construction of Small Modular Reactors. Given the nature of the technology it is hard not to see a few pitfalls along the road to completion.
While large-scale infrastructure projects like HS2 face challenges, smaller, more innovative investments—such as solar energy—offer immediate returns and greater credibility. One of the panelists on a recent addition of Sunday with Laura Kuenssberg, Greg Jackson, CEO of Octopus Energy, spoke admiringly about the way China completely turned around the air quality of its big cities with the introduction of electric vehicles. 59% of cars on the streets are now electric. This has been made possible because China is surging ahead with the installation of solar panels. In 2023 alone, explained Greg Jackson, they “added more solar energy than the entire installed capacity of the United States.”
I might not have thought installation of solar panels was an obvious route to go down in the UK. It is the installation of wind turbines which has most captured public attention but there have been obstacles to development at every turn. Tom Heap, however, in his book Land Smart: How to Give People and Nature the Space to Thrive makes it clear that there is huge and immediately available potential for roll out of solar in the UK. Many of the ideas he suggests are innovative, but they are far from untried. Exploitation of warehouse roofing, building solar panels over car parks, floating solar on reservoirs, and so on.
Solar panel technology already exists and is coming down in price. In the examples Tom Heap suggests, space is already available and installation unlikely to prove controversial. The principal obstacles are complicating factors of ownership relative to the spaces concerned and also the need to upgrade our electricity grid to make it compatible with developing renewable capacity.
An increase in the pace of solar installation and improvements to our electricity grid could begin immediately. Further development can happen incrementally, and as logistical problems are solved, with increasing rapidity. The contribution to bringing down energy costs and insulating our economy from the vagaries of imported oil and gas are undeniable. The clear potential of such investment to lower UK production costs and to make output more efficient is what would provide the necessary confidence for investors to purchase government bonds to cover the costs. But I have a different suggestion.
There is another way to raise finance for a project which is so manifestly in the interest of the United Kingdom. The Government could use quantitative easing—a process where the central bank purchases assets to inject money into the economy—effectively creating new money.
The importance of this capability is greatly under discussed, because it is inclined to seem like a kind of dangerous trick which may be played by a government. Certainly, quantitative easing has the potential to be inflationary and if done for frivolous purposes is dangerous. Even talking about quantitative easing is liable to undermine confidence. However that fear of QE is at least in part promoted by economists who believe that deregulation of markets is the solution to all problems.
By “frivolous” use of QE I mean, for example, spending on day to day expenses, such as, f giving nurses a decent pay rise – obviously very tempting. To do so in a time of economic stringency is going to undermine the aforementioned confidence of investors and so the international markets would not treat the pound well. Its value would fall, and less money would flow into the UK economy—bad news all round.
However, if quantitative easing is used for investment in needed infrastructure then this has the potential to build confidence. Upgrading our electricity grid and building more renewable generation will obviously secure the energy resource in the UK, make it less vulnerable to international fluctuations in the oil price etc. The outcome will be to make the UK a place in which investors can invest more confidently.
This strategy of injecting money into the economy was first suggested by John Maynard Keynes. It was he who laid the theoretical foundation for President Roosevelt’s New Deal. This investment lifted the US out of the economic slump of the 1930s by organising and providing funds for the building of “useful works such as government buildings, airports, hospitals, schools, roads, bridges, and dams.”
Keynes‘ legacy has taken something of a beating since his death soon after the 1944 Bretton Woods conference. Bretton Woods was profoundly influential in establishing the economic world order and US dominance in it, following the war. Keynes did not entirely get his way at Bretton Woods but his opponents fought back in any case and growing belief in an unregulated free market as the solution to all problems established a dominance beginning in the 1980s. Keynesian principles saw a resurgence after the 2008 financial crash, as governments turned to stimulus spending to revive their economies. This did not prevent austerity policies and a desire to cut taxes dominating UK Government policy while the Conservative Party held power.
