UK spring budget 2024: Key climate and energy announcements
Multiple Authors
03.06.24Multiple Authors
06.03.2024 | 5:57pmUK chancellor Jeremy Hunt failed to mention the term “climate change” at all when setting out the government’s spring budget – the first since it was confirmed that 2023 was Earth’s hottest year on record.
As expected, Hunt used his budget speech to announce that the government is freezing fuel duty on petrol and diesel for the 14th year in a row.
As of 2023, this policy had added up to 7% to UK emissions, according to previous Carbon Brief analysis.
The chancellor also announced a year-long extension to the windfall tax on oil-and-gas companies, but failed to commit to spending the money raised on new climate investments.
Hunt did not offer any new policies to help boost the rollout of key low-carbon technologies, such as electric vehicles (EVs) and heat pumps.
He also pledged no further changes to the government’s long-term regime of maximising oil and gas production.
Overall, despite some confirmation of further funding for supply chains, analysts described the budget as a “missed opportunity” for boosting low-carbon industries and accelerating the transition away from fossil fuels in the UK.
Alongside the budget, the government also confirmed key details of its sixth auction round for new renewable energy projects, including a pot worth just over £1bn.
With a UK general election on the horizon – and Labour enjoying a substantial lead in the polls – this budget is likely to be Hunt’s last as chancellor.
Below, Carbon Brief runs through the key announcements.
Fuel duty
The government has frozen fuel duty on petrol and diesel for the 14th year in a row.
This persistent policy amounts to a significant tax cut, as fuel duty has dropped considerably in real terms over the years rather than rising with inflation.
The freeze makes it cheaper to drive a car and reduces the incentive to use more fuel-efficient models. As of 2023, Carbon Brief calculated that fuel duty freezes had increased UK carbon dioxide (CO2) emissions by up to 7%.
Hunt has also opted to retain an extra 5p cut in duty, which was first introduced in 2022 to address rising fuel costs. This reduced the rate on petrol and diesel from 57.95p per litre to 52.95p.
In the 2022 spring statement, it was described as a temporary measure. The government stated the 5p cut would end on 23 March 2024 “as part of the government’s commitment to fiscal responsibility and ensuring trust and confidence in our national finances”.
However, Hunt announced that it will remain in place for another year. This is despite fuel prices now being comfortably lower than they were during the energy crisis.
These two measures have been a major drain on public finances.
Together, they will cost the Treasury £3.1bn in 2024-25, with a cumulative cost of around £90bn since 2010, according to official figures released by the Office for Budget Responsibility.
Analysis performed by the Social Market Foundation (SMF) in the run up to the spring budget places the cumulative figure far higher, at £130bn.
The thinktank adds that the cost of maintaining fuel duty freezes would rise to more than £200bn by 2030 – “enough to fund the entire NHS for a year”.
With the government under pressure from the right of the Conservative party and the right-leaning press to cut taxes, the fuel-duty freeze was trailed in the Times ahead of the budget as one of the “two main tax cuts” planned by the chancellor, along with a reduction in national insurance.
The Sun claimed responsibility for Hunt’s continued fuel duty freeze, due to the newspaper’s long-standing “Keep It Down” campaign, which it runs with the climate-sceptic lobbyist and Reform Party London mayoral candidate Howard Cox. A recent Sun editorial stated:
“Seven Tory chancellors have cursed us for it. To them it has ‘cost’ £90bn in tax they would love to have spent.”
Instead, the Sun points to the benefits for “British motorists”. Pro-motoring lobbyists have argued that a fuel-duty cut is a necessary bulwark against the “war on motorists” taking place in the UK. The government has absorbed this message, with prime minister Rishi Sunak announcing last year he was “slamming the brakes on the war on motorists”.
The government describes its fuel duty freeze as part of its efforts to “support people with the cost of living”.
The opposition Labour Party has also backed the fuel-duty freeze on these grounds. Last year, shadow chancellor Rachel Reeves threw her weight behind it to help the “many families and businesses reliant on their cars”.
Yet analysis by the SMF shows that, despite rhetoric that emphasises benefits for ordinary, hard-working people, fuel-duty cuts disproportionately benefit wealthier people. This is because they are more likely to own cars and the cars they own are more likely to be less fuel-efficient models, such as SUVs.
As a result, the thinktank says maintaining the 2022 fuel-duty cut will save the UK’s richest people around three times as much money as the nation’s poorest.
Moreover, analysis by the RAC Foundation at the end of 2023 found that the government’s cuts to fuel prices had not all been passed onto consumers. Instead, it concluded that fossil-fuel retailers had kept savings from lower wholesale costs for themselves, leaving drivers “paying 10p [per litre] more than they should be”.
Meanwhile, the cost of bus and coach fares has risen far more than the cost of running a car, as rail fares in England and Wales increased by 5% this year.
The SMF has proposed that investment in public transport would be a more effective way to save households money.
