Germany’s mercury hit 41.7°C this week, shattering national records and sending a chill down the spine of Whitehall. The heatwave, which has scorched continental Europe, has intensified calls for the UK to introduce a comprehensive national heat adaptation plan. As yet, the Treasury remains unmoved, but the cost of inaction is rising faster than the temperature.
The German record, set in Duisburg, is not an anomaly. It is a data point in a worrying trend that investors are beginning to price in. For the markets, climate risk was once a long-dated liability. Now it is a near-term reality. Gilt yields, already under pressure from inflation and fiscal deficits, could face further strain if the government is forced to borrow for adaptation spending. That would be a bitter pill for a Chancellor already grappling with a cost-of-living crisis.
The argument for adaptation is simple: every pound spent now is a pound saved later. But the Treasury’s discount rate, the tool used to weigh future benefits against present costs, has been criticised for undervaluing long-term risks. History suggests that Whitehall only acts after a crisis. The 2003 heatwave, which killed 2,000 in the UK, led to the 2008 cold weather plan. But that was a reactive, not proactive, response.
Meanwhile, capital is beginning to vote with its feet. Pension funds are demanding climate resilience in infrastructure investments. The UK’s water companies, already under fire for sewage spills and leaky pipes, face mounting pressure to invest in heat-resistant supply chains. The insurance sector, a bellwether of risk, is quietly repricing premiums for property in vulnerable areas. This is market efficiency at work, but it is a brutal adjustment for the unprepared.
The government’s current approach is piecemeal. The Heat and Health plan, updated in 2020, focuses on early warnings and health advice. It does not address the fundamental infrastructure weaknesses: rail tracks buckling, tarmac melting, and energy grids failing under peak demand. These are not just inconvenience; they are economic drags. Every hour of train delay is a hit to productivity. Every spent fuel allowance is a drain on household budgets.
Central banks are also watching. The Bank of England’s Financial Policy Committee has flagged climate risk as a potential source of systemic instability. A sudden jump in insurance premiums or property devaluation could trigger a credit crunch. The Chancellor would do well to recall the lesson of Northern Rock: underestimating tail risks can be catastrophic.
So, what is to be done? A national adaptation plan should be cross-departmental, costed, and funded. It should prioritise retrofitting buildings, upgrading transport networks, and protecting natural flood defences. The cost would run into billions, but the cost of no action is higher. The German record is a wake-up call. Whitehall must stop treating heatwaves as bad weather and start treating them as economic reality. The bottom line is that we cannot afford to be unprepared.
