Wednesday, March 23, 2011

Osborne's pale green budget offers crumbs to the green sector

Chancellor George Osborne's first budget was billed as a “budget for growth", but the green shoots of recovery could have been stimulated to rise much faster. It offers crumbs to the green sector while doing nothing to tax pollution or wean the UK off oil.

Budget 2011 contains limited measures for funding investment in green technology, and for meeting the skills and enterprise gap perceived in not just the green sector but other sectors necessary to help Britain compete in a global economy.

These general measures include 21 new enterprise zones, new export credits, a technology and innovation centre, nine new university centres, doubling the number of university technical colleges to 24, an increase in work experience schemes and apprenticeships, as well as £100m of investment in new science facilities, income tax relief on enterprise investment schemes rising from 20% to 30%, and an increase in small companies' research and development tax credit to 200% in April and 225% in 2012.

On to the specific environmental measures.

Planning reform

In planning, there will be a new presumption in favour of sustainable development, so that the default answer to development is ‘yes’ to planning applications, although what this means in practice is yet to be defined.

Planning decisions will be localised about the use of previously developed land, removing nationally imposed targets while retaining existing controls on greenbelt land.

Surplus military land will be auctioned off for housing. This means that 20,000 new low carbon homes should be built by 2015, the budget says.

Mr Osborne announced a 12 month limit on considering planning applications, including appeals, as part otherwise yet-to-be-specified measures to “streamline the planning applications and related consents regimes removing bureaucracy from the system and speeding it up”. It's unsure what this means for local accountability.

Green Investment Bank

The Green Investment Bank is to operate from 2012-13. The UK devoted just £12.6bn towards green investment in 2009-10 according to an independent report from the Public Interest Research Centre (PIRC), released yesterday.

This is half the minimum of £20bn that must be invested in each of the next ten years, according to the Treasury, and is less than 1% of UK GDP - or less than what Britain spends on furniture each year.

This is why it is welcome that the Chancellor George Osborne announced £3 billion rather than the £1 billion previously announced to set up the Bank, with £2 billion to be funded from the sale of assets, which includes £775 million net proceeds already received from the sale of High Speed I.

Mr Osborne said that the Bank would “support low-carbon investment where the returns are too long-term or too risky for the market”.

However, he resisted calls that the bank be allowed to borrow and lend with immediate effect, saying instead that it will have to wait until 2016 to do so.

Andrew Raingold, executive director of the Aldersgate Group, was amongst critics of this, saying: "We welcome the additional finance for the Green Investment Bank but it must have the power to borrow from day one. This would put the bank at the heart of Chancellor's plan for growth and not wait until the UK is overtaken in key green industries by competitors."

Mr Osborne did argue that the £3 billion will allow a further £15bn to be raised privately for investment in green infrastructure by 2014-15.

Carbon price floor

Besides the GIB, the Government is to introduce a carbon price floor for electricity generation from 1 April 2013.

This will start at around £16 per tonne of carbon dioxide and follow a linear path to £30 per tonne in 2020 to drive investment in the low-carbon power sector. The Treasury says that the carbon price support rates for 2013-14 will be equivalent to £4.94 per tonne of carbon dioxide.

It means that signatories to the Emissions Trading Scheme (ETS) will make up the difference between the actual price of carbon permits under the ETS and the agreed floor price. It expects to raise £740 million in the first year, rising to £1.07bn in the second year and £1.4 billion in the third year.

Friends of the Earth complained that the floor price is too low to make much difference (it is currently only £1.30 less than that) and will provide a "windfall for existing nuclear power".

Meanwhile, income from the Climate Change Levy is projected to increase from £0.7 billion now to £2 billion in 2015-16.

Other environmental taxes

Reform to the Climate Change Agreements, which rewards businesses for energy efficiency, will cost the Treasury £140 million in 2013-16. These tax discounts will stay at 80% not reduce to 65% in 2013 as previously proposed, and the scheme will continue till 2023.

Adjustments to company car tax rates from 2013-14 are expected to bring in to the Treasury over the following three years an additional £390 million. A slight change to the Climate Change Levy exemptions in Northern Ireland will bring in an additional £15 million in the same period.

Negatively for the environment, the Aggregates Levy, which is intended to cut landfill from construction, is having its rate increase postponed this year, at a total cost to the Treasury of £90 million, but it will continue until 2021.

Similarly, the proposed increase in air passenger duty is to be deferred and this will cost the Treasury £145 million. However, wealthy owners of private jets will have to pay fuel duty for the first time.

The fuel duty escalator is also being cancelled, as long as oil prices remain high, and fuel duty is to be cut by 1p. Friends of the Earth wondered what this means for David Cameron's recent promise to "wean the UK off oil". Interestingly, the Treasury is predicting that oil prices will come down from today's highs of £69.3 per barrel to £66.2 in 2015-16.

As previously announced, there will be an increase in the standard rate of landfill tax by £8 per tonne to £56 per tonne on April 1 2011 and to £64 per tonne on 1 April 2012 but the lower rate of landfill tax will be frozen at £2.50 per tonne in 2012-13. The value of the Landfill Communities Fund will rise in line with inflation in 2011-12 to £78.1 million.

The proportion of the landfill tax liability paid by landfill operators into it will remain the same. Future decisions on the value of the fund will take into account the success of environmental bodies in reducing the level of unspent funds that they hold.

Despite previous promises to tax pollution more, there were no new initiatives here.

Carbon capture and storage

As predicted yesterday, carbon capture and storage is to get £1bn but there will be no special levy to support this technology, and any additional support will be funded from general spending.

Although Osbourne says that the government remains committed to providing public funding for four Carbon Capture and Storage (CCS) demonstration plants, there are concerns over whether the necessary development of this technology, seen as being crucial to reducing carbon emissions from existing and new fossil fuel plants, will go ahead on schedule.

Water shortages

To address the issue of water shortages, The Government is to consult shortly on making reforms to the existing WaterSure scheme, the approach to company social tariffs and options for additional government spending to provide further support for water affordability.

The Budget 2011 documents are available on the Treasury website.

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