Budget must include green finance wholesale guarantee

The trade association, which set out a list of its recommendations in a budget submission, has said the chancellor should develop a green finance wholesale guarantee. Running between 2022 and 2026, it would keep green lending affordable and ensure a supply of affordable funding for green assets in the consumer and business finance markets.

It made these recommendations as it says finance is often the only way to put greener vehicles, plant and machinery, home improvements or business equipment within reach of customers.

The challenge the FLA believes such a guarantee would address is the fact there will be elevated credit attached to many green goods for some time, as they’re new to the market and pricing their lifespan, depreciation or obsolescence can be difficult.

The guarantee scheme, it says, would also manage some of this risk so lenders could provide competitively priced finance for green goods.

Commenting on the recommendation, the FLA’s director general Stephen Haddrill said: “Risk is a problem that eases over time once there is sufficient data on which to calculate residual values, and an established secondary market in which to sell the used assets, but time is a luxury we do not have if the government’s net zero targets are to be met.

“Because the government’s schedule does not allow for this market to evolve at its own pace, there needs to be a sharing of risk. We are therefore recommending a Green Finance Wholesale Guarantee scheme which would run from 2022 to 2026 and cover losses on a portfolio basis.”

Other recommendations the trade body has submitted include the reform of corporation tax rules to allow “full expensing” so firms can immediately deduct the cost of investments, instead of spreading it over the lifetime of the asset.