Budget preview: What does the UK’s green economy want Jeremy Hunt to announce?

For his first Budget speech on Wednesday (15 March), Chancellor Jeremy Hunt is under pressure from the private sector and his own party to respond to the US and EU’s major subsidy packages for green industries. Here, we summarise the key calls to action on environmental inclusions in the Budget.

Budget preview: What does the UK’s green economy want Jeremy Hunt to announce?

Image: HM Treasury, CC BY-NC-ND 2.0. https://www.flickr.com/photos/hmtreasury/52738642063/

The first Spring Budget speech of Rishi Sunak’s premiership will be delivered on Wednesday lunchtime, with the Chancellor facing the challenge of responding to the persistently high cost of living. Green groups have been pressing for him to do so by bringing forward new energy efficiency and energy transition measures, which could create jobs fairly swiftly.

He may choose to do just that, given that his Government has until the end of March to provide an update to its Net-Zero Strategy that has legally been mandated by the High Court – and is also in the process of responding to Chris Skidmore MP’s review on delivering a “pro-business, pro-growth” pathway to net-zero.

Longer-term innovation funding is also of concern to ensure the UK delivers its levelling up pledges and does not fall behind in the increasingly competitive global race to lead in green industry. The US and EU have both tabled multi-billion-dollar subsidy packages within the past 12 months. Hunt has indicated that he understands the importance of growing the low-carbon economy on these grounds.

Nonetheless, Hunt may also hold steady with Conservative Party lines and only grow cherry-picked low-carbon industries like offshore wind, nuclear and carbon capture. There may also be some tax changes that could undermine, rather than support, key environmental goals, made to appease businesses and the general public at this time of high inflation.

Read on for edie’s 2023 Budget preview, listing inclusions that major green economy organisations are calling for.

Fast-tracked efficiency support

At the Autumn Statement last November, Hunt announced a new ambition for the UK’s buildings and industry to reduce energy consumption by 15% by 2035 against current levels. He confirmed £6bn of new energy efficiency spending but delayed its allocation until post-2025, in a move that frustrated many green groups who highlighted that energy efficiency improvements now would mean swift reductions in energy bills.

Ahead of this Budget, a coalition of NGOs working on environmental and social issues have called for at least £6bn to be set ahead annually for the next decade to support the improvement of energy efficiency in buildings and the installation of heat pumps.

The coalition, including Greenpeace UK, National Energy Action and Age UK, is recommending an initial £5bn for home insulation and £3bn for heat pumps, with spending to be targeted at fuel-poor homes in the first instance. For context, the UK’s last national home insulation scheme, the failed Green Homes Grant, was backed with a £1bn pledge, while the Boiler Upgrade Scheme for heat pumps has a £450m budget.

Greenpeace UK’s joint executive director Areeba Hamid said: “This country is on its knees. High inflation, a shrinking economy and an energy crisis that has forced a quarter of all households into fuel poverty.

“Insulation and heat pumps could be the silver bullet the government so desperately needs right now, but only if the chancellor delivers the investment required to get our homes off gas for good. This isn’t just about insulating homes, but by doing so, the government will also insulate the whole country against energy price shocks that have rocked the economy like the one we’re experiencing now.”

Ofgem recently confirmed a decrease of almost £1,000 for the price cap for domestic energy users from April, citing a “fundamental shift” in wholesale energy costs. But as Government payments decrease, most homes can still expect a 20% month-on-month increase in their dual-fuel energy bills.

As well as shielding homes from high energy costs, edie has received several briefings emphasising that more support is likely needed for businesses – particularly SMEs and energy-intensive industries.

Cleantech subsidies

The Treasury has confirmed that Hunt will announce £20bn for carbon capture, to be spent over a 20-year period. This is an unprecedented commitment globally. There will also be some new support for nuclear, with a focus on small reactors confirmed and the potential launch of new industry body Great British Nuclear in the pipeline. But nothing has been said yet on any other forms of clean technology, including renewables, hydrogen or zero-emission transport.

The Corporate Leaders Group at the Cambridge Institute of Sustainability Leadership (CISL) is calling for a broad and ambitious package for an array of clean technologies, so that the UK does not fall behind in the global race to grasp the economic opportunities of the net-zero transition. This same call to action has previously been made by the Confederation of British Industry (CBI), which calculated that the UK could potentially miss out on £4bn+ of economic benefit through to 2030.

CLG UK’s director Beverley Cornaby said: “With the US Inflation Reduction Act and the EU Green Deal Industrial Plan both in motion, the race for net zero is on. To attract investment and build business confidence, the UK Spring budget must paint a long-term vision and identify strategic areas for green investment where the UK already has a competitive advantage.

The Net-Zero Review from Chris Skidmore MP recognised the economic opportunity for green growth in the UK and the risks inherent in delay. For businesses to invest, innovate and support the scale-up of a low-carbon, competitive and resilient UK economy, they need clear long-term investment signals from government embedded across all departments, at the national, regional, and local levels, supported by enabling regulation and public financial stimulus. Without these signals, the UK risks being left behind, which could have lasting impacts in its ability to deliver against its net zero goals.”

