UK chancellor Rachel Reeves will reveal the Autumn Budget tomorrow (30 October), the first set by a Labour government in over a decade. The government’s track record since coming to power in July this year suggests that the budget will have positive implications for the renewable energy industry.
Some of the government’s plans have already been revealed: on 29 July, Reeves announced that the Energy Profits Levy (EPL) would increase from 35% to 38%, bringing the rate of tax on upstream oil and gas to 78%. The 29% investment allowance will be removed from 1 November this year, but the 80% decarbonisation investment allowance will be maintained.
Current± heard from key industry stakeholders on how the government could best use the budget to support a fair and effective transition to net zero.
As touched upon by trade association Solar Energy UK in its submission to the government ahead of the budget announcement, adjustments to the Electricity Generators’ Levy (EGL) would further benefit the industry.
The EGL proposes a 45% tax on revenues over £75/MWh for inframarginal electricity generators. Introduced in the Autumn Statement in 2022, it was amended to exclude projects from October 2023.
However, including a similar relief for decarbonisation investment might benefit the generators that entered the market earlier, and some suggest that removing the EGL for all renewable electricity generators should be considered.
Scrapping the fuel duty freeze
A rumour publicised in media outlets, including the Guardian and the BBC, suggests that the budget announcement will raise fuel duty, bringing the cost of petrol vehicles in line with other forms of transport to encourage widespread transition to electric vehicles.
Planned hikes have been repeatedly abolished after pushback since about 2010; Carbon Brief’s 2023 analysis suggested that fuel duty freezes could have increased UK emissions by 7% since 2010.
The Association for Renewable Energy and Clean Technology (REA) told Current that it is pleased to hear the government is considering the change.
“REA members work tirelessly to reduce the emissions of vehicles at the tailpipe by providing high quality electric vehicle infrastructure, and renewable fuels blended into fuel at the pump. The road sector contributes the largest proportion of the UK’s transport emissions and so the Government must act now, increase fuel duty in the right way and incentivise the adoption of electric vehicles.”
It also calls on the UK government to deliver a strong duty differential to recognise the value of high renewable content fuels by lowering fuel duty for them. “This should incentivise fuel suppliers into quickly accelerating their fuel supply to as low greenhouse gas content as possible”, the group said.
Incentivising the transition to electric vehicles beyond raising the cost of alternatives will also be key. As Mike Hayes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), recently suggested, the automotive sector is “ready to build on its position as the UK’s largest exporter of manufactured products” and refocus its attention on electric vehicles.
“To do so, we need the necessary industrial and market conditions, and the forthcoming Budget and Industrial Strategy must put in place ambitious measures to bolster business confidence, attract investment and secure competitiveness.”
Where spending should be focused
Labour’s emphasis on the importance of investment to realise its infrastructure and green energy ambitions—the Labour manifesto committed to an additional £5bn of investment per year as part of a Green Prosperity Plan—means that where the spending portion of its budget goes is highly anticipated.
Trade union Energy UK’s submission to the government stated its belief that the first budget should focus on supply-side reforms in three major areas: economic growth, removing ‘blockers’ including planning and delivery of warm homes and a smart energy system.
Solar Energy UK’s submission echoes the need for investment in the planning system to support the rapid rollout of clean energy infrastructure.
Energy UK also pointed out that domestic energy debt desperately needs to be addressed, with current household energy debts at well over £3 billion, “a record high and unsustainable for the industry to carry”.
Although the energy transition will provide security against a repeat of the 2022 energy crisis, the effect of energy price hikes still affects households across the UK—something that several groups hope the budget seeks to amend.
A report by Cornwall Insight published at the end of September showed that between Q1 and Q2 2024, energy debt and arrears rose by 12%, from £3.31 billion to £3.7 billion. The £3.7 billion currently held in debt and arrears by UK energy consumers has increased by almost half since last year, with debt and arrears rising by 43% between Q2 2023 and Q2 2024.
Indeed, a report by the Energy Crisis Commission (ECC) found that, due to the nation’s high dependence on gas for power generation and home heating, the UK was particularly exposed to supply disruptions and price spikes on international markets, the impact of which was felt most significantly by households and businesses.
In the name of lowering household bills and to mitigate the fact that Labour has already set intentions to scrap the winter fuel allowance, another key focus for the industry is the electrification of domestic heating.
Mike Thornton, chair of not-for-profit organisation the Energy Savings Trust, which promotes energy efficiency and receives funding from the UK government and private sector, also raised retrofitting in his comment on the upcoming budget.
Focusing on low carbon heating, Thornton said: “In addition to the UK Government’s welcome decision to over-allocate Boiler Upgrade Scheme vouchers, there needs to be more clarity around the scheme’s future to ensure ongoing support for households making the switch in the long term.”
Domestic solar and innovative approaches
Matt Coates, business development director of Effective Home, a Doncaster-based domestic low-carbon tech installer, pointed out that the Labour government has promised a rooftop revolution: “In order to achieve this, the government now needs to put a structure in place to make this affordable for homeowners,” he says.
It was recently suggested that the Future Homes Standard, expected to mandate that all new-build properties would have to be built with solar arrays and heat pumps installed, would be watered down—a claim the Ministry for Housing, Communities and Local Government called “inaccurate”.
However, Effective Home calls for more robust and long-term government policies for an energy efficiency retrofitting programme on a national scale. According to Coates, the retrofit process is far from straightforward.
He adds: “The government needs to adopt a ‘whole house’ approach, where all aspects of the property’s energy performance are assessed and upgraded in tandem. By taking this comprehensive approach, homeowners can avoid costly mistakes and ensure they reap the full benefits of energy efficiency.”
For the Energy Systems Catapult, an independent research and technology organisation seeking to accelerate decarbonisation, Labour should be spending to help households with bills and reduce the cost of electricity, but it should also maintain a focus on innovation.
Speaking exclusively to Current±, Energy Systems Catapult CEO Guy Newey said: “It would be a missed opportunity if the Budget pared back this proactive approach to innovation investment. Our Innovating to Net Zero 2024 report highlighted how Net Zero by 2050 is still possible, but it requires a great commitment by all governments between now and then to invest in the UK’s energy innovators – from SMEs to larger companies. We can’t afford to take our foot off the pedal.”
