Andy Burnham’s £2 bus fare cap is being paid for by turning £400 million of climate aid into a loan to a rainforest fund whose financial model has not yet been built.
Ministers say the taxpayer should get the money back with a return, but only subject to final terms, and they have not said when.
The Prime Minister, Andy Burnham, announced in July that the cap on single bus fares in England would fall from £3 to £2 next year. Most of the cost was to come from switching international climate finance from grants into repayable loans.
In September, the Department for Energy Security and Net Zero named the loan. It said Britain intends to invest £400 million in the Tropical Forests Forever Facility, a global fund launched at the COP30 climate summit in Brazil last November, which pays countries for keeping their tropical forests standing.
The department said that by lending rather than giving, it could use ‘a different financial transaction budget’, and that ‘this reprioritisation allows a switch of funding to support the cap on single bus tickets at £2’.
The Conservative MP Richard Holden has since pressed ministers on how the arrangement works. He asked which climate projects would be converted into loans, whether the borrowing would count towards public borrowing, and over what period the loans would be repaid.
In a written answer on 19 October, the climate minister Katie White said the Government ‘is switching £400 million of grant funding set aside for future international climate finance projects into loans’. She added: ‘Funds that flow from the TFFF to forest countries will not have to be repaid.’
She said that because it is a repayable loan, ‘it is not funded through additional borrowing’. She did not say over what period the money would come back, and said only: ‘We are continuing to engage with HMT on savings.’
Mr Holden then asked how the scheme could count as a loan rather than a grant if the money reaching forest countries does not have to be repaid.
Ms White’s reply, published on Monday, said the £400 million would go to the Tropical Forest Investment Fund, the facility’s investment arm. That fund will invest the money, and ‘the returns generated’ will pay forest countries for protecting their forests.
‘The detailed financial model is being developed by the Facility and its partners,’ she said, ‘and the UK’s investment is expected to be repaid with a return, subject to final terms, due diligence and the UK’s conditions being met.’
In other words, the bus fare cap has been announced and the money earmarked, but the terms of the loan paying for it have not been finalised. The department’s own September announcement said the investment remains subject to a review of ‘the facility’s final size, crediting arrangements, structure and the terms of the loan’.
When the policy was announced in July, The Guardian reported that the switch allows the Government to borrow more against those loans without breaking its borrowing rules. Ministers say it involves no additional borrowing.
Cheaper bus fares will be welcomed by many passengers. The question for ministers is whether a pledge to people in England should depend on returns from an investment fund in the tropics that is still being designed.
That leaves plain questions ahead of Wednesday’s Budget. What return does the Treasury expect on the £400 million, and over how many years? What happens to the bus fare cap if the loan terms are not agreed, or the fund’s investments fall short? And what are the other savings ministers say they are still discussing with the Treasury?
Britain’s pledge was reaffirmed at a meeting in New York on 23 September. The facility said it brought total sponsor commitments to about $7.3 billion, alongside money from Norway, Germany, Brazil, Indonesia, France and Luxembourg.
Main image: The Amazon rainforest and the Solimões river, Brazil, seen from the air. File photo. lubasi, via Wikimedia Commons, CC BY-SA 2.0, cropped.
