With difficult choices over taxes and public spending, the best most Chancellors can hope for is a mixed response to their financial statements. This week’s Autumn Statement is no exception. There were some high points when it comes to the environment, including a re-commitment to cut emissions by 68% by 2030 and reach net zero by 2050, but some low points too in proposed taxes for electric vehicles and renewable energy firms. Here are the three key takeaways.
First, we’ll start with the good news - energy efficiency. Cutting energy waste is one of the best ways to lower bills. Keeping more heat in our homes and offices by improving energy efficiency measures, like insulation, will stop money from going straight out the window.
The Chancellor introduced an energy demand reduction target of 15% by 2030, backed up by a commitment of £6 billion in the next Parliament on top of the current £6.6 billion. The establishment of an Energy Efficiency Taskforce will also help funnel public and private investment into new and existing schemes.
Insulation is extremely popular with the public, with 84% of the public backing it to reduce reliance on volatile gas markets. To ramp up improvements on an economy-wide scale, the government should look further into financing mechanisms like energy-saving stamp duty, green mortgages and low-cost loans linked to the property.
Next, windfall taxes. In a move that will raise £14 billion next year, the government will introduce a temporary tax on electricity generators’ profits. This will largely target renewable energy companies. From the first of January 2023, their profits will be taxed at 45%. At the same time, the tax on oil and gas profits will increase from 25% to 35%. Asides from the rates difference, the electricity generators’ tax does not include an allowance for investment, as the oil and gas sector enjoys.
Given the importance of switching away from gas markets, which we’ve seen weaponised by Vladimir Putin, and towards homegrown renewable energy, the government should be incentivising investment in British renewable energy. Renewables offer energy security, lower bills, and are essential to achieve net zero.
It is understandable that the government has introduced this temporary tax, especially in the current economic situation and cost of living crisis, but a generous investment allowance for electricity generators should also be introduced.
The third key climate takeaway from the statement is on electric vehicles (EVs). Currently, EVs don’t pay any road tax and they are of course exempt from fuel duty as they use neither petrol or diesel. This is one of several incentives the government has introduced over the last few years, which has seen uptake of EVs in the UK grow massively - 14% of all new car sales are now electric.
So it’s not a huge surprise that the Chancellor announced that road tax will be applied to EVs from 2025. The part that has ruffled some feathers is the rate at which it will be introduced. After the first year, EVs owners will pay £165 - the same amount as the most polluting petrol and diesel cars and more than the majority of current drivers pay.
Because EVs are still more expensive upfront than petrol and diesel cars, this could slow down the EV transition’s momentum, especially if the government doesn't confirm their current commitments like the zero emission vehicle mandate. Between now and 2025, the government should do a broader review of motoring taxes to design a fair replacement to fuel duty and road tax.
The Autumn Statement renewed the government’s environmental commitments, but the Chancellor shouldn’t take the progress we’ve made so far for granted. Mixed signals from this budget may slow down private investment, so net zero needs to stay front and centre of this government’s priorities.
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