Clean energy remains one of the Labour government’s defining ‘missions’ and held an important place in their packed Budget, even if not as prominent in media attention as the big-ticket tax and spending measures.
The announcements on energy reveal a government committed to the agenda, and on the whole a Chancellor willing to put money towards it. That said, some potential areas of concern remain hidden in the fine print, and advocates in this space within and outside the Labour party might not want to count their renewable chickens before they hatch.
On the spending side, energy benefited from the Chancellor’s much needed pivot to public investment. The Department for Energy Security and Net Zero secured the biggest boost to its capital spending in the next two financial years of any department, and an average 22% annual increase in its overall spending limit.
This suggests Ed Miliband retains a constructive position within the Cabinet, and perhaps less Treasury resistance to his agenda as might have been feared. For example, the settlement includes £3.4bn towards the Warm Homes Plan – which seeks to boost energy efficiency across millions of homes and which Ed Miliband made the core of his party conference speech – as well as significant funding boosts to existing schemes for public sector decarbonisation and the replacement of gas boilers with heat pumps.
The Chancellor also confirmed £25 million for Great British Energy —a new publicly owned energy company and a flagship Labour election policy — to be set up in its chosen home of Aberdeen and £100m for project deployment in 2025 to 2026. The sums for GB Energy are so far very small, understandable given the institutions nascent state, with further capitalisation likely at next year’s longer term Spending Review.
There were also confirmations of funding for the construction costs of the UK’s first batch of carbon capture and hydrogen projects, a confirmation of the first additional capital injection into the National Wealth Fund, and up to £2.7bn for the further development of the Sizewell C nuclear plant.
Quality of investment will matter as much as quantity
The qualitative nature of investment, and the ownership patterns it embeds, will matter as much as its overall quantity. For building decarbonisation schemes it’s vital that new funds come with an effective delivery plan – learning from botched attempts by the previous government — and a robust form of public and community engagement, with a critical role for local authorities.
For GB Energy it is critical that the institution lives up to the promises made for it, including helping delivering the 2030 Clean Power target, and lowering bills; polling commissioned by Common Wealth showed 67% of Labour voters and 77% of Labour MPs agree GB Energy must reduce bills to be a success.
At Common Wealth we have argued for maximum ambition for GB Energy, meaning it owns and operates projects and invests for the public good not just profit. There are some grounds for caution here, with new Treasury rules flagged by Reeves in the speech emphasising the need for returns on public financial investments by GB Energy, the National Wealth Fund and other institutions, which could be a constraint if not applied sensibly and accompanied with more open economic thinking. The Local Power Plan portion of GB Energy – through which ministers have promised to catalyse local community energy across the country – also doesn’t seem to have got a mention, meaning this will be a key area to look out for in the coming months.
‘Freezing fuel duty a disappointment to net zero ambition’
Beyond public investment, the Budget was a mixed bag for net zero. The Chancellor made good on the promise to increase the rate of the windfall tax on oil and gas companies, and the Government confirmed the timing and scope of the new Carbon Border Adjustment Mechanism, which puts a price on carbon emissions embedded in some imported goods.
One major disappointment has to be the Groundhog Day approach to continually freezing fuel duty, which comes at significant cost to both the public finances and emissions. That decisions suggests short term and narrow-minded political worries still can win out even within a government committed to net zero. And where there were positive steps, many of the important tax and regulatory changes needed for the transition are hidden away deep in long Government PDFs, which limits much-needed public dialogue.
Overall, the energy package in the Budget is promising and a definite signal of intent. There is still much to play for though, and with the Conservatives and Reform seeking to engineer a backlash to net zero, it is vital that Labour stays the course, increasing ambition to ensure energy is core to the promised decade of national renewal.
Read more of our Budget 2024 coverage:
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