Chancellor's Budget Box

CEP response to Spring Budget 2023

Chancellor takes important steps in addressing energy cost challenges but misses timely chances to fully accelerate green growth opportunities

In his Spring Budget, the Chancellor set out a number of measures to alleviate the impact of persistently high energy prices on households and businesses and to incentivise the development and deployment of new industry opportunities in carbon capture and storage (CCS) and nuclear energy with the aim of reducing UK emissions, increasing energy security and stimulating economic growth.

Perhaps the most important - and socially progressive - measure announced was ending the charging of higher electricity and gas rates to those on prepayment meters. This brings the rates payable by what are generally lower income and more vulnerable households in line with what most pay via direct debit. Combined with other targeted cost-of-living payments, this is a crucial step in reducing the regressive impacts of current energy price and inflation pressures. In terms of more transitory and more broadly focussed measures, the freezing of the cap on rates faced by all households under the Energy Price Guarantee to the end of June is also welcome, and, combined with the further freezing of fuel duty to March 24, will provide crucial help with current cost-of-living pressures.   

However, beyond the continued fuel duty freeze, this Budget doesn’t offer additional short-term relief for businesses, which is already reducing through the pre-announced replacement of the effective cap through the Energy Bills Relief Scheme with the Energy Bills Discount Scheme, which will run from 1 April 2023 to 31 March 2024. Crucially, it is what persistently high energy prices do to the prices of all the contents of consumers’ ‘basket of goods’ that are slowing the reduction of inflation this year, alongside continued risk that businesses will fold, putting jobs and the real incomes of many households at risk. 

Of course, the (also previously announced) new British Industry Supercharger scheme will be important going forward, in attempting to ensure that more energy- and export-intensive industries remain internationally competitive. However, delivery mechanisms and timelines for implementation of the British Industry Supercharger scheme are yet to be finalised, support will not begin until spring 2024, and it is, of course, only aimed at a subset of firms across the UK.

Nonetheless, such actions are important foundations for delivering sustainable ‘green growth’, as is securing a stronger domestic energy supply. Here, the reclassification of nuclear to enable similar incentives for investment as available for renewables, and the introduction of a competition for small modular reactor projects, are important new announcements. However, this Budget – where the Chancellor stated the main focus is growth – had limited focus on exploiting green growth opportunities. Here, there have been calls from UK businesses for UK Government to go further in support to business around incentivising green technologies and industries, particularly in the face of the US Inflation Reduction Action, which commits nearly $400bn of spending on climate and energy and could draw activity away from the UK.

The Budget does go some way to addressing this challenge through announcements such as the creation of 12 investment zones, tax relief for businesses on energy efficiency measures through the Climate Change Agreement scheme, and £20bn investment in carbon capture technology to reduce emissions (which our own research has demonstrated could bring real economic benefits to the UK).

Yet questions remain as to whether this will be enough, with key decisions on the development and deployment of potentially important solutions such as hydrogen and the associated infrastructure requirements outstanding. As highlighted in the Skidmore Review, concrete detail and strategic thinking is required from Government to enable businesses to plan with greater certainty around the transition to Net Zero. This is in order for businesses to capitalise on the opportunities available in an increasingly competitive global ‘race to green’ and contribute to what the Chancellor called ‘prosperity with purpose’ for the UK.

Professor Karen Turner, Director, Centre for Energy Policy said:

“A significant number of households and businesses continue to struggle with energy bills. Thus, further measures to alleviate those pressures are welcome, particularly the announcement on ending the charging of premium rates to those on prepayment meters, which is a long overdue socially progressive change to energy pricing in the UK.”

“However, the impact on continued cost-of-living pressures this year will be limited by reduced support for the business that supply the wider set of goods and households that make up the ‘consumption baskets’ of all households, particularly those on lower incomes, whose baskets are heavily weighted towards things like food, which use a lot of energy in their production.”

“Looking forward, while important announcements were made on delivering a cleaner and more secure domestic energy supply through new initiatives and support for nuclear and carbon capture and storage, it would also appear that Government has not yet fully grasped crucial and timely chances to take advantage of the opportunities, as well as mitigate the risks, of transitioning to Net Zero in an increasingly competitive global environment.”

Image Credit: HM Treasury, flickr.comCC BY-NC 2.0