New taxes and bonds to showcase Rishi Sunak’s green agenda in 2021 budget
Offshore wind funding, sovereign green bonds and online delivery tax on the cards, but critics demand more action
From developing offshore wind projects to boosting biomass energy crops, unveiling sovereign environment-friendly bonds and an online delivery tax, British finance minister Rishi Sunak will embark on a green agenda in his budget on Wednesday.
Expected climate change initiatives include the funding of three green programmes through the government’s £1 billion ($1.39bn) Net Zero Innovation Portfolio, with a £70 million competition to develop long-duration energy storage prototypes.
There will also be £20m to develop offshore wind demonstration projects to support the government's bid to generate enough electricity from offshore wind to power every home by 2030 and a further £4m to fund a biomass feed stocks programme to identify ways to increase production of green energy crops and forest products in a decarbonisation boost.
In addition, there is talk of an online delivery levy that would tax online businesses based on deliveries, a move that might encourage companies to group packages together to reduce the tax burden and in turn reduce emissions.
While Mr Sunak’s budget will certainly have a green tinge to it, his focus will undoubtedly point towards two bigger priorities: delivering more financial aid to Covid-stricken businesses and individuals, and taking steps to address the country’s huge debt mountain.
However, the UK’s dire economic state has not prevented campaign groups pressurising Mr Sunak to address green reform, particularly as Britain will host the key United Nations Cop26 environmental summit in November, in Glasgow.
On Tuesday, UK think tank Policy Exchange said the UK must lead on green financial reforms through its presidencies of the Group of Seven countries and Cop26.
Policy Exchange’s new report Capital Shift made 12 recommendations the UK should champion with co-author Ben Caldecott, director of the University of Oxford’s Sustainable Finance Programme, calling for finance to become “transition finance”, where financial products and services actually help companies to achieve alignment with climate and environmental goals.
“There are a number of steps the UK can take to make this happen. This would be a major UK contribution to tackling global environmental crises, as well as a massive opportunity for the City of London, for example through new markets in sustainability-linked loans and bonds.”
Separately, the British parliament’s Environmental Audit Committee said Mr Sunak should use the budget to make progress on a government promise to reduce net carbon emissions to zero by 2050.
“The government has a golden opportunity from Cop26 to be able to start showing some international leadership on these issues,” said Philip Dunne, Conservative chair of the committee.
It's unlikely that green taxes will help address the financial black hole though. A mooted increase to fuel duty of £0.50 – the first in almost a decade – has reportedly been shelved as analysts warn Mr Sunak that focusing on fiscal consolidation too early will stifle the economy's recovery.
Mr Sunak is not ignoring the green agenda though. He will unveil the world’s first sovereign green bonds for retail investors on Wednesday as part of its push to create a net-zero-carbon economy by 2050.
It will mean British savers can buy bonds from NS&I, the Treasury backed savings organisation, knowing that their money will fund projects in areas such as renewable energy and clean transportation.
Mr Sunak also committed to the launch of so-called green gilts, aimed at institutional investors, as part of his borrowing plans for the 2020/21 financial year, as well the projects he plans to fund from the £1bn Net Zero Innovation Portfolio.
Separately, Mr Sunak will use the budget to pledge £22bn for the UK’s new infrastructure bank, set to launch in the spring.
First unveiled as part of November’s spending review, the bank will offer a range of products, including equity, loans and guarantees, which can be tailored to support the needs of private sector infrastructure projects, in areas such as renewable energy, carbon capture and storage and transportation.
All these moves help to show the UK is investing in a green future ahead of Cop26 in line with Prime Minister Boris Johnson's £12bn 10-point plan for a “green industrial revolution”, which included the ban of new petrol and diesel cars from 2030.
While the plan included further investment in nuclear power, wind energy, hydrogen and carbon capture and storage, critics said it was not ambitious enough to meet Britain’s target to cut greenhouse gases to net zero by 2050.
With no fuel duty rise expected at Wednesday’s budget and household energy bills benefitting from a reduced value-added tax rate for some time, Mr Sunak may attract criticism for not going far enough to address carbon taxes.
Last month’s report from the Environmental Audit Committee urged Mr Sunak to lower the 20 per cent rate of VAT on domestic energy efficiency projects and increase incentives to buy electric cars.
The finance ministry should also start “scoping” work on new taxes on carbon emissions and aim to have concrete proposals ready before the end of the year, Mr Dunne said.
Green taxes generally fall under the umbrella of behaviour changing taxes, which over the long term are designed to alter consumer behaviour rather than focus on bringing in revenue.
This could deter Mr Sunak from focusing on a comprehensive economy-wide carbon tax, as it will do little to help him balance the books.
“There will be many industry groups, think tanks and politicians in the next hours and day looking for special favours for particular industries," Duncan Simpson from the Taxpayers' Alliance said in a Centre for Policy Studies webinar.
“The viable way for [Mr Sunak’s taxation policy] is to make it as broad brush as possible to incorporate as many industries as possible and not to give in to any particular industries.”
Mr Sunak’s reticence to scale up green taxes falls in line with a reluctance to go heavy on taxes in general, as his focus will still be very much on boosting recovery, similar to the strategy of Bank of England governor Andrew Bailey at the start of the pandemic.
Last year, environmental groups criticised the BoE for including bonds issued by energy companies and other businesses with significant greenhouse gas emissions in asset purchase programmes designed to support the economy.
Mr Bailey responded by saying it was the “right response in the face of such an emergency and in all conscience it was not right to say to people that they would be denied a livelihood because their employment was of the wrong sort for the climate”.
However, he stressed the BoE has not abandoned its commitment to tackle climate change.
This was reflected last month when Mr Sunak and Mr Bailey pressed fellow G7 members to tackle the global fallout from the coronavirus pandemic in an online conference.
Britain took on the rotating G7 presidency in January, with the UK urging action on climate change and digital taxation, as it outlined its priorities for the elite economic body.
Mr Sunak urged his counterparts "to make climate and nature considerations a central part of all economic and financial decision-making in 2021".
How much the budget will back this up remains to be seen, but action is needed to support his rhetoric, say campaign groups.
Last month, the Confederation of British Industry said the government should deliver seven more gigafactories by 2040 and review its fuel duty taxation to help drive the shift to zero-emission vehicles.
This was backed up by the Society of Motor Manufacturers and Traders last week, which hopes Mr Sunak's budget will create conditions to attract battery gigafactory investment, as UK production of battery electric, plug-in hybrid and hybrid vehicles rose by 18.9 per cent in January.
“The government should use the upcoming budget to speed ahead to low carbon: to accelerate investment in low-carbon infrastructure through fundamental business rates reform to promote energy efficiency,” said Rain Newton-Smith, the CBI's chief economist.
Updated: March 12, 2021 02:56 PM