Others have suggested that such investments could also be a major driver of economic growth. For example, government advisors at the National Infrastructure Commission argued last year that the UK should invest £22bn in mass transit schemes outside London in the coming years.
Instead, the most significant public-transport policy the government has introduced in recent months has been cancelling the northern leg of the HS2 train line.
Air passenger duty
Hunt also announced an increase in air passenger duty on “non-economy” passengers as a revenue-raising measure to help pay for tax cuts elsewhere.
As a result, those flying business class, premium economy, first class or in private jets will pay a higher price for plane tickets.
This policy will raise between £110m and £140m annually from 2025 through to 2029, according to government figures.
The budget document explains that this is a measure to bring air passenger duty in line with high inflation and maintain its value in real terms.
Nevertheless, it emphasises that for the 70% of passengers flying economy, or on short-haul flights, “rates will remain frozen” in order to “keep the cost of flying down”.
In fact, in 2021 when Sunak was chancellor, the government cut air passenger duty in half for domestic flights, making air travel cheaper within the UK. Reversing this change would bring in an extra £69m to the Treasury, according to the Campaign for Better Transport.
Campaigners have proposed a more expansive “frequent flyer levy” in order to actively discourage flying and cut emissions from aviation, which accounts for around 3% of UK emissions.
According to New Economics Foundation modelling, this could have raised £4bn in revenues in 2022.
As it stands, the government has no explicit plans to reduce demand for air travel in the UK. This is despite such plans being flagged repeatedly by government climate advisors the Climate Change Committee (CCC) as a missing part of the UK’s strategy to reach net-zero.
Windfall tax
Hunt used his budget to extend the windfall tax on North Sea oil and gas companies by another year, bringing its scheduled end date to March 2029.
This was despite opposition from Scottish Conservatives, according to BBC News – and the energy secretary Claire Coutinho, according to Politico.
He told parliament this extension would raise £1.5bn. However, he did not say what this additional money would be spent on.
He added that the “energy profits levy”, as the windfall tax is known, would be abolished “should market prices fall to their historic norm for a sustained period of time”.
In a statement, Kate Mulvany, principal consultant at consultancy Cornwall Insight, said that the move “could be seen as positive for decarbonisation if the resulting profits are used to deliver the UK’s net-zero plan”, but added:
“Yet, without a solid transition strategy away from the UK’s oil and gas dependence and no assurance that tax revenues will directly support decarbonisation initiatives, the potential upheaval in investment could outweigh the benefits.”
Ahead of the budget, both the Times and Bloomberg reported that the tax extension was being described as one of the measures that could help fund Hunt’s 2p cut in national insurance.
Labour has also proposed extending the tax by a year, if elected to power, Politico reported. Additionally, Labour intends to raise the levy on oil-and-gas company profits from 75% to 78%. It has pledged to spend the money raised on low-carbon investments.
Oil-and-gas trade group Offshore Energies UK has called the Labour proposal “alarming” and claimed that it could lead to job losses in the sector. (See Carbon Brief’s factcheck of misleading claims surrounding North Sea oil and gas.)
Elsewhere in his budget speech, Hunt did not commit to any other changes on fossil-fuel investment policies.
This was to the dismay of many environmental groups and energy experts, who had urged the chancellor to commit to new measures to end reliance on oil and gas. In a statement, Esin Serin, policy fellow at the Grantham Research Institute on Climate Change and the Environment, said:
“The chancellor should be making more of the tax system to drive the transition away from fossil fuels.”
Clean technology
Hunt announced that the government is buying two nuclear sites from Hitachi for £160m, in a move reportedly aimed at quickly delivering nuclear expansion plans.
The sites are at Wylfa in Anglesey, Wales and Oldbury-on-Severn in South Gloucestershire. The decision follows a period of uncertainty for Wylfa, after the closure of the previous nuclear power plant at the site in 2015.
Hitachi had planned to build a new 2.9 gigawatt (GW) nuclear plant on the site for a reported £20bn. However, the Japanese conglomerate announced it was shelving the plans in 2019.
Additionally, Hunt announced that the government has moved onto the next stage in its competition to build “small modular reactors” (SMRs). There are now six companies that have been invited to submit their initial tender responses by June.
The chancellor confirmed a £120m increase in funding for the “green industries growth accelerator” (GIGA), a fund designed to support the expansion of ”strong and sustainable clean energy supply chains” in the UK. The increase was announced earlier this week.
This will bring the total amount in the fund to £1.1bn, according to the budget documents, up from £960m announced in the autumn statement in November.
GIGA is designed to support carbon capture, usage and storage (CCUS), engineered greenhouse gas removals (GGRs) and hydrogen, offshore wind and electricity networks, as well as civil nuclear power.
The fund will be split between these sectors, with around £390m earmarked for electricity networks and offshore wind supply chains, and around £390m earmarked for CCUS and hydrogen, the treasury’s note stated.
