Industry groups, charities and organisations have criticised Chancellor Rishi Sunak’s Spring Statement for failing to provide support for households amid the continually rising power prices.
Unveiled in the House of Commons yesterday (24 March), the mini-budget included a cut to VAT for energy efficiency measures that has been broadly welcomed by the sector. But beyond that, little new support was announced, despite the energy price cap being set to jump by 54% in a week’s time.
“Right now millions of people are paying through the nose to heat homes which are so poorly insulated the warmth shoots right outside,” said Dr Doug Parr, policy director at Greenpeace UK.
“If the chancellor’s serious about tackling the issue then it can only be the start. We need to see around £10bn of support, part raised by a windfall tax on oil and gas companies, for delivering the help families need to install the clean technologies that will get us off gas.”
The call for a windfall tax of North Sea oil and gas companies have been echoed by a number of groups in recent months. In February, bp announced that its profits had soared by £9.5 billion in 2021, while Shell’s adjusted earnings jumped by 298%, from £3.6 billion in 2020 to £14.2 billion, due to rising gas prices over the year.
Some of the most vocal proponents of the tax include the Labour Party, with Shadow Chancellor Rachel Reeves pointing to the Conservative Party’s failure to introduce the windfall measure in her speech in the Commons following Sunak’s, in which she branded measures taken in the Spring Statement as "wholly inadequate".
This was a feeling echoed by many in the energy sector, with a sense of disappointment that it failed to provide additional measures to tackle the current challenging market conditions.
In particular, the Russian invasion of Ukraine has led to energy prices becoming increasingly volatile over the last month. Prime Minister Boris Johnson is expected to release an Energy Security Strategy in the next week in response to this volatility, as analysts predict it could lead to the price cap hitting £3,000 in October.
“The Chancellor seemed to defer to the forthcoming Energy Security Strategy, which is due to be published imminently. It is vital that this supports businesses to help them invest in measures to become more energy resilient and energy efficient to help counter the rise in prices caused by the highly volatile wholesale markets,” Anthony Ainsworth, COO at npower Business Solutions said.
“Addressing the current cost of living crisis was undoubtedly the main focus for this Spring Statement. We just hope there is more to come for businesses in the coming weeks to help them become more resilient, while also supporting our long-term net zero goal.”
In 2021, 27 energy suppliers shuttered as they were squeezed between rising gas and wholesale power prices and the price cap. Additionally, Bulb went into special administration, a move that according to the Spring Statement is expected to cost £1,005 million over 2022/23.
VAT cut for energy efficiency measures welcomed
However, despite criticism for the lack of direct, short-term support for consumers or industry, the Chancellor’s move to cut VAT on energy efficiency measures including solar panels and heat pumps was warmly welcomed by the energy sector.
“We, in concert with others in the sector, have long argued that the tax regime in the UK has favoured the burning of fossil fuels, so this is a particularly welcome measure. We also understand that all materials and services are included. This level of simplicity is essential for the installer community, many of which are micro-businesses that struggle with overly complex tax rules,” said Bean Beanland, the Heat Pump Federation’s director of growth and external affairs.
“Setting the intervention for five years gives future visibility which will encourage investment in both skills and capacity, by the whole sector in the UK. When taken in conjunction with the new Boiler Upgrade Scheme, which also starts on 1st April, domestic scale heat pumps are going to be that much more affordable for both homeowners and landlords.”
More could still be done to incentivise the switch to decarbonised heating, continued Beanland. He pointed to the operational costs of running a heat pump, calling for the rebalancing of taxation on electricity and gas to reflect emissions.
Best of the rest: business rates cuts brought forwards
Beyond these core aspects, there was a boost for some green energy technologies including solar power, in the move of business rates cuts forwards by a year. This was initially announced in the last Budget in October 2021, but instead of the initial April 2023 date will be brought forwards to next year.
“Policies including VAT being removed from wind and water turbines, the bringing forwards of green reliefs for business rates, as well as 100% relief for eligible low-carbon heat networks, are hopefully symbolic of the direction of thinking on net zero,” said Robert Buckley, head of relationship development at Cornwall Insight.
“We await the government’s energy security strategy, which we hope will work to ensure a secure energy supply, improve market efficiency and provide a mechanism to deliver net zero. The strategy needs to reinstate energy stability in the UK and reassure households and businesses that energy policy is working for them. The government must not underestimate its importance.”
As well as the criticism of a lack of immediate support – with Sunak pointing to the measures introduced in February including a one-off repayable £200 loan, a £150 council tax rebate and a discretionary fund to help households manage the increase over the summer – the support for internal combustion engine (ICE) vehicles through a reduction in fuel duty was criticised.
Given the push to reach net zero in the UK – an ambition that was mentioned just once in the Spring Statement – this was seen as short-sighted by some in the energy sector.
Tim Evans, CEO of solar company 3ti for example, said the Chancellor had his “eyes in the rear view mirror”.
“Cutting fuel duty will save drivers a couple of pounds when they fill up - that’s a short-term fix. More support to encourage the transition to electric vehicles and renewable, sustainable, zero carbon electricity to charge them, would be a far better long-term solution.
“Even with a 5% fuel duty cut, the cost per mile in a petrol or diesel car is double that of solar powered EV charged car with renewable energy. We’d urge the Government to consider looking to a more renewable future, to help with today’s cost of living crisis and climate emergency.”
Overall, the Spring Statement provided little forward momentum for the energy sector, with hopes still fixed on the Johnson’s Energy Security Strategy.
“It was good to see measures like cutting business rates for green technologies installed on buildings, reducing VAT on turbines, early business rate relief for heat networks and support for research and development and capital investment - important for a sector that will be investing billions of pounds to help deliver Net Zero, which ultimately is the solution to this gas crisis,” said Energy UK CEO Emma Pinchbeck.
“We hope the Energy Security Strategy will accelerate plans to reduce demand for gas and expand sources of clean energy – and crucially help more businesses and households access green technologies.”