While much of the pre-Budget discussion has been around the ominous rumours of tax rises – with the Budget having to embrace the “harsh light of fiscal reality”, according to prime minister Keir Starmer – sustainable investors are hoping for some as-yet unveiled ‘rabbit out of the hat’ moments that could spur the UK’s green ambitions.
From GB Energy, the National Wealth Fund and unlocking planning for new onshore wind farms, the Labour government “seems to be talking a good game” in its early days, according to commentators. But, being successful in accelerating the transition towards a green, competitive and inclusive economy in the Budget will require “a ‘whole systems thinking’ approach”, according to Åse Bergstedt, global head of sustainability and sustainable finance at Foresight Group.
Here, PA Future covers some of the measures that investors feel are needed to fully appreciate “the interconnectedness between economics, environment, society, policy, consumer behaviour and education”.
Clean energy investment
One of the major signals Bergstedt hopes to see is continued momentum in clean energy investments, including offshore wind, nuclear and solar projects, alongside crucial funding for R&D in emerging technologies like hydrogen, battery storage, and carbon capture – all of which she sees as essential to the energy transition.
In a submission to the government earlier in the month, the financial services trade association, UK Finance, recommended they publish net-zero investment roadmaps for key sectors of the economy, which set out detailed policy, spending and regulatory interventions. They also advised the government to provide updates on plans for a National Wealth Fund and clarify how public finance institutions will support the transition.
Recently, the government commissioned the National Energy System Operator (NESO) to create a Strategic Spatial Energy Plan (SSEP) for the energy system, land and sea. This first iteration of the SSEP will focus on electricity generation and storage, including hydrogen assets.
For James Alexander, CEO of the UK Sustainable Investment and Finance Association (UKSIF), an SSEP is “an essential piece of the puzzle” to make the UK’s grid build-out fit for purpose.
“The UK’s outdated grid has been a barrier to investment in clean energy projects for far too long, and those projects which were built were sometimes wasting that green energy because of insufficient grid capacity. This directly translates to costs to consumers in constraint payments, and indirectly by slowing the move away from the price-spikes of fossil fuel power generation.
“[An SSEP] is urgent work and it’s long overdue. Estimates from the Climate Change Committee are that grid capacity needs to double to hit clean power by 2035. The new government’s target is to hit clean power by 2030, so this spatial energy plan is all the more crucial to drive private investment to bring the UK’s grid into the modern day.”
Windfall tax
On tax, Bergstedt stated a desire to see enhanced tax reliefs for companies investing in sustainable technologies, such as allowances for energy-efficient equipment and R&D in sustainability. This could echo the EU’s proposal of setting up a relief package that provides tax incentives and sustainable finance support for SMEs.
She also hoped there would be increased taxation on high-emissions sectors like fossil fuels, or reinforced carbon taxes, particularly in sectors falling short of emissions reduction targets. The government has already revealed they are increasing the windfall tax on the profits oil and gas firms make in the UK, rising to 38% from 35% on 1 November until 31 March 2030.
James Alexander, CEO of the UK Sustainable Investment and Finance Association, explained that this 3% increase would bring the UK in line with Norway, and could provide catalytic public investment to drive private capital into the UK’s energy transition.
“This is sensible financial planning for the future and is essential to deliver a just transition by creating jobs in the energy sector that will actually stand the test of time. North Sea oil and gas is finite and already dwindling, and since it’s traded on the global market it is subject to price shocks like those which caused the energy crisis. The government has had to hold firm in the face of relentless lobbying by oil and gas interest groups in order to put up the windfall tax. Oil and gas firms have consistently failed to invest in the transition, and as such are now increasingly being consigned to the past.”
Housing
Housing and real estate were another important area of focus for the investment community. Bergstedt hoped to see incentives that support household energy efficiency and reduce heating costs, addressing both affordability and emissions at the individual level.
This was echoed by UK Finance, which called on the government to establish a government-led delivery body or agency for improving home energy efficiency and train skilled workers to green the housing stock through an apprenticeship scheme.
They also recommended the introduction of a Stamp Duty rebate scheme to incentivise homeowners to upgrade the energy efficiency of their homes, and/or make green home improvements VAT-free.
Other recommendations
Other areas of concern for Bergstedt included sustainable farming and green skills.
“I hope to see policies promoting sustainable farming practices like regenerative agriculture, which sequesters carbon in the soil, improves crop quality, builds climate resilience and strengthens farmers’ livelihoods over the long term, directly contributing to carbon reduction goals.
“Underpinning that, and other measures, is an investment in training and reskilling to prepare our workforce for green industries, including renewables, sustainable agriculture, and conservation – all poised for growth in the green economy.”
Elsewhere, organisations including Greenpeace and Oxfam have urged the chancellor to introduce a wealth tax on the assets of the super-rich to reduce inequalities and fairly fund measures to help tackle the climate crisis. A Greenpeace report asserts that measures such as insulating all 19 million draughty homes, capping bus fares and retraining the 3.2 million high-carbon workers in the green industries of the future “could all easily be funded” through the tax.
Greenpeace UK’s climate campaigner, Georgia Whitaker, said: “How can the government think that taxing the vast wealth of the very richest in our society is more controversial than cutting winter fuel payments to poor pensioners? These aren’t ‘difficult decisions’, these are political choices, and it’s time the chancellor made the right one. By tapping into just a fraction of the wealth of a few thousand multi-millionaires and billionaires – who are also frequently the biggest polluters – we can pay for climate solutions benefitting millions.”