In January, the Department for Energy Security and Net Zero announced £300m will be used to fund the production of a type of nuclear fuel known as “high-assay low-enriched uranium” (HALEU). Currently, Russia is the only producer of HALEU, so the domestic production plan is designed to help end “Russia’s reign”, the government states, as well as to support the UK’s wider plans to deliver “up to” 24GW of nuclear power by 2050.
In a statement, trade association RenewableUK’s chief executive Dan McGrail said:
“The increase in GIGA funding to secure further private investment in green manufacturing jobs will enable us to supply more goods and services to projects here and abroad. It’s also good to see that nearly £400m of that funding will be used specifically to grow our offshore wind supply chain and electricity networks.”
Additionally, earlier this week the government trailed £360m for manufacturing projects and for research and development. This includes almost £73m in combined government and industry investment in the development of electric vehicle (EV) technology.
This will be supported by more than £36m of government funding awarded through the UK’s “advanced propulsion centre”, the Treasury notes, including four projects that are developing technologies for battery EVs.
Renewable auction budget
Alongside the budget, the government also confirmed key details of its sixth auction (AR6) round for new renewable energy projects, including a pot worth just over £1bn.
This follows last year’s fifth auction round, which failed to secure any new offshore wind projects for the first time.
The budget documents said the £1bn budget for AR6 is the “largest ever” and includes £800m specifically for offshore wind.
If winning projects bid at the maximum price for offshore wind announced last year of £73 per megawatt hour (MWh) in 2012 prices, then the £800m budget would only be sufficient to secure just 3GW of new capacity, Carbon Brief analysis shows.
However, consultancy LCP Delta said it could be sufficient to secure 4-6GW of new capacity, implying that it assumes winning projects will bid at prices around £50-60/MWh. In a statement, it added:
“This is certainly a welcome development given last year’s failed auction. However, it may not be enough to get the UK back on track with time running out to build the additional 23GW needed [to meet its 50GW target] by 2030.”
Similarly, trade association Energy UK says the auction pot could secure 3-5GW of new offshore wind, depending where project bid prices sit in a range of £55-£70/MWh.
The government has a target of building 50GW of offshore wind by 2030. There is currently around 15GW in operation and another 14GW either under construction, awarded a contract or having already taken a final investment decision, notes Energy UK.
This means another 21GW of new capacity would be needed to hit the 50GW by 2030 target, implying a need for at least 10GW in each of the next two auction rounds, according to the industry body.
New analysis produced by the body following the budget suggests that the AR6 parameters make it unlikely the auction will hit the level of capacity required, leaving a shortfall of at least 16GW, which would be “extremely difficult” to fill in AR7 alone.
In addition to the £800m pot for offshore wind, the government has confirmed the upcoming auction will include up to £105m for “pot two” technologies including onshore wind, solar, energy from waste with combined heat and power and others, as well as £120m for “pot three” technologies including floating offshore wind, geothermal, tidal stream, wave and others.
Within the CfD announcement and the spring budget, the government notes that it is “making progress” on the network reforms announced at last year’s autumn statement.
This includes publishing a consultation on a new accelerated planning service for commercial grid applications, which has come as a result of a previous consultation on operational reforms to the nationally significant infrastructure project regime. The government has also updated its national networks national policy statement.
Additionally, since the autumn statement last November, over 40GW of energy projects have been offered earlier grid connection dates, the budget states. This accelerates up to £40bn in investment.
To further aid grid connections, National Grid Electricity System Operator is inserting delivery milestones into over 1,000 connection contracts, in an effort to remove stalled projects from the grid connection queue from this coming autumn, the budget notes.
Susanna Elks, E3G senior policy Advisor for the UK electricity transition at thinktank E3G said the reforms to electricity networks and “beefed-up budget” for the CfD suggests the Conservatives “can’t ignore that low-cost renewables are the growth engine of the future”. She adds:
“While today’s announcement is welcome, the UK still lacks an overarching plan to create a clean low-cost electricity system– with a failure to provide support for hydrogen-to-power, long-term storage and demand side flexibility. These are key technologies which could help end our addiction to expensive polluting gas, while reducing bills for consumers.”
Electric cars
Ahead of the budget, an open letter by the motoring lobby group FairCharge called on the chancellor to end the higher rates of VAT on public electric car charging, when compared to home charging.
People who charge their EVs at home only pay 5% VAT on their bills, but the 38% of the population without driveways who would have to use public chargers pay the full VAT rate of 20%, presenting a “charging injustice”, the group told the Daily Mirror.
The Society of Motor Manufacturers and Traders also called for VAT on public EV charging points to be cut, to be in line with the VAT on home charging points.
Speaking to the Times, Mike Hawes, chief executive of the group, said that high VAT rates on public charging points were part of a “triple tax barrier” to more private ownership of EVs.
He also urged the chancellor to reverse proposed excise duty changes that treat upmarket electric cars as luxuries rather than essentials, increasing car taxes by up to £2,000, and to cut the 20% VAT that new car buyers have to pay on new EVs.
However, during the budget, Hunt did not mention any new measures to boost EVs.
