Former chief IMF economist says governments need to borrow more to fund transition.

Net zero will be far more expensive than the public has so far been led to believe, top economists have warned the Lords Economic Affairs Committee.

Transitioning to a low-carbon economy is “necessary” but will be “much more expensive than people imagine”, Olivier Blanchard said.

The former chief economist of the International Monetary Fund said there was a “substantial fiscal cost to achieve anything close to net-zero”. The Telegraph has the story.

Mr Blanchard, who is now a senior fellow at Peterson Institute for International Economics in Washington DC, said the exact cost of the transition was unknown.

However, he told the Lords committee: “The public does not believe, or has not been made to understand, that is going to be costly for them. It is going to be costly and that message has to be sent out.”

The economist said that governments would have to borrow more money to fund the shift to net zero, as paying for it purely through higher taxation was not politically feasible.

He pointed to France and Germany where farmers are protesting the phasing out of diesel subsidies and other EU environmental regulation as an example of the political challenges inherent in net zero.

Mr Blanchard said: “I think realistically we have to accept the fact that for a while it will have to be financed by debt, namely the primary deficit will have to be a bit larger as a result. I suspect that for the next few years, probably 0.5pc more is the absolute minimum needed.”

The Office for Budget Responsibility (OBR) has previously put the cost of the UK reaching net zero by 2050 at £1.4 trillion spread over three decades. It has said the transition will herald around £1.1 trillion in savings, meaning the net cost will be around £300bn.

However, Sir Dieter Helm, an economics professor at Oxford University and former advisor to Boris Johnson, told the Lords that it was “delusory to think” that the net zero transition would pay for itself.

He said: “I have always maintained that a) we should do net zero, and b) it’s much, much more expensive than people imagine.”

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