Will this be a Green Budget?

  • Tim Evershed
  • 21 October 2021 15:57

There is now less than a week until the Autumn Budget and in the aftermath of the government beginning to unveil its strategy to put the UK on the path to net zero by 2050, many are asking – will this be a Green Budget?

The government’s Heat and Buildings Strategy grabbed headlines for the grants being made available for heat pumps, but it raised a number of other questions. Will Chancellor Rishi Sunak start providing the answers in his Budget on 27 October?

Heat pump grants

Homeowners in England and Wales will be offered subsidies of £5,000 from next April to help them to replace old gas boilers with low carbon heat pumps, as part of the government’s Heat and Buildings Strategy.

The grants are part of the government's £3.9 billion plan to reduce carbon emissions caused by heating homes and other buildings. It is hoped no new gas boilers will be sold after 2035. The funding also aims to make social housing and public buildings more energy efficient.

However, experts have stated that the budget is too low and the strategy not ambitious enough. Ministers say the subsidises will make heat pumps a comparable price to a new gas boiler, but the £450 million being allocated for the subsidies over three years will cover a maximum of just 90,000 pumps.

Net zero

The government plans to reduce greenhouse gas emissions to reach a target of net zero by 2050.

Achieving net zero means the UK will no longer be adding to the total amount of greenhouse gases in the atmosphere. Without action on climate change, the world faces a hotter planet, rising sea levels and more extreme weather.

Eroding tax revenues

The Treasury said hitting the target would put pressure on public spending with the largest impact coming from ‘the erosion of tax revenues from fossil fuel-related activity’. It says that £37 billion was raised through fuel duty and vehicle excise duty last year. Consequently, the transition to electric vehicles could create a temporary tax vacuum by the 2040s, meaning new revenue-raising measures would be needed. Will Mr Sunak start looking for these alternatives next week or will he leave that to a future Chancellor?

Pressure to cut

However, the Chancellor is also coming under pressure to make a number of cuts to the exiting tax regime. In order to maintain the competitiveness of the City of London after Brexit, Mr Sunak is reportedly looking at slashing the corporation tax surcharge imposed on the banking industry by more than 60%, taking the levy from its current level of 8% to just 3% from April 2023.

In addition, as consumers face soaring energy bills this winter, the Chancellor is allegedly considering cutting VAT on household energy bills to alleviate the pressure on householders.

Balancing act

All this means that the Chancellor will be treading a narrow path in his Autumn Budget, particularly if more green policies are to be unveiled. So, all eyes will be on the Chancellor on 27 October to see where taxes rise and fall.

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