The announcement of the Labour government’s first budget, delivered by the first female chancellor of the UK, Rachel Reeves, has been met with tentative support from the clean energy industry.
CEO of energy storage firm Apatura, Giles Hanglin, said that, if properly implemented, the budget could be labelled the “greenest budget in UK history”.
Reeves confirmed that Energy Profits Levy (EPL), otherwise known as the windfall tax, will rise to 38%, with the scheme extended to March 2030. The 29% investment allowance will be removed, while the 100% first year allowance and the decarbonisation allowance will be maintained.
Energy tax partner at law firm PwC UK, Colin Smith, said the lack of change to the availability of capital allowances for EPL purposes was surprising given previous comments made by the government.
He continued: “While many in the industry may not be pleased with the rate increase, extension and removal of the investment allowance, there will be some relief that the government has listened to concerns about the detrimental impact on investment, jobs and tax take that removing tax deductions for EPL purposes would have had.”
Beth Walker, senior policy advisor on the oil and gas transition for thinktank E3G said: “The expanded windfall tax on oil and gas companies will increase investor confidence in the UK’s clean energy mission. The government has also made the right decision to remove investment allowances that are propping up a declining industry.
“The chancellor must now protect citizens by ensuring oil and gas companies, who have made record profits in recent years, pay the full decommissioning costs as production ends. This would save UK taxpayers billions.”
Green hydrogen and the North Sea transition
Funding for 11 new green hydrogen projects was also revealed, spread across industrial areas of England, Scotland and Wales. A further £134 million is allocated to support the development of port infrastructure to help facilitate floating offshore wind.
George Morrison, CEO of offshore energy engineering firm Aquaterra Energy, said the commitment to green hydrogen is a “promising nod toward the future of the UK energy sector” but that “with ongoing challenges from the effects of the profits levy, potential alone won’t cut it”.
He added: “The North Sea’s future relies on swift regulatory action, strategic infrastructure investment, and robust supply chain support, alongside targeted measures to advance electrolyser technology for green hydrogen at scale. Only with these in place can we bring these projects from paper to powerhouse.”
Shraiya Thapa, clean energy knowledge lead at national law firm Freeths, also touched on this, saying: “The budget also emphasises spending across the ‘length and breadth of the UK’, particularly in industrial heartlands which will be crucial for the supply chains and green jobs which are needed for clean power 2030. The government will no doubt be keen to embed links here between these investments and a just transition for oil and gas workers.”
Perhaps unsurprisingly, the North West Hydrogen Alliance was buoyed by the budget announcement. Interim chair of the group Dave Richardson, who is also decarbonisation solutions director at construction engineering company Costain, commented: “As an Alliance, we’re pleased to see such a strong commitment to the hydrogen and carbon capture sector, which will be essential in decarbonising key industries across the country—such as low-carbon refining, glass, and chemical manufacturing.
“This support not only helps to protect thousands of existing jobs but also attracts new businesses, moving Britain closer to becoming a clean energy superpower.”
Others have erred on the side of caution, noting the relatively new technology might not be the best focus for funding. Zoe Stollard, a partner at UK law firm Browne Jacobson, said: “Untrodden ground brings risk—the use of new and innovative technology used in the production of green hydrogen may create challenges in terms of financing and insurability of these projects.”
Electricity prices, grid connections go unmentioned
Commenters also suggested that while some of the announcements were welcome, some were repetitions of programmes that had already been mentioned. Indeed, the budget made no mention of electricity prices or the prospect of new grid connections.
Development director at energy provider Conrad Energy, Philip Silk, commented: “There are lots of welcome measures in today’s budget and it’s good to see that the government continue support for the development of green hydrogen.”
He noted, as did the deputy speaker of the house during the announcement in parliament, that “there was a fair amount of reiterating previous commitments”.
Silk continued: “Opening the cheque book for new projects is of course vital, but there is still the fundamental problem of how we connect these to the grid. It’s beyond the gift of the chancellor in the budget, but we need to ensure that the extra investment pledged today is matched by the promised reform of the planning system and the proposals to prioritise projects ready to start generating power. Otherwise, there is risk that we actually just invest in building a bigger logjam.”
Vicky Parker, power and utilities leader at PwC UK, suggested that the budget was, beyond funds that had already been announced, “light on specific funding announcements for the energy sector”.
