Fiscal Statement: Chancellor gives go-ahead to Sizewell C and new national energy efficiency spending
Chancellor Jeremy Hunt has opened his red budget box in Parliament for the first time, revealing changes to tax and spending intended to make the coming recession shallower. There were a number of key announcements for the UK’s green economy included in the package.
As the Chancellor began delivering the Statement, he emphasised that wholesale gas and electricity prices are now some eight times higher than their historic average. He argued that the economic outlook due to “global headwinds” is weaker in some other nations, such as Germany, and stated a willingness to take “difficult decisions”.
All in all, the measures announced today amount to £55bn in additional public finance opening up for the UK. Around half will come from taxes and the other half from spending cuts and efficiencies. Tax as a proportion of GDP will increase by 1% over a five-year period.
Hunt said that energy, infrastructure and innovation will be his Treasury’s focus areas for economic growth. He also affirmed that the UK “remains fully committed” to the Glasgow Climate Pact agreed at COP26 this time last year. Here, we round up the announcements here which members of the UK’s green economy need to know.
Clarity on energy bills for this winter
When Hunt took over the top job at the Treasury from Kwasi Kwarteng, he confirmed that planned freezes to home and business energy bills would need to be altered from April 2023. While Kwarteng, under Liz Truss, had confirmed a blanket approach, Hunt has argued that a more targeted approach is needed to protect the most vulnerable while improving value for money.
It has today (17 November) been confirmed that the energy price guarantee level for homes will be increased by £600 in April 2023, to £3,100 per household. Hunt wants the guarantee to stay in, at this level, for up to three years if needed. The guarantee runs alongside one-off payments for vulnerable groups including those on benefits, those with disabilities and pensioners.
For businesses, Hunt said a new approach to the energy bill relief scheme will be implemented in April, also. Full details are not yet ready but should be published before the year is out. There has been talk of more targeted support for SMEs and incentives for businesses to improve their energy efficiency.
£6bn of new funding for energy efficiency (but not until 2025)
Hunt said: “Cheap, low-carbon, reliable energy must sit at the heart of any modern economy. But Putin’s weaponization of international gas prices has helped drive the cost of our national energy consumption right up. This year, we will spend an extra £150bn on energy compared to pre-pandemic energy.
“Over the long-term, there’s only one way to stop ourselves being at the mercy of international gas prices – energy independence combined with energy efficiency.”
He said that the UK must “act radically” or risk “bankrupting our economy and harming our planet”.
A new ambition was set for the UK’s buildings and industry to reduce energy consumption by 15% against current levels. Hunt talked this up as equivalent to annual energy bill savings of £28bn.
The Treasury will continue with plans to spend £6.6bn on energy efficient buildings this Parliament, Hunt confirmed, through schemes including the Public Sector Decarbonisation Scheme and the Social Housing Decarbonisation Fund.
No new spending this Parliament was announced. Instead, Hunt touted £6bn of additional energy efficiency spend for 2025 and beyond. The Treasury is in the process of creating an Energy Efficiency Taskforce to oversee the design and allocation of future funding schemes. The Taskforce may also, shortly, announce a new public information campaign, it has been reported.
Many had hoped for more funding in the nearer future.
An uptick in windfall tax for the energy sector
To cheers and jeers across the House, Hunt stated: “I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices… any such tax should be temporary, not determine investment and recognise the cyclical nature of energy businesses.”
He confirmed that the Energy Profits Levy, applied to oil and gas producers, will be increased from its current 25% rate to 35% from 1 January 2023. At the same time, the tax reliefs available to these firms will be reduced from 80% to 29% for all expenditures except spending related to decarbonisation profits.
Additionally, a temporary windfall tax of 45% is being applied to all electricity generators on the same date.
Hunt expects a windfall tax to remain in place for oil and gas firms until the end of March 2028. It should not be removed before this point.
Confirmation of Sizewell C
Hunt talked up the UK’s progress on increasing renewable electricity generation capacity but said that we need to go further and faster – particularly on scaling nuclear. Almost half of the UK’s remaining nuclear capacity is set to retire by 2035. The Energy Security Strategy set an ambition for this trend to be reversed. It stated that a final investment decision for at least one large plant should reach a final investment decision this Parliament, and at least two next Parliament.
The Chancellor said that Sizewell C has now been confirmed subject to final Government approval. He added that relevant parties, including Ministers and EDF, will sign the necessary documents “in the coming weeks”.
International climate finance
With all eyes on COP27 in Sharm El-Sheikh, Egypt, this month, a hot talking point has been whether wealthy nations are finally ready to meet their climate finance commitments to low-income nations on the frontlines of the climate crisis. Developing nations are also hoping for faster progress on loss and damage funding.
Hunt stated that the UK will not be able to spend 0.7% of its GDP on international aid until the economic forecast is better. He confirmed that the current rate is 0.5%.
He added: “With the existential vulnerability we face, now would be the wrong time to step back from our international climate responsibility.”
Vehicle tax reform
In a move that was widely expected, Hunt laid the foundation for changes to road, fuel and vehicle taxation that account for the electric vehicle (EV) transition. He stopped short of confirming a road pricing scheme at this stage but this may well be the longer-term plan.
Hunt said: “The OBR forecasts that half of all new vehicles will be electric by 2025. To make our motoring system fairer, I’ve decided that, from then, electric vehicles will no longer be exempt from vehicle excise duty. Company car rates will remain lower for electric vehicles. I’ve listened to industry bodies and will limit rate increases to 1% for three years from 2025.”
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