What the Chancellor should look to include in a truly green budget

The March 2021 budget, titled “Protecting the Jobs and Livelihoods of the British People” was a major opportunity for the Chancellor to kick start the green recovery following COVID, sadly he failed to grasp this opportunity and while there were a few useful inclusions which allowed him to mention the work ‘green’ in his speech it does not deliver what is needed to address the climate crisis at the pace we need to.

What were the green initiatives included in the budget?

You had to search for them but there were some positive green measures included in the budget, these included:

• £48m investment announced to develop Hydrogen production of HGVs in Holyhead
  We welcome investment in the creating of Green Hydrogen which uses the excess production from renewables (especially offshore wind). We further welcome the use of this being reserved for the ‘hard to treat’ sectors of the economy such as HGV transportation and avoid it being used in where alternative solution exist such as private cars
• £1bn Net Zero Innovation Portfolio
  There is little detail on this but it promises to support new solutions to cut carbon and accelerate near to market low carbon energy innovation. Such investment must sit along side investment into the deployment of currently known and establish energy and carbon reduction measures which could be delivered today. The 2.5 times over subscription of the recent Public Sector Decarbonisation Scheme shows the level of demand for this which the government continues to fail to make a long term investment in.
• £15bn of Green Gilts and a Green National Saving Product were announced
  There are few details in to how these funds will be used and while these levels of funding are welcomed the detail will be critical as the current finance structure suggests these may be offered as loans to help organisations invest in energy reduction to be paid for from savings rather than grants. The experiences of the Green Deal and the more recent Gren Homes Grant should indicate to the government that very careful scheme design needs to be made in the distribution of these funds.
• £92m investment in energy innovation including £20m for floating offshore wind, £68m for energy storage and £4m for biomass production.
  While all these investments are welcome it is disappointing that the government has yet again failed to invest in energy efficiency where to best returns in financial and carbon terms can be made in the next 5 to 50 years.

The budget failed to increase fuel duty, increased red diesel exemptions (to include marine uses, funfairs, and golf clubs), and froze the aggregate levy. It also failed to provide adequate investment into a long term carbon reduction strategy underpinned by delivering well tried and tested solutions that can be implemented now and instead focused more on the search of a new innovation. We have the technologies we need; we have the will and know who to deliver them, it just need the government support to make this happen at pace.

What should be included in a Green Budget?
The following items are what we would recommended that the Treasury considers in future budgets and spending reviews to be able to deliver a sustainable future.

1. Link the Climate Change Levy (CCL) to the Carbon Emissions Factors for the fuels and revenue being spent on decarbonisation.
At present CCL is charged at the rate of 0.465p/kWh on gas and 0.775p/kWh on electricity yet electricity is seen as the low carbon fuel of the future and we need to be encouraging an electrification of heating and hot water. We would suggest that there should be a hard link between the DEFRA Carbon Emissions factors for the fuels and the CCL levy rate with a simple multiplier from one to the other. For example, the current Gas carbon factor is 0.1837 CO2e/kwh and for electricity it is 0.23314 CO2e/kwh with the electricity rate falling quickly. We would suggest that there should be a multiplier of 3 from the CO2e rate to the CCL rate in 2021 to 2025, rising to a multiplier of 4 from 2026 to 2029 and a multiplier of 5 from 2030 onwards.
This would change the current rates from:

This would lead to a reduction in the CCL rate for electricity and an increase for gas with the electricity rate dropping each year as the CO2 rate falls but the gas rate remaining relatively stable. The increase in multipliers from 3 to 4 and then 5 would mean that the revenue to the Treasury would be maintained (or increased) as the carbon rates fall but and increasing tax burden placed on gas therefore this would be a ‘polluter pays’ tax.
As there are CCL exemptions for charity and domestic use this tax burden would not be regressive.

A quick estimate would be that the CCL tax revenue under this revision in 2021 would increase from £2.1bn to £2.7bn.

We would suggest that any CCL revenue should be split 50/50 between the Treasury to fund the public debt and 50% to a Public and 3rd Sector Decarbonisation scheme which runs every year along the lines of the recent PSDS Scheme. This 50% split would mean this would have a fund of £1.35bn in 2021.

2. Link the Fuel Duty rates to the Carbon Emissions Factors and invest increased revenue in reducing in car usage
In a similar way to that proposed above for a link between CCL and Carbon Factors there should be a similar link between fuel duty and carbon factors with a multiplier. This standard multiplier could be adjusted in future budgets to increase or decrease the taxation on fuel if desired.

Examining the current fuel duty rates, we would suggest that an initial multiplier of 2.5 should be applied so that fuel duty would change as per the table below:

This would have the impact of increasing fuel duty on the more polluting diesel fuel, a very slight reduction in petrol but a huge increase in the fuel duty on Av Gas. This would mean that you would no longer pay less in fuel duty to fly than you do traveling by bus.

