Budget Day: What does Rishi Sunak’s plan mean for the UK’s green economy?
Chancellor Rishi Sunak has today (27 October) delivered the 2021 Budget, with cuts to aviation taxes but funding boosts for green skills and low-carbon manufacturing. Here, we round up the key green (and not-so-green) provisions.
Delivering his Budget announcement in the House of Commons this afternoon (27 October), Sunak confirmed major funding packages to encourage electric vehicle (EV) manufacturing and low-carbon shipping. But he failed to mention home retrofitting or a National Nature Service, and kept fuel duty rates frozen.
Understandably, the Chancellor allocated much of his time to the Government’s evolving plans for driving the economic recovery from Covid-19. The National Living Wage got a 6.6% increase to £9.50 per hour, with the changes coming into effect in April 2022. Similarly, a pay freeze imposed on the public sector last year was lifted, following much criticism. Additionally, the NHS was promised £5.9bn to tackle the backlog of people waiting for diagnostic appointments.
However, he also made time to mention the Government’s overarching aim to leverage £30bn to create the “new green industries of the future”. The Budget documents state that priorities for the Treasury this time around have been “investing in strong public services, driving economic growth, leading the transition to net-zero and supporting people and businesses”.
Here, we round up the key green economy measures included in the Budget, and those which are missing.
Editor’s note: Today’s Budget speech is the second this year, because the 2020 Budget, originally due to be delivered in Autumn 2020, was pushed back to this March due to the pandemic. You can recap on edie’s coverage of March’s announcements here.
Autumn Statement 2021: What was (and wasn’t) announced
ANNOUNCED: Post-Brexit business incentives
In an attempt to attract “internationally mobile” countries to build or expand workforces and facilities in the UK post-Brexit, Sunak has confirmed a £1.4bn grant scheme called the ‘Global Britain Investment Fund’. £817m of this pot will be offered to automakers keen on producing electric vehicles (EVs) and/or components in the Midlands and the North East of England.
Part of the funding will also go towards the creation of “innovation hotspots”, co-managed by the UK Government and the private sector, in the US and India. At these locations, skilled workers will be “identified and relocated” through the UK’s visa system.
Elsewhere, the corporate super-deduction scheme announced in March was extended for a further six months.
Sunak did not scrap business rates, criticising the Labour Party’s exploration of this move. However, he did announce the results of a review of rates, which means further reviews will be needed every three years. There is also a new rates relief scheme for businesses looking to fit low-carbon technologies onsite, including rooftop solar, battery storage and cycling infrastructure. This will run from 2023 to 2035. Heat network installers will get total exemption during this period.
Additionally, there is a £520m ‘Help to Grow’ initiative to support SMEs with training and software. Research has repeatedly revealed that most UK SMEs are less prepared than corporates for the net-zero transition, largely due to a lack of in-house expertise and finance.
ANNOUNCED: Green tax breaks for shipping
Building on the aforementioned incentives, the Government has altered taxes for the shipping sector, in a bid to attract companies to the UK. The tonnage tax regime will offer a reduced rate for ships with plans to help the UK achieve net-zero.
The changes will come into effect from April 2022.
Earlier this year, Transport Secretary Grant Shapps called on the global maritime sector to agree on an “absolute zero” emissions target by 2050. The sector is currently responsible for 3% of global annual emissions, but this portion is set to rise rapidly in the coming years without concerted action.
The Budget documents state: “The Government will make it easier for shipping companies to participate in the Tonnage Tax regime by reducing the lock-in period from 10 years to eight years to align more closely with shipping cycles. HMRC will be given more discretion to admit companies into the regime outside of the initial window of opportunity where there is a good reason. HMRC will also review guidance on which vessels and operations qualify for the regime to take account of developments in technology and the shipping market since the tax was introduced.”
ANNOUNCED: A boost for public transport
Sunak today stated that cities across England will receive £6.9bn to spend on active transport and public transport projects, badging the funding as a key part of the levelling up agenda.
However, only £1.5bn of this funding is new; the Government includes in the overall figure the £4.2bn promised at the 2019 budget, and subsequent funding promised through the Ten-Point Plan and Transport Decarbonisation Plan.
Cities across Scotland, Wales and Northern Ireland will also receive extra funding for public transport, walking and cycling, due to tweaks to the Barnett formula.
— HM Treasury (@hmtreasury) October 27, 2021
Sunak explained that the national rail strategy will be published in the coming months, outlining plans to make good on the Conservative Party’s commitment to leverage £46bn of investment in the sector this Parliament. Green groups want more funding for low-carbon services and improved accessibility, as well as measures to protect customers from further price hikes, that they may choose rail over road or aviation.
REITERATED: Fuel duty and red diesel freezes
Sunak confirmed that the 12th consecutive year of freezes to fuel duty, promised this March, will be extended.
The decision comes after a petrol and diesel shortage swept much of the UK last month, after reports of shortages at selected garages prompted mass panic-buying. Petrol prices are now at a record high of £1.42 per litre, according to the RAC. Sunak said he was “not prepared to put more pressure on families and small businesses”.
Sunak reiterated the Government’s commitment to end the relief on red diesel duty in 2022, except for selected sectors including agriculture. The recycling industry had been campaigning to achieve an exclusion in recent months but no update was provided today.
On roads expansions, no new funding was announced but Sunak fiercely defended the Conservatives’ existing plans, worth £27.4bn. These plans had landed the Government in court on climate grounds.
