things to come - review of uk budget from a green perspective

7/30/2019 Things to Come - Review of UK Budget from a Green Perspective

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policy

Amongst economics com-

mentators it is generally

accepted that there are

budget statements from

the Chancellor of the Exchequer that

are more significant than others;

that delivered on 21 March would

certainly count as one of the more

significant. Perhaps predictably, the

reasons for this are explicitly political.

It was Gordon Browns last budget;

there is a revived threat to Labours

position in the form of a Blair-like

Conservative party leader; and there

is a fierce battle to occupy both the

centre and environmentally friendly

ground.

The prominence of energy in policyand the budget has, however, always

been high. Previous budgets have

involved privatisation, decisions on

funding for nuclear power, inflation

concerns due to oil crises and, lat-

terly, global warming. The produc-

tion of energy is a matter of national

interest: the second golden age of

British industry after the second world

war was arguably crushed by eco-

nomic instability around oil prices.

The discovery of North Sea oil and

the dash for gas in the 1980s have

been a financial windfall for the UK

until now.

Instability

Today, the UK finds itself being a net

importer of gas from Europe and en-

ergy supplies are increasingly threat-

ened by the unreliable and unstableconditions in oil and gas producing

nations. Price is increasing; supplies

are shortening. Indeed, energy prices

have risen so much that the Bank of

England highlighted them as one of

the key reasons for the peak rate of

inflation seen earlier this year, which

led to increases in interest rates.

Against this backdrop, the UK has

decided to take a lead role in setting

carbon emission targets. Indeed,

while only required under the Kyoto

Protocol to cut greenhouse gas emis-

sions by 12.5 per cent compared to

1990 levels by 2010, the govern-

ment set a self-imposed target for the

UK of a 20 per cent reduction. The

Kyoto target will almost certainly be

met, but the latest projections show

that the UK is on target for only a 15

to 18 per cent reduction in emissionsby 2010. A further aspirational target

of a 60 per cent reduction by 2050 is

also in place.

Things to come

Dave Shaw, energy consultant, at Carbon Trust-accreditedconsultancy Efficiency Direct wonders if Gordon Browns last budget

was green enough


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Luckily, saving energy means saving

money on both a micro and macro

level, and if the UK can take a lead

role in the development of energy

saving technologies, then this may

help to address the countrys balance

of payments deficit. So just what was

in the most recent budget to promote

energy efficiency and the UK as a

world leader in the field?

Business, the Chancellor said,

accounted for 40 per cent of UK

greenhouse gas emissions (princi-

pally carbon dioxide) and that, since

1997, business and government

together have achieved a 25 per

cent reduction in the carbon intensity

of the economy. While the statistics

may prove this to be true, how much

of this is attributable to the decline of

manufacturing in the UK is debatable

but no doubt significant.

Complication

Some accuse the UK of having one

of the more complex tax systems in

the world. Part of the reason for this

is the way in which the Chancellor

raises and indirectly cuts taxes. It

seems, in effect, that taxes are simply

increased for everyone and those for

whom they would have an undue

adverse effect (e.g. small businesses,

pensioners, low income households)

should claim allowances to offset the

greater burden placed on them.

To this end, as well as raising

corporation tax for small business

and cutting corporation tax for large

business (according to the Engineer-

ing Employers Federation firms are

paying almost 12billion more in

tax in 2008/9 than they were whenLabour came to power), the Chan-

cellor introduced a new environ-

mental tax credit for environmental

investment.

This tax credit will be worth 40mil-

lion a year. How it is new and

different from the already established

Enhanced Capital Allowances (ECA)

scheme was unclear from the com-

mons statement. ECAs allow the

cost of an environmentally friendly

technology (such as an inverter

drive), which is on the Environmen-

tal Technology List, to be written

off against corporation tax in year

one, rather than as depreciation

over time. In the detail of the main

Treasury report, it is stated:

The Government also introduced

enhanced capital allowances for

energy-saving technologies, with

over 14,000 approved products

now eligible for support. The

Government has commissioned an

independent review of the effective-ness of the ECA for energy-saving

technology, which will be published

later this year. It was announced that

the Government will also introduce

a payable enhanced capital allow-

ance for companies not in taxable

profit to ensure both profit and loss

making firms have an incentive for

energy-saving technology. Increased

funding for the Carbon Trust, which

provides businesses with advice on

improving their energy efficiency as

well as interest-free loans to fund

capital energy-saving projects such

as lighting, insulation and boilers,

was also part of the Climate Change

Levy (CCL) package. In 2004 to

2005, the Carbon Trust worked with

over 2,800 organisations, result-

ing in cost savings of 200million

for business. So now, companiesthat do not have profits can benefit

financially from using environmentally

friendly options.

