Revolutions by their very nature, tend to have winners and losers. Looking back, the agricultural and industrial revolutions are prime examples. In my view, at the moment, we’re going through a technological and green revolution. The key question is, how do we do this without broadening the divide between the haves and the have nots, like in previous revolutions?
The technology revolution has just predominantly focused on consumer goods, rather than essentials, like energy or housing. Computers, televisions, and mobile phones, for example, have become significantly cheaper over time, driven by massive technological change and improvements in the manufacturing process. Notwithstanding the current inflationary headwinds over time, some essential goods like food, drink, and clothing have also benefited from some technological innovation and globalisation, and in effect come down in price with increased choice for consumers.
Energy and construction though, have changed little in comparison. Buildings have been built with bricks for over a thousand years, and mankind has burnt fossil fuels to create energy or warmth since the dawn of time. Technology has made things easier and quicker, for example in extraction of fossil fuels, but the fundamentals have not really changed. Fuel in the vast majority of cases still comes out of the ground and is burnt to create energy. Price has been driven by demand and supply, not by big advances in technology.
At its core, and because of climate change, the green revolution is an attempt to change all of this by reducing our high dependency on fossil fuels, the companies that produce them, and consequently the countries that own the natural resource. Whilst this is clearly the right thing to do for the long-term sustainability of the planet, how do we do this without repeating the mistakes of past revolutions, and creating winners and losers?
As the CEO of a bank, you may be wondering why do I care? Well, our customer base isn’t like that of the traditional High Street Banks, but nonetheless, they represent 1 in 5 of the population. How our customers live, and what they want, is no different to anyone else, except they do pay more to access credit due to their circumstances.
PFG’s customers typically work full time, earn slightly above-average earnings, and rent or own their homes. What they have often experienced, which makes them different to High Street Bank customers, is some sort of credit event. They could be new to credit, had a problem with credit in the past, or be recovering from some sort of life event, like divorce or time out of work, which impacted their credit score. This means PFG can help them when others won’t.
A typical customer of our vehicle finance business will buy a second-hand car, probably a Ford Focus, over three years, with a loan of about £8,700. At present, the average electrically powered vehicle equivalent will be c£14,000. We have about 34 million cars in the UK, of which 1.2 are alternatively fuelled. So, even with advancing battery technology, and increased supply, the demand for them, and therefore the price is not going to come down materially soon, and nor is the supply going to increase significantly in the short-term. Also, will everyone have easy access to the charging infrastructure required for electric-powered vehicles?
The government’s policy on petrol and diesel cars is that no new cars powered solely by these fossil fuels can be sold after 2030. Though you can still drive a petrol or diesel car after 2030, you just can’t buy a new one. So, if our customers can’t afford a battery-electric car now, and supply is not going to reduce the price significantly by 2030, what are they supposed to do?
Well, the only thing they can do: drive an ageing petrol or diesel car, with the pollution and increasing cost, as our customers still need to get to work, take their kids to school, or visit their friends and family. This cannot be good for them, for society as a whole, or for the climate.
Turning to housing, I think we have similar a story. Houses need to go green; they need to be built with energy-efficient devices and be properly insulated. The government with its “Heat and Building Strategy” paper in 2021, set out what the requirements are for the UK’s housing stock to go green. New-build homes from 2025 cannot have a gas-fired boiler, and all existing homes cannot install a replacement gas-fired boiler after 2035. Again, you can still use a gas-fired boiler after 2035, you just can’t replace it.
At present fitting an air heat source pump, as an alternative to a gas-fired boiler, can cost between £5,000 and £10,000 in a typical family home. On top of that the house needs to be properly insulated, and it will probably need a new set of radiators. That’s because the heat in an air source heat pump is lower than a gas-fired boiler, so, you’ll most likely need larger radiators to heat the house to a comfortable temperature. So, and I’m guesstimating now, the new radiators and improved insulation are going to be at least another £5,000, if not substantially more.
The cost of going green is not cheap, and, yes, the government has allocated grants up to £5,000 to help achieve this, but only 30,000 grants a year for three years. My point again is that PFG’s customers can’t afford this, and if they live in rented accommodation, will the landlord make the home Green? If they do, which is clearly the right thing to do, you must assume they’ll pass the cost onto the tenants, who may or may not be able to afford the increased rent. So, just like electric cars, it is the customers who face the consequences of these actions.
Now, just to be clear, I’m not a climate change denier, at PFG we aim to be net-zero in greenhouse gas emissions by 2040, as clearly we need to reduce our carbon emissions significantly so we as a country can achieve our UN Climate Change Conference (COP26) commitments. In fact, what recent events have shown us is we need to reduce our dependency on fossil fuels even faster. The point, though, of this article is have we really worked out how we’re going to achieve it, and how do we stop leaving people behind? The agricultural and industrial revolutions delivered great strides forward for society, but not for everyone.
In modern society, it should be the sole aim to ensure that no one is left behind or suffers from a revolution. At present, the numbers for the green revolution just don’t stack up, and they don’t work easily for the customers of PFG. I know going green is equally important to them, as it is to everybody else, but I think they’re going to need some more government help or financial support.
Whilst I don’t have all the solutions for what this help should be, I am committed to championing our customer’s needs and raising them with the regulators, government, and politicians so that we get a plan for everyone going green, not just those that can afford to. Levelling up, through providing equal opportunities across the country, is central to the government’s strategy, and an aim I support. As part of the government’s levelling up scheme, we should help everyone to go green, so we don’t leave people behind and repeat the mistakes of past revolutions.