Reeves to make Bank of England put climate change and growth on equal footing

Chancellor calls on Andrew Bailey to reinstate environment as one of key priorities

Rachel Reeves is planning to make the Bank of England take climate change as seriously as growth, as the Chancellor seeks to use her maiden Budget to overhaul the economy.
In a letter to Governor Andrew Bailey on Wednesday, Ms Reeves is expected to call on Threadneedle Street to reinstate climate change as one of the Bank’s key priorities.
This will once again put the environment on an equal footing with issues such as improving growth and boosting home ownership, while also reversing Jeremy Hunt’s decision to downgrade the significance of climate change for the Bank last year.
It comes despite stark criticism from high-profile economists, including Lord Mervyn King, the former Bank of England governor, who have warned that climate change is a distraction from fighting inflation.
Ms Reeves will set out key priorities that the Bank of England’s Financial Policy Committee must consider. Chancellors typically send the document, known as a remit letter, to the Bank’s Governor once a year.
Former chancellor Mr Hunt came under fire from environmental lobby groups last year when he downgraded climate change, mentioning it only once in his letter.
Before taking power, Labour vowed in its manifesto that it would reverse the decision to stop the Bank from giving “due consideration” to climate change in its mandate.
However, Ms Reeves’s move to reintroduce a remit to combat risks from climate change could prove controversial.
Lord King told The Telegraph last year that it made “absolutely no sense” to make net zero another responsibility for the Bank.
“The Bank of England can do nothing about climate change,” he said, adding that the institution should focus on interest rates and keeping prices in shops stable.
There have been other warnings, with Mr Bailey conceding that while there was no excuse for failing to tackle climate change, it was not the Bank’s job to help “the world adjust”.
Similarly, the Economic Affairs Committee in the House of Lords said last year that the central bank’s focus on net zero “jeopardises” its ability to face down inflation.
The Committee urged the Treasury to “prune” the Bank’s responsibilities and said it risked becoming politicised because of avalanches of priorities it was being asked to consider.
The Government has made the environment a key policy issue, with its election manifesto promising to make Britain a “clean energy superpower” and accelerate the transition to net zero.
Ms Reeves has also enlisted former governor Mark Carney, who made climate risks a defining issue during his time in office, to advise on unlocking private investment and creating a national wealth fund.
Mr Hunt removed “climate change and energy security” as a priority in the remit letter for the Financial Policy Committee that he sent to Mr Bailey in November 2023.
The change prompted the Bank of England to “slim down” its work on climate change and devote fewer resources to it, Mr Bailey told a parliamentary committee earlier this year.
Instead Mr Hunt included boosting “productive finance” and changed a previous priority from “openness and competitiveness” to “growth and competitiveness”.
It underscored a sharp change from his predecessor, Rishi Sunak, who as chancellor mentioned climate change 13 times in his letter to Mr Bailey in 2021.
Mr Carney and Mr Bailey have previously warned that climate change poses a significant risk to the financial system.
The Treasury and the Bank of England declined to comment.