Yet there are economists out there who continue to insist that a government with control over a sovereign currency, such as the United Kingdom, can do more in the interests of its citizens than cut taxes and expenditure in order to stimulate growth. Professor Stephanie Kelton makes a powerful case for a different approach in her book The Deficit Myth. She was a senior economic adviser to Bernie Sanders in the 2016 and 2020 presidential campaigns. Another strong voice proclaiming the unused potential of our currency is economist Ann Pettifor who explains in her book The Production of Money, “how to break the power of bankers” and has explicitly made the case for a Green New Deal. Whilst these ideas remain controversial, the Keynesian fundamentals have a strong track record which could be particularly well fitted to the needs of the present moment.
As I write these words, the Chancellor of the Exchequer for the United Kingdom, Rachel Reeves is coming under pressure for alleged misdemeanours relating to her previous career. It is suggested that she has exaggerated in her CV the amount of time she spent working at the Bank of England. My concern however is that she spent too long working there and has become possessed by its orthodoxies. I have no serious doubts about her integrity or ability to do her job. She seems to me to be both formidably capable, well-intentioned and, above all, possessed of unshakeable self-belief. However we are at a moment when the need for decisive and immediate investment in our renewable energy infrastructure is an obvious way to reinvigorate our economy.
If our Chancellor is unwilling to act, she should step aside. The choice is clear: invest now or burden future generations. The tools—debt or QE—are available, but the political will must match the urgency of the moment.
Endnotes
Guardian 2010 – The weekend Gordon Brown saved the banks from the abyss
BBC News 2011 Gordon Brown Admits Mistake
Wikipedia Roosevelt’s New Deal
Gov.UK Government rips up rules to fire-up nuclear power
Tom Heap Land Smart: How to Give People and Nature the Space to Thrive
BBC News 14 February 2025 What we’ve learned about Rachel Reeves’s expenses – and the Labour response
Stephanie Kelton The Deficit Myth
Ann Pettifor The Production of Money: How to Break the Power of the Bankers







Did I Say That?…Next Question!
Arguments for Defence and Foreign Aid Spending in a Volatile World.
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I’ve spent a good part of my life arguing in favour of defusing conflict by means of unilateral disarmament and negotiation. I now find myself in the somewhat uncomfortable position of accepting that the United Kingdom, together with its European allies should be spending more money on arms. I don’t really need to explain the reasons for my personal turnaround to anyone who has been awake in the last week or so. A few key words will suffice. Vladimir Putin. Ukraine. Donald Trump.
The moral challenge of this shift in my thinking has been compounded by Keir Starmer’s announcement that in order for the UK to increase its defence spending the foreign aid budget will be cut by a comparable sum. This trade-off will appeal to a certain constituency which considers any money spent in favour of the poor and downtrodden overseas to be equivalent to pouring it down the drain. Generally this view is based on the notion that foreign aid is in large part siphoned off by corrupt officials in those parts of the world which are the intended destination for the funds with little of it ever reaching the people who are truly in need.
I dare say there is some truth in this picture. Not every foreign aid programme has produced a benign outcome. The matter deserves study. However, relentless hostility towards foreign aid is clearly a politically motivated distortion intended to please a populist constituency. It is a distortion which disregards the many documented achievements of foreign aid in famine relief, eradication of disease and the provision of tools and skills which have enabled people to rebuild lives shattered by the whole gamut of natural disasters.
Regardless, this hostility to aid is a perspective which utterly fails to understand the way in which a sovereign currency functions. Any funds in sterling directed by the UK towards foreign aid can only have value so long as they may ultimately be redeemed in the UK economy. If this was not possible the aid would be no better than monopoly money.
Foreign aid in sterling will in part be converted to local currencies in order to purchase goods and services in the context of immediate need. However, this conversion is a balanced transaction in which the equivalent sum in sterling enters the money markets. It does not simply evaporate but in fact continues to be traded. It passes into another financial realm where it may be sold to people wanting to travel to the UK or purchase goods in the UK market. Investors and speculators also have a part to play, buying and selling sterling on the international money markets.
