Ed Miliband as chancellor would benefit every part of the UK – and the bond markets | Josh Ryan-Collins

It should have been a great week for Ed Miliband and his mission to decarbonise the UK economy. Western Europe has experienced one of its worst ever heatwaves, providing powerful evidence of the need to transition away from fossil-fuel-driven energy production to reduce the carbon emissions that are contributing to global warming.

Instead, however, he has been attacked by an unholy alliance of trade unions and leading City figures, apparently determined to prevent him becoming chancellor in the cabinet of the presumptive new prime minister, Andy Burnham.

The Unite and GMB trade unions have argued that Miliband’s net zero transition agenda will result in major job losses for the workers they represent in the oil, gas and utilities sectors. Miliband has held firm on not granting any new licences for North Sea oil extraction.

Meanwhile, investors fear Miliband’s record of pushing for expansive public investment to support the green transition will result in higher borrowing, which will worsen the UK’s public finances.

Neither argument stacks up.

The trade union criticism seems to ignore the fact that, as chancellor, Miliband would control the very levers – public investment, regional development funding, industrial strategy, tax incentives, retraining programmes and social protection – that are necessary to ensure workers and communities are not left behind in the transition. The problem is not ambitious climate policy per se, but the absence of willingness from the Treasury to mobilise resources to support affected workers and regions.

Indeed, it was the Treasury that blocked his initial £28bn per year comprehensive green prosperity plan, which included a proposal to create 650,000 jobs across the country by 2030 with a strong emphasis on industrial regions and commitments on skills, training and apprenticeships in green sectors.

In fact, a recent report by the Confederation of British Industry (CBI) finds the green transition is one of the largest drivers of industrial job creation in the UK economy. The net zero economy generates output worth £105bn, about 3.5% of UK GDP and supports more than a million jobs, many in the north-east of England. Average wages and productivity in the sector are significantly above the national average. In the UK context, the Climate Change Committee has found that for every £1 of public money spent on net zero, the benefits outweigh this by 2.2 to 4.1 times.

The argument that big increases in green investment would spook the bond markets is also flawed. Bond markets ultimately fear inflation because it reduces the real value of their assets and because, if persistent, it will lead the Bank of England to raise interest rates, which pushes down the value of government bonds. Miliband’s green policies would help address the causes of inflation.

Britain’s inflation shock of 2022-23 was fundamentally a supply-side energy shock driven by our dependence on imported fossil fuels, mainly gas. In fact, in the postwar era energy price spikes have coincided with eight of the 10 episodes in which inflation was near or above 5%.

The only long-term solution to this supply-side inflation problem is investment in cheap domestic renewable energy, electricity networks, home insulation and industrial decarbonisation, which would reduce exposure to volatile global gas prices. A more resilient, less inflation-prone economy should ultimately strengthen rather than weaken confidence in UK government bonds.

More broadly on the growth and productivity agenda, there is a strong case to be made that the Treasury needs a major shake-up, given the UK’s slow growth. In its zealous mission to achieve fiscal sustainability and reduce public debt, it has overseen decades of falling public investment in infrastructure and services. It has pushed forward with private-finance initiatives for infrastructure projects that have proved to be very poor value for money in comparison to direct public funding or ownership. The paradoxical result has been lower growth and a higher debt-to-GDP ratio, not to mention crumbling public services and infrastructure.

Rachel Reeves has been unable to escape these orthodoxies or challenge her senior officials. We need a chancellor who understands how the Treasury works and has the intellectual and reputational heft to reform it. Miliband has both, having been an adviser at the Treasury when Gordon Brown was chancellor and having proved himself as the Starmer cabinet’s most effective minister in his role as secretary of state for energy security and net zero. Britain’s largest trade union, Unison, has recognised as much and backed him.

Andy Burnham has made a strong political case for why greater public control over domestic essentials such as energy, housing, food and water is needed to deal with the cost of living crisis. With Miliband supporting him as chancellor, he can make the argument that major green investment is the only way to stabilise the UK economy in the long term and create the decent, well-paid jobs that the poorer regions of the country desperately need.

Josh Ryan-Collins is professor of economics and finance at the UCL Institute for Innovation and Public Purpose