This month, we’re reporting on the Chancellor’s Spring Budget. Sustainability platform EDIE writes that Chancellor Jeremy Hunt has unveiled fresh funding for carbon capture technologies, reclassified nuclear as a “sustainable” energy option and extended energy efficiency relief for households, as a part of an ongoing effort to halve inflation, grow the economy and reduce debt.
Despite some positives, reaction from the green business sector has been mixed. EDIE says while green groups will welcome efforts to beef up the energy relief support packages, Hunt’s Budget failed to introduce measures or funding for renewables, hydrogen, additional efficiency nor new planning mechanisms.
Hunt on the money
Corporation tax for businesses will increase from 19% to 25%. Organisations that make a profit of more than £250,000 will be taxed 25% of their profits.
Elsewhere, EDIE confirms small and medium-sized businesses (SMEs) will be able to claim credit for investments into research and development. Hunt confirmed that SMEs would be able to claim £27 for every £100 they spend in R&D provided that accounts for more than 40% of their total expenditure.
Other announcements included an update to the Climate Change Agreement (CCA) for businesses that was first promised more than two years ago.
Back in 2020, explains EDIE, the Government extended its CCA scheme for businesses by two years. The CCA scheme was launched in 2014 and provides businesses with tax breaks on the basis that they become more energy-efficient and reduce their Scope 1 (direct) and Scope 2 (power-related) emissions.
It also sets energy-reduction targets for businesses which, if met, result in a discount on the Climate Change Levy (CCL) on their energy bills.
The good news is that the scheme was due to close in the first half of 2023 but will now be extended through to March 2025. Almost 9,000 facilities are currently benefiting from CCA. Hunt stated that eligible business can collectively gain £60m of tax relief based on energy efficiency measures.
“This news on energy efficiency is especially welcome,” comments Kevin Cox, Managing Director, Energy Group. “Clearly £60m of tax relief is a big deal for the sector and for some it could be the key enabler in getting energy efficiency measures in place.
“Doing so hastens our Net Zero transition and sets up UK business for a more sustainable and profitable future, so we are delighted at this news.
The FT view
Meanwhile, The FT argues that new forecasts from the Office for Budget Responsibility showed an improved outlook for the UK economy, partly as a result of the chancellor’s measures to get people back to work.
A bigger effect, however, came from the fiscal watchdog’s assumption of lower natural gas prices, which it thinks will limit the cost of living crisis. The detail of the forecast shows that instead of contracting 1.4 per cent this year, the economy will shrink only 0.2 per cent, before recovering to an annual growth rate of 1.9 per cent by 2027.
Hunt’s measures, estimates the FT, amount to a giveaway of £20bn a year over the next three years before falling to £10bn a year. As a result, public sector debt is only expected to start falling as a share of gross domestic product in 2027-28, highlighting the still precarious state of the government finances.
The FT view is that Mr Hunt focused most of his fiscal firepower on tax breaks for business, which he claimed would increase UK investment and offset a 6 percentage point rise in corporation tax.
He announced a three-year 100 per cent “full expensing” scheme, allowing companies to offset all capital spending against their tax bill in the year it is incurred, a move costing an average of £9bn a year. Hunt said Britain was the only major European country with such a system.
Along with a three-year increase in tax credits for investment-intensive companies, such as tech groups, rising to £500m, the business tax breaks were by far the biggest single spending line in the chancellor’s statement.
Broadly, it was a pro-business Budget, but it didn’t comprehensively set up Britain for sustainability just yet. There is speculation from analysts that more may be on the way in the forthcoming Net Zero review and Strategy. For now, this remains just speculation, but if measures do appear to help push the low carbon transition, they will be most welcome.
Jeremy Hunt also missed the chance to remove fossil fuel subsidies, and angered some by giving more scope to nuclear than pushing at a renewables revolution. All in all, this Budget was good for business, but it was no green panacea.