NOT ANNOUNCED: VAT changes for domestic utility bills
Citizens’ groups had been calling for a VAT cut on household energy bills, to help families who are struggling with soaring prices amid the global gas crisis and the price cap increase in the UK. Similarly, green groups and MPs had been calling for VAT breaks on products and services that improve home energy efficiency and enable households to self-generate and store renewable electricity; electrify heat and switch to EVs.
Neither of these moves was taken by the Treasury.
NOT ANNOUNCED: carbon taxes, meat taxes or frequent flyer taxes
Headlines on potential taxes on meat have been in national papers several times in recent months, with green groups arguing in favour and many businesses arguing against. Prime Minister Boris Johnson had previously said the Government would not introduce this kind of tax in the near term, and this was confirmed by Sunak today.
The issue of carbon taxing was also shelved.
On aviation taxes, the Government’s approach has changed multiple times during 2021. At the March Budget statement, an increase in Air Passenger Duty (APD) for business-class and first-class short-haul flights and all long-haul flights was confirmed for 2022. The Treasury then confirmed that it was exploring the potential of decreasing in APD for domestic flights, or a reduced or zero rate for the return leg of short-haul flights abroad, but changed its mind once more after backlash.
Today, Sunak confirmed that the return leg exemption for APD for domestic flights will be implemented from next Spring, in a bid to “bring people together across the UK” and “back business and build a stronger economy”.
For ultra-long-haul flights of 5,500 miles or more, a new increased rate of APD will be implemented, with Sunak arguing that most emissions from the UK’s aviation sector are generated on international flights, long-haul flights being the worst offenders.
Additionally, the Airports and Ground Operations Support Scheme was extended to the end of this financial year. The scheme provides support with fixed costs of up to £4m per project, with no environmental requirements attached.
NOT ANNOUNCED: Polluter pays principle
Yesterday (26 October), the Treasury received an open letter from the Bankers For Net Zero Coalition, which represents a string of financial firms including Nationwide Building Society and Triodos. The letter called for – among other moves already mentioned on energy efficiency – the embedding of a ‘polluter pays’ principle across the economy, in a bid to close historic policy gaps which have meant that high-carbon, high-waste activities have remained profitable.
No mention of this was made in the speech or Budget documents.
ANNOUNCED: A boost for education and skills
Today’s Budget includes £1.6bn to introduce new T-level courses for those aged 16 to 19, plus £170m for apprenticeships and £550m for reskilling adults. The funding applies to England only and will be spent over a three-year period.
T-levels are designed to help young people learn practical, rather than academic, subjects and skills. They last for two years and include both classroom learning and on-the-job experience.
Sunak had previously told the BBC that “more sector-orientated training schemes have been shown to be really powerful” and “the best way to get to a high wage economy is to improve people’s skills”.The Budget speech saw him calling his plans the “broadest in living memory”.
Earlier this week, MPs on the Environmental Audit Committee (EAC) warned that the Government’s approach to delivering the two million green jobs promised by 2030 is not joined-up, meaning that more than half of these roles are unlikely to be created. The EAC had called for more clarity on training for those of all ages, including T-levels and lifelong learning opportunities, with a requirement for courses to be future-proof for the net-zero transition.
ANNOUNCED: Some positive news for planning, housing and construction
The Treasury had already confirmed, prior to today’s speech, that the Budget would contain £1.8bn for the building of new homes on brownfield sites in London. The funding is expected to support around 160,000 new homes. Ministers have faced pressure in recent years to both close the ambition-action gap on its new homes promise, while also preserving land with high environmental benefits.
Additionally announced was a £65m pot to digitize England’s planning system. This should make processes smoother.
NOT ANNOUNCED: A Green Homes Grant replacement
The Heat and Buildings Strategy, published earlier this month, detailed a £950m Home Upgrade Grant scheme. The scheme is less than half the size of the Government’s original plan for retrofitting housing for energy efficiency, the now-closed Green Homes Grant.
With this in mind, there were some hopes for further funding today – or at least more clarity on how the scheme would work. Sunak did not provide that information in his speech.
ANNOUNCED: The sovereign green savings bond launched
Building on the recent issuance of the UK’s first green gilts packages, priced at £10bn and £6bn respectively, Sunak confirmed the launch of a sovereign green savings bond for retail investors, to be invested in bonds through NS&I.
The green savings bond will total £94m in the first instance and will invest in offshore wind, energy storage and crops for bioenergy.
ANNOUNCED: ‘Pocket parks’
£9m has been pledged for councils looking to transform neglected urban spaces, with the requirement that they use the funding to create green spaces that boost biodiversity and enable carbon sequestration. These so-called ‘pocket parks’ can be as small as a tennis court. At least 100 should be created as a result of the funding.
According to the Climate Change Committee (CCC), the UK will need to plant at least 1.5 billion new trees by 2050 to meet net-zero, with the majority being planted in the short-term. While restoring, expanding and creating woodlands and forests will be important, urban tree-planting will also need to take place. The UN estimates that roughly half of the world’s urban population cannot access a green space within walking distance of their home or workplace, meaning that this action will have social benefits as well as environmental.
NOT ANNOUNCED: A National Nature Service
This week’s EAC report on green skills and jobs implored the Treasury to reconsider launching a National Nature Service, that would help unemployed people into roles in conservation, restoration and research. The EAC is recommending that the Service in launched in 2022.
Sunak was considering the Service in 2020 but ultimately shelved the plans. No changes to his stance were forthcoming today. Instead, the Treasury’s documents reiterate existing commitments. It states that its funding allocation for the Department for Food, the Environment and Rural Affairs (Defra) is 5.3% higher than the last in real-terms, and will enable the delivery of the 25-Year Environment Plan.