“It cannot be emphasised enough that the large-scale programmes required to fundamentally change the UK’s energy system are acutely reliant on private capital being adequately incentivised and assured to deploy investment and in parallel, the public sector being able to move at the required pace.”
Senior policy advisor on UK industry for E3G, Laith Whitwham, pointed out the budget “does nothing to reduce reduce electricity prices despite the fact that half of industry will need to be electrified. To achieve clean growth, the Spring budget must lower power prices, or Britain risks falling behind countries that are acting to lower electricity prices for industry.”
Great British Energy gets first funds
The chancellor confirmed that Labour’s flagship state-owned energy company would have £125 million, out of the total £8.3 billion promised over the next five years, immediately available for GB Energy to set up in its recently announced headquarters of Aberdeen.
GB Energy aims to resolve the issue of high energy prices, a lack of finance and the need to renewable energy generation across the UK. For Thapa, the budget confirmed GB Energy and the Warm Homes Plan as “the first tangible steps in the government’s clean energy mission”.
She pointed out: “As public funds will be used to set up GB Energy, the government will need to clearly demonstrate to the everyday consumer good use of these funds and the connection between GB Energy and lower energy bills in the medium to long term.”
Pranav Menon, research associate at Aurora Energy Research, stated: “Looking ahead, given their wide remits to deliver project financing, invest in supply chains, and support project development, investments made by [GB Energy and the National Wealth Fund] face a high opportunity cost. Their key challenge will be identifying the areas to deploy capital that offer the best wider returns to the public, which has been a significant challenge in the past.”
For Parker, the government’s success in achieving its clean power ambitions for 2030 will be dependent on “the role that GB Energy and the National Wealth Fund ultimately play in attracting capital to help mobilise investment.”
Domestic decarbonisation
As the industry keenly awaits the official Future Homes Standard update, Yselkla Farmer, CEO of BEAMA, the UK trade association for energy infrastructure and systems said: “Reaffirming the £3.4bn Warm Homes Plan investment is positive but it is essential the government fleshes out the practical details of its approach with cost-effective, impactful measures such as on heating controls and improving indoor air quality to protect health.”
“Making big investment pledges sends a valuable political signal but the government urgently needs to grasp the nettle on trickier details that will drive decarbonisation in people’s lives and bring long term financial and quality of life benefits.”
CEO of solar heating innovator Naked Energy, Christophe Williams, said he felt net zero goals were not properly addressed in the budget.
“The Warm Homes Plan is a great scheme for the residential sector, but we need to be treating the commercial and industrial sector with the same amount of prominence. It’s baffling that we’re not seeing much policy on this front as its industry that demands the most heat but is the hardest to decarbonise.”
Similarly, Thomas Farquhar, co-founder of Liverpool-based low-carbon start-up Heatio, called the budget a “mixed bag” in terms of commitment to net zero.
He welcomed the ambition of the Warm Homes Plane but was disappointed that there was “nothing new” about low-carbon tech for British homes, noting the absence of the Clean Heat Market Mechanism, requiring manufacturers of heating appliances to meet annual targets for the proportion of heat pumps they sell, in the budget.
Farquhar added: “The lack of action or clarification on the Future Home Standards is also a missed opportunity. Continuing to build new homes without the basics required to combat climate change makes no sense.”
For Siobahn Miekle, VP for Northern Europe at commercial power management company Eaton, the government’s budget overlooked businesses in the energy transition.
“Commercial buildings devour a third of the nation’s power, yet the support to greening them remains unclear,” said Miekle. “Without clear market frameworks to unlock private investment in these vital technologies, our clean energy dreams risk remaining just that—dreams. The government has shown the destination; now it must build the bridge to get us there.”
A shock for the transport sector
Although Reeves said the government wants to support the electric vehicle (EV) industry and is maintaining existing incentives for EVs in company car tax, she failed to deliver on rumoured changes to fuel duty.
The Association for Renewable Energy and Clean Technology (REA) called the decision not to increase fuel duty – that Reeves herself said would cost £3 billion – “short-sighted”.
“Maintaining the status quo on fuel duties will hinder progress toward the UK’s climate goals and the wider adoption of cleaner technologies.”
More positively, while not mentioned by Reeves in her speech to Commons, the full budget document confirmed that the government will invest over £200 million in 2025-2026 to accelerate the rollout of EV chargepoints, while also providing £120 million over this time period to support the purchase of new electric vans and support the manufacture of wheelchair accessible EVs.