Even if those funds pass through corrupt hands and are invested in poorly run projects, they are in effect an extension of the UK economy. Looked at in this way, foreign aid delivered in pounds sterling, may be seen as an expansion of UK economic activity into other territories and domains. Unfortunately, on our balance sheet, this is counted as a deficit rather than a credit.
Naturally one hopes that money given as aid is spent wisely on projects which may stabilise a crisis situation and result in the restoration of a sustainable local economy. The benefits of this outcome are obvious not just to the community which has been given help. Successful foreign aid projects are one of the more humanly decent ways of reducing the flow of migration into Europe and the United States, a phenomenon which is clearly causing much of our current cultural and political turmoil.
I do see a possible flaw in this economic argument in favour of foreign aid. In order to maintain the existing foreign aid budget, whilst also increasing our defence spending, we may be obliged to increase our national debt. In the absence of tax rises this could require cutbacks to service delivery within the United Kingdom, unless the economy grows sufficiently to make this unnecessary. That would indeed be a perverse outcome. However, I am going to suggest that we don’t actually need to borrow money to both increase defence spending whilst maintaining our foreign aid budget.
So far as foreign aid is concerned, if we look at this expenditure as an extraterritorial extension of the UK economy then it becomes possible to consider it as an investment rather than a deficit. So long as the demand which results from the aid budget does not compete for scarce UK resources, then the impact will be a modest stimulus to the domestic economy. It is quite possible that prices for domestic consumers might even come down given increased levels of production of some goods and services and consequent efficiencies.
Clearly foreign aid should not expand to the point where it undermines the domestic economy, but it is safe to say there is plenty of head room in this respect. Indeed there is a case to be made, at the very least, for restoring aid to levels which were sustained during the tenure of the previous government.
While foreign aid is an important tool in building good international relations, the current geopolitical climate also demands a reassessment of defence spending. Historical precedents, such as the US economy during World War II, offer valuable insights.
The US economy grew fat on the back of weapons manufacture during the Second World War. It was, at that point, an economy in recovery. It did not have a huge surplus to spend on arms manufacture. Funding was in fact supported by the sale of war bonds to the American public and increased taxation.
Whilst the logic of these funding measures is obvious, it is not at all clear that they were a necessary part of this massive direction of US resources into the armaments industry. Only a few years previously, with the US economy in a much more dire situation, the US Government had decoupled the price of the dollar from the price of gold. This, together with other measures, “enabled the Federal Reserve to increase the amount of money in circulation to the level the economy needed.” This increase in the money supply was the foundation of Roosevelt’s New Deal spending.
The process of the New Deal lays bare the reality that, if a government in command of a sovereign currency deems certain works to be vital then, it has the power simply to add funds to the bank accounts of companies and individuals who contract to carry out those works. Assuming the necessary resources are available within the jurisdiction of the government, It is not necessary to borrow money or increase taxation to achieve this objective. Such a view is rooted in Keynesian economic theory but supported also by Modern Monetary Theory as expounded, for example, by Professor Stephanie Kelton.
The US could have increased the money supply in World War Two to facilitate rearmament. Indeed, if that had been its policy, it would not have been necessary to pay the interest on the war bonds which were sold to raise money. In other words, the same objective could have been attained more cheaply.
Undeniably, funding rearmament through direct payments carries risks. Overuse or poorly judged application of such a policy could lead to inflation. If spending, for example, is targeted at or results in demand for resources which are in short supply, the price of those resources will rise and that may be a problem for the economy. Central banks have a role in managing such inflation by controlling interest rates but, in the case of any economic policy, there are judgments to be made. There will be opportunities to use the money supply to activate resources of labour and raw materials which are readily available or under used. Owing to the dominance of conservative economic thinking in recent times, such opportunities have been under exploited.