The increased revenue should then be invested in reducing car use, this should include items such as:

• Investment in the provision of fibre broadband to all properties in the UK
• A scheme to double the parking available at every railway station in the UK which includes 7kW EV charging at each new space and is coupled with an agreement from the train operating companies that government investment in doubling the provision leads to a halving of the parking charges.
• A scheme to building deck ‘park and share’ facilities at every motorway service station with 7kW EV chargers at each space so that you can park you car for £2 a day at any service station and then car share for the rest of your journey. This could be extended to major motorway junctions and would formalise the parking often seen off motorway junctions where people are using laybys and the like and being discouraged from doing so even though they want to car share and reduce vehicles on the road.

3. Revisions in VAT to support low energy products and discourage high energy purchases
Currently the VAT system, through VAT Notice 708/6 allows for some energy saving items and renewable energy installations to be VAT exempt but only for dwellings and supply only. We would suggest that this should be amended so that VAT exemption for energy saving products is for the supply AND installation and covers all areas, not just dwellings. This would obviously have an impact of a reduce VAT tax for the exchequer so we have reviewed where some VAT exemptions in place may be able to be reversed and to our surprise we found that Helicopters, Aircraft (although not including gliders which are zero carbon by nature!) and the maintenance of aircraft are all VAT exempt items. Therefore, to fund the VAT reduction in energy saving items the current VAT exemption on Helicopters and Aircraft should be removed. It can not be equitable that you currently pay VAT on a new electric car but not a helicopter.
We would also suggest that any VAT exemption for energy saving items is time limited (until 2025) as this would then create a sense of urgency to invest in these items where there is in effect a 20% reduction in costs.

4. SALIX zero interest loan funding revisions
Currently the SALIX low interest loan scheme for schools is not open to academies which have to apply to a highly competitive and oversubscribed version of the funding called SEEF which has had 3 rounds over the last 5 years. This is a major barrier to academy schools implementing energy saving measures. The Chancellor should make provision for the Schools SALIX Energy Efficiency Loan Scheme (SEELS) to be open to all schools including academies.

5. Zero Carbon Planning Reforms
In order to allow for easier installation of Zero Carbon measures the General Planning Development Order should be revised to allow for the installation of Air Source Heat Pump units for be permissible as permitted development where they currently require planning in conservation areas and the like. It should also amend the current PV permitted development description with conservation areas and listed buildings so that these are not forced into having to obtain planning because the ‘front a highway’ but only require planning when they are proposed to be “installed in a position which is highly visible from the primary road frontage”

6. Revision to Landfill Tax
In order to discourage the exportation of waste to foreign countries that are not able to properly handle items such items the landfill tax should be applied to any untreated waste exports from the UK. There should then be R&D and innovation investment made to develop and support the UK waste processing sector so that we are able to handle all UK generated waste and recycle this into new or raw materials (such as sorted and pelletised plastic, sorted and clean crushed glass or pulped and grade paper and cardboard) which can then be exported without the landfill tax applying. The additional income from this tax could then be used to fund increase litter picking and enforcement and management of fly tipping on both public and private land by local authorities.

7. No Investment in the burning of Fossil Fuels
In many areas of investment into the improvement of the condition of the public estate the government currently funds new oil and gas boilers to be installed. The Chancellor should announce that as from 2021 no government funds (such as CIF and VASA funding in schools) can be spent on new or replacement oil heating boiler or hot water systems and from 2025 there should be no such investment in gas fired systems. The government should also announce a similar early timescale for the avoidance of any public sector investment in firstly diesel (from 2022) and then petrol (from 2025) cars and light commercial vehicles.

8. Availability of 3 Phase Electricity
In order to support the electrification of heating and hot water properties often need to upgrade their electricity supply, the costs of which can be a major barrier. In order to remove this barrier the electricity regulations should be amended so that additional network reinforcement costs can not be charged to any residential, charitable or primary school requesting an upgrade from a single phase to a 3 phase electricity supply.

9. Switch Existing Funding from Homes to Public Sector
The Government has realised some of the structural failings of the Green Homes Grant scheme with the exception low take up and it is reported to have around £1.5m of unspent funds being taken out of this scheme. Given that the Public Sector Decarbonisation Scheme was oversubscribed by £1.4bn the funds should be switched to support decarbonisation in this sector while the residential sector has decarbonisation support by a redesigned ECO scheme.

The inclusion of such measures in the next budget might then allow the budget title to be “Protecting the Environment on which the jobs and livelihoods of the British People rely.”

Inspired Efficiency is well placed to undertake the surveys and audits need to identify the energy saving measures, advise on the most appropriate funding routes and make applications for organisations.

Please contact Matt Fulford for further information on matt@inspiredefficiency.co.uk – 07971 787363.