In the mid-2030s, historians may look back and note that, despite numerous COP meetings and agreements like the Paris Agreement, global carbon emissions continued to rise, with significant contributions from countries like India, China, and Indonesia. The world failed to meet the 1.5°C target, making 2°C and even 3°C more likely. In this podcast, Dieter Helm looks at why the COP process has not delivered the desired outcomes, and the immediate imperative to shift strategies to tackle climate change from territorial net zero targets in the UK to more realistic approaches to reducing global emissions.
Renewable energy sources like wind and solar, despite their growth, still contribute a small fraction to global energy supplies compared to fossil fuels. The increasing demand for electricity – in particular, from new technologies and data centres – and the intermittent nature of renewables have led to higher system costs, with nuclear power emerging (once again), but this time as a more viable option for stable and continuous energy supply. Looking ahead, more radical measures, including geoengineering, might be necessary to address climate change effectively. Whatever strategy is adopted, the net zero path being pursued in the UK is unlikely to be successful, as our historians in 2035 will no doubt have discovered.
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12:54
Fiddling the books on debt
The UK’s national debt now stands at around 100% of GDP, meaning that the country has borrowed the equivalent of an entire year’s economic output. Under current fiscal rules, the government aims to stop borrowing for day-to-day spending by 2030, but borrowing for investment is exempt from these limits. This creates a loophole: by reclassifying current spending as “investment”, the Chancellor can continue borrowing without breaching her fiscal rules. Even routine maintenance of infrastructure – fixing potholes, school buildings or bridges – is being labelled as investment, when in fact it’s simply capital maintenance. This accounting sleight of hand allows for open-ended borrowing while giving the illusion of fiscal discipline.
Beyond these reclassifications, a deeper fiscal fiddle is the long-standing trend of moving public spending off the government’s books through privatisation and private finance initiatives (PFIs). Infrastructure once funded and owned by the state—like power stations, water systems, and telecoms—has been shifted to private hands, masking the true scale of national indebtedness. While this may reduce the official debt-to-GDP ratio, the financial burden still falls on the public, now as utility customers rather than taxpayers. With rising interest rates and growing infrastructure needs, the cost of this hidden debt is mounting.
What is needed now is honesty, through greater transparency of public finances. Without it, future generations will bear the brunt of the current delusion, and the fact that we are living beyond our means.
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12:04
The dark economic clouds revisited
The economic outlook for the UK is bleaker than the government would have us believe. The government's ambition to be the fastest-growing economy in the G7 by 2030 faces significant challenges. Starmer and Reeves blame the Conservatives for the current economic mess, citing a £20–£22 billion gap. They argue that, once constraints are addressed, the government will push towards net zero and build 1.5 million new homes, with growth solving public expenditure problems through increased tax revenue. If only…
The IMF predicts 1.1% GDP growth, but even this meagre number overstates the prospects, for three reasons. First, it is flattered by increasing population, with GDP per head lower. Second, borrowing is larger than expected, with a debt-to-GDP ratio already at around 100%, making the cost of debt a significant constraint. Third, the Autumn Budget increased the cost of labour and capital, and savings taxes were increased.
More fundamentally, the government's balance sheet is damaged by consuming capital rather than investing in infrastructure. Core infrastructure is not fit for purpose, and building houses and achieving net zero are not the panaceas they are claimed to be. Accounting ruses such as more PFI-type schemes and treating capital maintenance as if it is investment to push stuff off the government’s books do not make the problems go away. True national debt should add all this back, painting a very different and even more unsustainable picture.
A fundamental rethink is needed to put the economy on a sustainable consumption and sustainable economic growth path, and thereby reduce the burden on future generations.
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Thames Water – the unacceptable face of water privatisation
How have investors managed to turn Thames Water, despite its extraordinary debt, inefficiency and poor performance, into a company that offers rich financial rewards, at least for some? The roots of this began with the privatisation of water in England and Wales in 1989. At the time, the sector was in need of significant repairs to its infrastructure, and privatisation promised renewed assets and improved efficiency. Since then, with weak regulation, practices like gearing up balance sheets and extracting dividends have led some (not all) water companies to undertake financial engineering, without proper regulatory checks on balance sheets and corporate plans. To some, Thames Water appears to have prioritised financial gains, possibly to the expense of capital maintenance and the interests of customers and the environment. It has become the unacceptable face of water privatisation. Regulatory neglect is linked to broader public dissatisfaction and the erosion of the social licence to operate.
Distressed debt players have taken control, with a £3billion loan to keep Thames Water afloat and at very high interest and associated “costs”. They are planning to sell out the equity to a sole preferred bidder, KKR, for around £4 billion. This move raises serious questions about the terms and the interests of the A-class bondholders versus the public interest, about transparency and public accountability. It is likely to be profitable all round, given the value of the Thames Water regulatory asset base is around £20 billion. The irony is that it probably will not save Thames Water, and there is the possibility that it could lead eventually to the nationalisation the government has been so determined to try to head off.
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15:30
Heathrow Airport shutdown - a lesson in resilience
The recent fire at an electricity substation shut Heathrow Airport for 24 hours, causing chaos in the skies and across international airports. In doing so, it highlighted the broader critical condition of the UK’s major infrastructure and its lack of resilience. “Just in time” and “just enough” have replaced secure, ready and prepared.
The incident at Heathrow prompted calls for inquiries, in the search to find someone to blame – not the more obvious economic regulator of the airport, the CAA, but instead the National Energy System Operator (NESO). The key lesson to be learned from this is that robust systems are needed to support modern requirements, including from all the new data centres that depend on continuous electricity supply, before such failures become normalised.
To ensure the future stability of the economy, proactive measures need to be taken to reinforce these essential systems, prioritising investment and innovation that can cope with the evolving demands of our modern society.
About Helm Talks - energy climate infrastructure & more
Helm Talks is full of short, 'pull no punches' insights into:
Energy & Climate;
Regulation, Utilities & Infrastructure;
Natural Capital & the Environment.
Professor Dieter Helm is Professor of Economic Policy at the University of Oxford.
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