Chancellor George Osborne has been accused of hypocrisy for giving the oil and gas sector tax breaks while overlooking renewables in a budget he billed as putting the next generation first.
In his budget speech, Osborne called the oil and gas industry ‘one of the most important and valued in the UK’. He announced that the supplementary charge on oil and gas would be halved to 10%, while the petroleum revenue tax would be abolished. Both measuress would be backdated to 1 January 2016, which he said would support the industry in an era of low prices.
‘The reduction of the supplementary charge may allow operators to take a second look at projects which, until now, were looking uneconomic,’ according to Richard Cockburn, energy partner at law firm Bond Dickinson.
Green Party MP Caroline Lucas called the tax breaks for the oil and gas industry ‘myopic and dangerous’ and described the chancellor’s rhetoric that the budget put the next generation first as ‘sheer hypocrisy’. ‘This budget locks us into fossil fuel dependency and completely contradicts the prime minister’s call to action at the Paris climate talks,’ she said.
David Nussbaum, chief executive of WWF-UK, said: ‘The chancellor spoke at length about this being a budget for the next generation. But there are few greater threats to the security and prosperity of our children and grandchildren than climate change, something he singularly failed to address.’
The tax changes came despite a new commitment to a target of net zero emissions by the end of the century, after an amendment to the Energy Bill earlier this week championed by several environmental NGOs and put forward by Ed Miliband, was accepted by the government.
In his budget speech, Osborne announced £730m for the next auctions this parliament under the contract for difference (CfD), with a first sale worth £290m. This will fund up to 4GW of offshore wind and other less established renewables, according to the budget document. Support for offshore wind will be capped initially at £105/MWh (in 2011/12 prices), falling to £85/MWh for projects commissioned by 2026.
The government also pledged to implement the recommendations of the National Infrastructure Commission report on smart power, and allocated at least £50m over the next five years for innovation in energy storage, demand-side response and other smart technologies. Osborne said he wanted the UK to become a world leader on flexibility and smart technologies, including electricity storage.
Reaction from the renewables industry was mixed. Renewable UK said the budget would give the sector confidence to invest in up to 3.5GW of offshore wind.
The Renewable Energy Association (REA), however, expressed dismay that the removal of the supplementary charge for oil and gas industry amounted to a £1bn giveaway. Nina Skorupska, chief executive of the REA, said: ‘If the government is serious about its national and international commitments it needs to back up the empty rhetoric with real actions.’
Matthew Spencer, director of Green Alliance, said that the CfD funding amounted to less than 1GW a year for offshore wind in the 2020s, and that the lack of incentives for mature renewables would result in a big gap in power generation. ‘This is another example of the government being strong on climate targets, and weak on driving the necessary investment,’ he said.
The Solar Trade Association (STA) said it was relieved that there had been no mention of a planned VAT rise, from 5% to 20%, on domestic solar systems, which the government had threatened following an EU court ruling. The trade body said the Treasury had delayed a decision on the issue until the autumn, after the European Commission announced last week that it would reform the rules on VAT.
The solar sector would benefit from the government’s commitment to energy storage, but was still under considerable uncertainty over future rounds of the CfD for solar power, the STA added.
Nick Blyth, policy and engagement lead at IEMA, raised concerns about the long-term effectiveness of the government’s approach to the environment and sustainability. He said opportunities on environmental taxation had been missed, and even where applied might not be effective.
Referring to the chancellor’s decision to close the carbon reduction commitment scheme but raise the climate change levy to maintain revenue, Blyth said: ‘The impact and visibility of the increased climate change levy might be very low as the tax will be spread over such a wide number of businesses.’
David Symons, environmental director at WSP I Parsons Brinckerhoff said: ‘Once again, this budget shows it’s difficult to balance climate leadership, protect UK oil and gas jobs, and eliminate the deficit.’
Other energy and environment-related measures in the budget:
- Fuel duty – will be frozen for the sixth year in a row.
- Flood defence funding – insurance premium tax will be raised by 0.5% to 10% to pay for new flood defences.
- Carbon price support (CPS) rates – the government will continue to cap CPS rates at £18/tCO2 to 2019/20. For 2020/21, the cap will be maintained in real terms and set at £18/tCO2 plus RPI. The government will set out the long-term direction for CPS rates and the carbon price floor in this year’s autumn statement.
- Aggregates levy rate – this will remain frozen at £2 per tonne in 2016/17. The government will consult on introducing an exemption from the levy for utilities when laying pipes, which it plans to legislate for in the finance bill 2017.
- Landfill tax rates – the standard and lower rates will increase in line with RPI, rounded to the nearest 5 pence, from 1 April 2017 and again from 1 April 2018. The government will consult later this year on the definition of a taxable landfill disposal, with the intention of changing the definition in next year’s finance bill.
- Waste crime – additional funding will be made available over the next five years for HMRC to increase compliance across the waste supply chain and tackle waste crime.
- Landfill communities fund – as announced in the autumn statement, the fund is to be reformed. The scheme’s regulator, ENTRUST, will publish guidance shortly setting out the requirement for landfill operators to make a greater contribution to the fund from April 2016.
- Enhanced capital allowances (ECAs) – the list of designated energy saving and water-efficient technologies qualifying for an ECA will be updated during the summer.
- Packaging recycling targets – the government will legislate later in 2016 to reduce statutory plastic packaging recycling targets for 2016 and 2017. The government will also set new recycling targets for glass and plastic packaging for 2018, 2019 and 2020. For plastic, the existing target of 52% will be reduced to 49% for 2016 and then increased by 2% each year to 2020, to 57%. The target had been due to increase to 57% in 2017. For glass, the existing target of 77% will be maintained until 2017 and then increased by 1% each year to 2020, to 80%.