This call to action is now coming not only from businesses and from the left, but from within the Conservative Party itself. MPs in the Conservative Environment Network have a story on the economic benefits of clear cleantech support in the Express this week, including Environmental Audit Committee Chairman Philip Dunne.

EV supply chain clarity

When it comes to long-term clarity for cleantech, the start of 2023 has proven to be shaky ground for the future of electric vehicle (EV) supply chains and manufacturing in the UK.

BritishVolt collapsed into administration in February and Recharge Industries, which is buying the firm out, has indicated that it may focus on batteries for buildings and grid operators before providing EV packs. Also in February, Nissan executives warned that plans for a Gigafactory in Sunderland would no longer be viable without more targeted Government support.

The Society of Motor Manufacturers and Traders (SMMT), of which Nissan is a member, has this week urged the Chancellor to propose a “bold” rival to the US and EU’s subsidy plans, with clear and specific plans to support a home-grown EV supply chain and manufacturing sector. A report from the SMMT highlights how the US and EU have not only proposed more generous incentives, they have firmed up plans for blended finance, quicker innovation funding and building the skills pipeline. It urges the UK to do the same. No major new skills strategy has been published since the UK set its legally binding net-zero target in 2019.

The report highlights how, by building EVs in the UK, there are major opportunities for levelling up. It also notes that production in the UK could be lower-emission across the product life-cycle.

Similarly, the Energy and Climate Intelligence Unit (ECIU) has stated that there may be an increase to the Zero-Emission Vehicle Mandate requirements, which require manufacturers to ensure a proportion of their sales are electric.

A revamped approach to nature-based investment

The Green Finance Institute warned in 2021 that planned public spending on nature conservation and restoration in the UK for 2022-2032 is up to £97bn short of the levels needed to deliver commitments made by the UK Government and devolved governments. This warning was then re-issued in 2022 with support from more than 50 other organisations.

Since then, the UK Government has brought forward new funding, but has also agreed to stricter targets. The UN biodiversity COP in December 2022 saw 190 nations including the UK agree to protect at least 30% of land and sea by 2030. The UK Government subsequently published a new Environmental Improvement Plan, reiterating new targets set through the Environment Act.

Scottish Widows has this week published a new report calling for a “radical overhaul” to the Government’s own approach to nature investment, and the plans it has in place to mobilise private finance.

The report recommends mandatory nature-related risk and opportunity reporting from financial players including pension schemes once the Taskforce on Nature-related Financial Disclosures’ (TNFD) framework is finalised, for example. This would push these firms towards more nature-positive investments and away from high-nature-risk options. It also explores the opportunity of a well-regulated voluntary carbon market in the UK.

Tax changes aligned with net-zero, not at odds with the transition

Skidmore’s Net-Zero review recommended a thorough review of the extent to which the current tax system is aligned with the UK’s legally binding climate targets. It urged the Government to kick-start this process by the end of 2023.

At recent statements from Chancellors, the green economy has expressed frustration at tax decisions which seem to be at odds with decarbonisation.

The Autumn Statement saw Hunt confirming that EVs would no longer be exempt from vehicle excise duty from 2025, for example. Hunt argued that EV sales would be strong enough by this point for motorists to buy them even without a VED break. At the 2021 Autumn Statement, then-Chancellor Rishi Sunak scaled back air passenger duty.

Introducing new or increased taxes in the current economic climate will doubtless prove an unpopular move. The Conservatives may instead choose targeted tax breaks for green industries.  For example, the renewable energy generation sector has been calling for a tax-free allowance for development – similar to that provided to fossil fuel firms as part of the windfall tax agreement.

What would you like to see in Hunt’s red Budget box? And how likely do you think it is to be revealed? Let us know in the comments.

Comments (1)

  1. Mike de Silva says:

    I would also like to see the removal of duty on HVO fuel. Current prices are at odds with the need to decarbonise vehicle fleets with many light goods vehicles for example, not having the range to deal with demanding duty cycles. Removal of duty can help in an important transition phase until vehicles with greater range and more extensive fast and affordable charging networks are available.

    Government should also promote alternatives to the FIT for Solar PV, We have extensive roof space that is massively underutilized for solar. This can significantly reduce the demand side on building of new power stations and at low cost when compared with building, maintaining and decommissioning new power stations. Additionally, it reduces the need for ground mounted solar and can be delivered at lower cost. Unfortunately, although costs have come down, they are still beyond the reach of many. Their deployment with appropriate subsidies on capital cost can also help alleviate fuel poverty.

    Furthermore (although perhaps one for the markets), I would like to see more innovative thinking behind mortgage products so that capex premiums on sustainable new build in particular can be easily identifiable as an element which is for the “traditional build” and another element of the payment that is for the saving on running costs. This could be shown alongside the predicted reduction in energy costs so that a buyer can get a total cost of ownership view. Maybe there is a role for government here, in providing a funding element to this at a lower interest rate for the energy efficiency elements of the build. As the market matures and scales up, the cost premium should decrease and the mortgaging model changed.

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