The Autumn Budget & Comprehensive Spending Review 2021 - A Green Perspective

The Budget and CSR rolled out on 27 October developed the Governments fiscal strategy for the UKs recovery from the COVID-19 pandemic. It included the continuation of large spending commitments in aid of Levelling Up, science and innovation funding and some changes to taxation policy. 

Somewhat less emphatic was the budgets commitments to greening the economy, mitigating climate change and nature restoration. With these issues of importance to the public and already gaining traction in the form of tech sector initiatives its relevant to explore the budget from a green perspective. 

Innovation 

Innovation was a winner in the Autumn Budget. The Government has promised substantial funding for innovation, including: 

• An increase to Innovate UKs core funding, taking their yearly budget to £1bn per year 

• R&D tax relief qualifying expenditure scope is to be extended to include data and cloud computing costs 

• Commitment to full fund association to Horizon Europe 

• The set-up of a new Advanced Research and Invention Agency with £800m of support being given by 2025/6 to support high-risk, high-reward research 

• And a variety of other departmental investments in R&D. 

This spending will likely aid the green transition in the long term; however, the returns are unlikely to come to fruition in time to meet the immediate demands of Net Zero. Despite this, renewed commitment to innovation does mean the capacity to scale and test existing innovations in green tech.  

Infrastructure Spending 

The funding required to transform most sectors of the economy in line with the Governments Net Zero Strategy fell short this Spending Review. Public transport specifically is underfunded in pursuit of Net Zero. 

While we welcome the Chancellor’s announcement for £6.9bn boost to England’s public transport infrastructure, there is little new funding for smart infrastructure such as EV charge points, or to upgrade the cross-country (E-W, N-S) rail systems.  

Investment in smart infrastructure is recognised by techUK as being instrumental to the low carbon transition in transport. Levelling up also requires the provision of charging points in rural areas and areas with poor public transport links. This budget doesn’t set aside sufficient funding for this to happen.  

Investment in cross-country rail is a requirement for travellers to stop driving or taking domestic flights. Comprehensive, affordable, and low-emissions rail cover would set the foundation for a more equitable transport future, assuming that heavy curbs to high emissions transport options are coming down the road. This is poorly addressed in this year’s budget. 

This budget also misses the potential of green tech infrastructure jobs for delivering the economic rebound that is required following the pandemic. This is internally incongruous with the Government’s own plans set out in the Net Zero Review, and more so in the Heat & Buildings Strategy, which emphasised reskilling in the green tech sector to meet skills demand in the upgrading of domestic heating infrastructure and provide new green jobs. 

Taxation 

This budget offered a few important changes to taxation policy. Politically, the slashing of taxes on domestic flights has proven controversial and at odds with the conventions of coercive taxation, if the aim is to reduce transport emissions, that is.  

More important is the lack of commitment to a carbon tax, opting to continue with the Emissions Trading Scheme. This is likely due to the same reasons as for the lack of Fuel Duty increase, voters are economically squeezed as it is, and increasing tax pressure on them would be highly unpopular.  

Carbon pricing, if implemented fairly, would be a positive step in incentivising emissions reductions. It would be, by design, a declining revenue tax as polluters get their emissions under control and therefore pay less.  

If such a tax were to disproportionately impact those on lower incomes, it would be a failure. Rebates would address this issue; however, the Treasury prefers targeted grants for domestic emissions reduction (i.e., retrofitting households with low-carbon energy tech). This may be smart due to the heterogeneous costs of upgrades country wide. 

CCS & Hydrogen 

The Treasury has restated its focus on CCS (Carbon Capture & Storage) and Hydrogen tech in this year’s budget. CCS investment is crucial for emissions reductions in industries such as steel or glass production, where decarbonisation through process changes are many years away (exacerbated by the budgets failure on green steel).  

Alternative fuels such as Hydrogen and waste biomass are important to invest in, as there is consensus that the future of sustainable energy production will not be reliant on a single technology or fuel source.  

These investment choices, although necessary, appear to come at the detriment of energy efficiency investment in existing energy infrastructure. Efficiency gains are crucial to Net Zero goals but have not been given the funding or attention they are due. This may be addressed at COP26.  

The mode of investment is also an issue. Despite large up-front capital investment, there is little long-term support promised by the Government. When tasking the private sector with something as important as the decarbonisation of the economy, it makes sense for firms to be provided with additional funding to ensure that they stay afloat. This budget does not make any such funding promises, which may result in the failure of CCS and Hydrogen initiatives, particularly for industries with narrow profit margins.  

Conclusion 

This year’s budget is a mixed bag when it comes to Net Zero and the low carbon transition. Most of the promising announcements came a week earlier in the Green Finance Roadmap, Net Zero Strategy and Heat & Building Strategy.  

There is important funding committed to BEIS and DEFRA which will be instrumental in climate change adaptation, however the funding required for mitigation in other sectors, particularly transport, is lacking. Considering that UK Tech will be instrumental in the decarbonisation of crucial industries, such as transport and energy, this is a missed opportunity for the sector.  

COP26 is likely to bring more spending announcements in tandem with international consensus on climate change, however, the lack of firm commitments in this budget may undermine the Governments position at these talks.