As Paris swelters under an unprecedented heatwave, the City watches with a mix of morbid curiosity and genuine alarm. The mercury has breached 42 degrees Celsius, melting tram lines and straining the French capital's creaking infrastructure. But this is not a story about France. It is a story about Britain's own reckoning with a warming planet and a treasury that seems allergic to long-term investment.
The spectacle unfolding across the Channel should serve as a wake-up call for Whitehall. Yet, I suspect the response will be the usual: a ministerial statement, a taskforce, and a budget allocation that falls woefully short of what is needed. We have seen this script before. The problem is structural and it is compounded by the tyranny of the electoral cycle. Politicians find it infinitely more rewarding to cut a ribbon than to reinforce a flood defence or upgrade a cooling system.
Let us consider the numbers. The Office for Budget Responsibility has warned that climate change could add 1% of GDP annually to public spending by 2045. That is roughly £20 billion in today's money. Where is that money going to come from? The Treasury is already grappling with a debt-to-GDP ratio north of 100%. Governments are not known for their fiscal discipline, and the current administration is no exception. The instinct will be to borrow, but with gilt yields already elevated, the cost of that debt will weigh on future generations.
The market is watching. If investors lose confidence in the UK's ability to manage these climate-related risks, we could see a sell-off in gilts and a slide in sterling. Capital flight is the last thing a country with a current account deficit needs. The Bank of England may find itself having to hike rates to defend the currency, squeezing the housing market and choking off investment. It is a vicious cycle that ends with a recession.
Of course, the private sector has a role to play. Infrastructure is not solely the domain of the state. Pension funds and insurance companies have long sought assets with stable, inflation-linked returns. The problem is that the government has been slow to create the right regulatory environment. Planning reforms have been promised but never delivered. The result is a bottleneck of projects that cannot get off the ground.
Take the energy sector. Britain's power grid is not ready for the increased demand that heatwaves bring. Last year, we saw electricity prices spike as air conditioning usage soared. We need investment in distribution networks and interconnectors, but the planning system takes years to approve even minor upgrades. Meanwhile, the private sector is wary of committing capital without a clear policy framework.
There is a silver lining. Crises have a way of concentrating minds in Westminster. If the Paris heatwave prompts even a modest shift in priorities, it will have served a purpose. But I would not hold my breath. The Treasury's grip on spending is tight, and the Chancellor's primary concern remains the bond market's view of UK fiscal credibility. Until the gilt market signals that climate spending is a priority, we will continue to muddle through.
In the meantime, British infrastructure will remain brittle. The next heatwave could be here, not on the continent. And when it comes, we will have only ourselves to blame for being caught short.
