Close your eyes and it could have been a George Osborne budget, circa 2011. Taxes so stealthy it takes a ninja to collect them, crippling austerity measures disguised as compassionate largesse, spending cuts en route to a recession presented as indisputable economic orthodoxy, even more money for pensioners, shameless theft of Labour’s most popular policy. And, of course, warm words about climate action, with almost nothing to back it up. Sometimes even the intonation was the same.
It would be rude not to acknowledge that Chancellor Jeremy Hunt is grappling with an incredibly bleak fiscal legacy – left to him by colleagues he has praised.
Similarly, it is important to note that his rhetoric on climate action is both admirable and extremely welcome. It is no longer taken for granted that the Conservative chancellors support the UK’s climate objectives. Just a few months ago, the candidates for Prime Minister were openly talking about shelving the UK’s net zero strategy – one of them is now Home Secretary, the other is Secretary to the Commerce and widely referred to as a pending leader. So to hear Hunt not only support the UK’s emissions targets, but declare that ‘cheap, low-carbon and reliable energy must be at the heart of a modern economy’ represents a significant victory for the UK. green economy.
Better yet, Hunt broke with Treasury tradition by explicitly stating that energy efficiency should be considered on a par with investments in new power generation. The longstanding arguments that saving energy is the most cost-effective way of reducing both carbon emissions and energy bills appear to have finally landed with number 11. The government’s continued support for Sizewell C will be in the headlines, but the new target to reduce energy consumption by 15% by 2030 is arguably more important.
Additionally, under-reported support for innovation funding has remained one of the few economic bright spots of the Conservative government’s past decade. Many cleantech companies will benefit from the combination of grants and tax breaks that Tory Chancellors have quietly supported throughout the turmoil of recent years.
And yet, that’s where the good news pretty much ended. It was a speech in which Hunt stressed the importance of climate action to combat an “existential” threat, then launched a tax raid on renewable energy and electric vehicles. He underlined his commitment to renewable energy, carbon capture and storage, and “above all” nuclear, then announced action on only the last of these clean energy sources. He promised action to cut energy bills, then did nothing to lift the de facto ban on the cheapest form of clean energy. Indeed, the Guardian reported yesterday that the effective ban on new onshore wind farms may soon be extended to hundreds of planned solar farms.
The windfall tax on clean energy producers is particularly egregious, not because it targets windfall profits from which some operators have undoubtedly benefited, but because it is at a higher rate than the windfall tax on oil and gas companies and does not come with the same generous tax breaks for companies that invest in new projects. The investment signals are frankly terrible. If this new tax increases even slightly the cost of capital for renewable energy projects, it will have a huge impact on the overall cost of transitioning to clean energy.
Similarly, new taxes on electric vehicles were always inevitable as they come to dominate the UK fleet. But the imposition of excise duty on electric vehicles from 2025, as the UK lags behind other major EV markets and fuel duty for petrol and diesel cars have been frozen for more than a decade, will only serve to slow the transition to zero-emission vehicles.
Even the long-awaited action on energy efficiency does not stand up to scrutiny. Hunt tried to boast that the government was close to delivering £6billion in energy efficiency funding during this Parliament, but that’s way short of the £9.3billion pledged in the latest Conservative manifesto.
Meanwhile, the promise of additional funding of £6bn will not be delivered until 2025. Plans for a new energy efficiency task force and confirmation of further funding in the future should encourage energy efficiency companies to invest in building their capacity, especially when the work promises even greater expansion of energy efficiency programs. But Hunt’s efficiency announcements will do nothing to help the millions of households and businesses struggling with their energy bills this winter and next. As the FT Jim Pickard observed that “if this government were really serious about insulating homes, they wouldn’t be spending more on it in *squint over the notes* three years from now”.
And long before additional energy efficiency policies and funding materialize, businesses will have to battle a steep rise in energy costs, after the Treasury made it clear that the current bill support program for non-domestic energy users will expire in April, at which time the “overall extent of support the government can offer will be significantly lower”.
All in all, it was definitely Osbornomics budget. Sound measured and reasonable, but politically cynical and badly underpowered in all strategically important areas, the UK is in desperate need of radical action. Worst of all, it was underpinned by precisely the same fundamental economic short-termism and fiscal hawkism that doomed the UK to its first lost decade and now looks poised to doom it to a second.
It’s hard to understand what Hunt, Sunak and Osborne, who would have advised the new Downing Street team, think will happen now. That the UK economy will rebound quickly from the third – or is it the fourth – Tory recession? That the UK’s abysmal levels of energy efficiency will only jump for a few more years, when a modest increase in funding suddenly fixes the problem? That international energy investors won’t notice that renewable energy producers are taxed more than oil and gas companies in the UK? That small businesses that were on the verge of collapse in the face of soaring energy bills last month will be fine when bills rise again in April? That the COP27 diplomats calling for increased climate finance will miss the fact that the UK’s international aid budget remains frozen? That binding legal emissions targets that the government is currently unable to meet will simply disappear? That no one will notice that they are trying to deal with a crisis created by colleagues they dare not criticize? That an economic strategy that failed ten years ago will work this time? That the climate will simply stop changing?
All strategy is the definition of insanity. It doesn’t take Einstein to see that it won’t work.
A version of this article first appeared as part of BusinessGreen’s overnight news email, which is available to all BusinessGreen members.