Climate Advocates Ring Alarm After U.K. Budget Falls Short

(Bloomberg) -- In a year when the U.K. is hosting global climate talks and pressing others to adopt more ambitious goals, Chancellor of the Exchequer Rishi Sunak offered little in the way of fresh cash or ideas in his budget.

Environmental advocates were largely disappointed by the lack of spending announced on Wednesday. On Thursday, Exchequer Secretary Kemi Badenoch added to their concerns when she said a new 25 billion pound ($35 billion) tax benefit for companies that invest in the U.K. won't have green strings attached, potentially opening the door to new fossil fuel investments.

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Sunak's new “super deduction” will effectively pay companies to invest in the U.K. by reducing their taxable profits by 130%. When Badenoch was asked by lawmakers how she would ensure that didn't drive investment in carbon-intensive industries, she replied that there was no way to prevent that.

“What we're not going to do is to strangle our economic recovery with regulation that's not necessary when the government has already set out a big strategy and emphasized this priority for our transition to net zero,” she said. “What we are focused on right now is protecting jobs and livelihoods.”

Her comments were described as “deeply alarming” by Green Party lawmaker Caroline Lucas.

In his speech, Sunak said that net zero would become a key plank of government economic policy as he instructed the Bank of England to align its monetary policy toolkit with the government's target to eliminate greenhouse gas pollution by 2050.

The central bank has been criticized over its pandemic rescue program and last year it acknowledged that its corporate bond buying program is in line with 3.5 degrees Celsius of global warming -- far exceeding the temperature goals laid out in the Paris Agreement aimed at avoiding the worst effects of climate change.

Sunak also announced plans for new green retail bonds and a National Infrastructure Bank with 12 billion pounds ($16.8 billion) of capital. He mentioned a new taskforce that would seek to boost the market for voluntary carbon offsets.

Home Heating

Yet the budget didn't include new spending on a home insulation program that is seen as crucial to meeting climate goals. Last month, the government confirmed it was cutting funding for the Green Homes Grant, which helps homeowners switch to more environmentally friendly heating systems.

“Meeting the most ambitious climate change targets of any major economy will require more ambition,” said Emma Pinchbeck, chief executive of the trade body Energy U.K. “We need a concerted, cross-government approach,” she said, “particularly on how to make our buildings energy efficient and low carbon.”

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Sunak also canceled a planned increase of a tax on auto fuel for the 11th year in a row, in a bid to reduce costs for consumers. A decade of fixed gasoline duties has increased U.K. carbon dioxide emissions by as much as 5%, according to analysis by the website Carbon Brief.

The budget didn't address cutting the value-added tax on green products such as solar panels. Advocates including The Daily Express newspaper have called for the levy to be cut in order to deliver a “green Brexit” as the U.K. leaves the European Union.

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Climate Mandate

The most impact could come from changing the central bank's mandate. The BoE is set to be the first in the western world to incorporate climate into its monetary policy remit, according to Positive Money, a group that campaigned for the shift.

“The government's economic policy objective has changed. Last year, it was leveling up the regions, now it's leveling up and net zero, so that's significant overall,” said Nick Robins, professor of sustainable finance and the London School of Economics and Political Science.

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