Staying with small- and medium-

sized enterprises, more money was

also promised to offer energy audits

and advice through the Carbon

Trust and Regional Development

Agencies (RDAs). The RDAs will pro-

mote streamlined advice on resource

efficiency delivered through Business

Links. In total, the advice, sup-

port and incentives available from

Business Links and the RDAs for envi-

ronmental improvement and innova-

tion, including for small businesses,

will rise from 140million this year to

240million next year.

Forefront

The small company R&D tax credit

will be raised from 150 per cent to

175 per cent from April 2008 and

the large company rate will also rise

from 125 per cent to 130 per cent.It is hoped that much of this will be

used in order to help the UK stay at

the forefront of developing environ-

mentally friendly and carbon neutral

technologies of the sort that will at-

tract environmental tax credits.

The Secretary for Industry, the Chan-

cellor announced, would also be

announcing a competition to develop

the UKs first full scale carbon capture


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policy

and storage project, the results of

which would be announced in 2008.

Carbon capture is a process by which

carbon produced from the burning of

fossil fuels (e.g. at power stations) can

be captured and buried, for example,

under the seabed. At this stage in the

technologys development, the cap-

ture part has been successful but stor-age has proved harder to complete.

As well as for businesses, measures

were announced for households,

including insulation and green tech-

nology grants and steps intended to

gear the housing market to be more

favourable toward carbon neutral

homes. Commitments were also

made with respect to transport, where

it was announced that biofuels will,

by 2010, account for 5 per cent of

all fuel in road vehicles, and by 2020

this could possibly be 20 per cent. 4x4

drivers were also hit hard with severe

rises in car tax.

A further action in the budget with

respect to energy was the announce-

ment that CCL, the levy imposed on

each unit of fossil fuel purchased,

would now be linked to inflation.

Previously, this had remained ata static rate of 0.043p/kWh on

electricity and 0.015p/kWh on gas.

Whilst an increase in CCL is most

definitely warranted (it helps to fund

the Carbon Trust, for example) it could

be questioned whether this is a step

far enough.

The current CCL level is simply not

high enough to bring about the

change in business activity that it was

designed to. By linking it to the rate

of inflation, it will move at the samerate as other prices and therefore in

effect stay at the same relative level.

Energy and fuel taxes, as shown by the

fuel protests at the turn of the century,

are a contentious and emotive issue.

However, if they are set below the level

at which they change the activity they

are supposed to (in this case energy

consumption), then they simply and

quietly raise money for the treasury.

Allowances

In addition to this criticism, the pay

tax and claim the benefit system is

one that can arguably only work if

those who are entitled to allowances

actually claim them. Otherwise, once

again, the treasury does not have to

part with money set aside to offset

the effect of taxes for those who are

disproportionately and unnecessarilyaffected. It is doubtful that anywhere

near as much of the money put aside

for allowances is ever claimed as it

could or should be.

The move toward carbon pric-

ing, via the EU Emissions Trading

Scheme is welcome, but whilst the

UK is leading the way with respect

to the scheme, it still needs further

reform. For the lowest emitters in the

scheme, the administrative burden

is high, and while this is being ad-dressed to a certain extent in the

schemes second phase (2008 to

2012), more could be done to ease

the pressure on such installations.

The price of carbon too, while sub-

ject to the market, requires further

control the price of a tonne of car-

bon dipped below 1 in February

of this year. Whilst the Chancellor

could not address this in his budget,

representation at an EU level needs

to be made to ensure confidence in

the system.

Whilst representing clients in the EU

Emissions Scheme, Efficiency Direct

has found that the current price of

carbon, like the level at which the

CCL is set, provides no financial

incentive to begin the monitoring

and management of carbon emis-

sions. In the companys experience,the only driver is the threat of a civil

law suit.

www.efficiencydirect.co.uk


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