Though left leaning, the UK Labour Government languishes under this baleful economic constraint. It has, with greater reason, rejected the idea of issuing bonds in order to raise money for defence spending. This would increase an already worrying debt burden. The obvious option of increasing taxation has repeatedly been ruled out, though there are signs that a tax on the wealthy might be popular. Shockingly, the shoddy decision has been made to raid the aid budget for the purpose. As a result, Annaliese Dodds, International development minister, has felt it necessary to resign from the UK Cabinet.
The United States is a clear leader in the field of high tech armament production. It is possible the UK will use its increased defence budget to purchase these cutting edge weapons. That option certainly would require increased borrowing or taxation. Alternatively, the Government might direct funds towards our home grown armaments industry without increasing either debt or taxation.
Rory Stewart has pointed out that arms purchases from the US is increasingly compromised by the terms on which contracts are agreed. In the case of the most advanced military aircraft, the US demands that all surveillance gathered by these aircraft remains the property of the CIA. The US is also, understandably, secretive about the manufacture of their most advanced armaments. They retain control over supply of spare parts and other backup and training and have already shown some signs of not treating these as matters of priority.
With the US becoming less dependable as a defence ally, relying on them for the supply of weapons is looking increasingly unwise. Added to this, as Rory Stewart has also pointed out, the way in which the Ukraine war has been fought raises many questions about the type of weapons we would need to develop. Drone warfare has become very important in the Ukraine war, for both sides in the conflict.
The lesson may be that the UK, together with its European allies, should coordinate investment in their existing arms industries in order to develop the technology, expertise and weapons most appropriate to the threat posed by Russia. Such investment would have the obvious advantage of being a stimulus to the UK and European Economies. This should be an encouragement to defence spending, whichever of the funding options available may be chosen to make it happen.
As I write, President Zelensky has been ejected from the White House after being set upon by President Trump, an encounter provoked by Trump’s attack dog Vice President, JD Vance. This squalid piece of bullying took place in a press conference which was intended to herald the signing of a deal, a deal which promised that it might offer a foundation for a peace agreement. This prospect of peace now appears to be in tatters.
It seems improbable that the United Kingdom and Europe will, even with good intentions, be able to plug the armaments deficit which threatens as an immediate consequence of the capitulation of the Trump administration to Vladimir Putin. Nevertheless, it seems imperative that, in order to defend Ukraine and the other vulnerable European countries such as Poland and the Baltic States, the effort is made to do so. And whatever the scale of this challenge, we should continue to consider our foreign aid commitments as a complementary and potentially sound investment in both global stability and economic growth. It’s either that or submit to the hydra-headed monster that has emerged in the form of Donald Trump, JD Vance, Vladimir Putin,Viktor Orbán and other lesser bullies that are propagating in their wake.
Endnotes
Modern Monetary Theory https://en.wikipedia.org/wiki/Modern_monetary_theory
Full Fact – UK and NATO Defence Spending Explained In 2024 the UK spent just 2.33% of its GDP on defence, whereas the United States spent 3.38% of its much larger GDP. Only two European countries currently spend at a higher level on defence than the United States. They are Poland, on 4.12%, and Estonia on 3.42%. Not far behind them are Latvia and Lithuania. Their desire to protect themselves from an escalation of Russia’s current aggression is clear.
Our World in Data Foreign Aid
Roosevelt’s New Deal https://en.wikipedia.org/wiki/New_Deal The dollar was allowed to float freely on foreign exchange markets with no guaranteed price in gold. With the passage of the Gold Reserve Act in 1934, the nominal price of gold was changed from $20.67 per troy ounce to $35. These measures enabled the Federal Reserve to increase the amount of money in circulation to the level the economy needed.
Anneliese Dodds resigns over Keir Starmer’s decision to cut aid budget
The Rest is Politics Question Time: How Will Europe Defend Itself Also worth listening to is the following “special” episode, a post match analysis of the Oval Office showdown with President Zelensky.
With thanks to Florian Seriex/Action Against Hunger for the featured image, cropped from the original on Flikr.