Budget 2021: Sunak backs skills and innovation in speech light on fresh net zero pledges
Chancellor hails net zero as ‘innovation strategy’ but is criticised for cutting air passenger duty just days before COP26
The Chancellor Rishi Sunak declared a “new age of optimism” as he pledged to invest in infrastructure, innovation and skills in the wake of the Covid-19 pandemic, in a Budget speech today that was otherwise notable by its relative scarcity of support for the UK’s net zero transition.
While he warned of “challenging months ahead” due to Covid-19, he argued today’s Budget “does begin the work of preparing for a new economy post-Covid”, characterised by higher wages, higher skills and rising productivity.
Sunak hailed an improvement in growth forecasts for the UK that would allow the Treasury to increase total departmental spending by £150bn over the current Parliament, and to once again return the UK to spending 0.7 per cent of its GDP on overseas aid by 2024-45, in a potential boost for next week’s COP26 negotiations.
The Budget documents themselves set out parcels of additional funding in some areas, including £1.7bn direct funding during the current Parliament for a new large-scale nuclear power project – most likely EDF’s Sizewell C in Essex – while also confirming £3.9bn for energy efficiency improvements in buildings, including for homes and the public sector.
But coming just a week after the government’s Net Zero Strategy – which brought together £26bn in capital investment – and only days ahead of COP26, Sunak delivered a speech that was surprisingly light on green policy or rhetoric, with the Chancellor failing to mention ‘climate’ directly, and only referencing net zero around 25 minutes through his turn at the despatch box.
Controversially, Sunak announced plans to cut Air Passenger Duty (APD) for domestic flights within the UK, in a move that has immediately drawn heavy criticism from green groups – although he sought to balance this out by hiking APD for longer haul flights over 5,000 miles, arguing that “less than five per cent of passengers will pay more, and those who fly furthest will pay the most”.
Fuel duty is to be been frozen for the 12 consecutive year, too, with Sunak arguing the global energy crisis and the rising costs of gas was already hitting consumers’ pockets.
Elsewhere, however, there were other pockets of smaller additional announcements aimed at the green economy, including a planned business rate relief to support investments in clean technologies such as solar panels, which formed part of a series of major cuts to business tax rates over the coming years unveiled today.
Notably, too, the Chancellor set out plans to increase investment in skills to £3.8bn by the end of the current Parliament to expand T Levels, create Institutes of Technology, and boost funding for apprenticeships, in a move that could help towards plugging the yawning green skills gap in the UK.
“This Budget is about what this government is about,” Sunak said. “Investment in a more innovative, high-skilled economy. Because that is the only sustainable path to individual prosperity… Backing business, because our future cannot be built by government alone but must come from the imagination and drive of our entrepreneurs.”
Indeed, innovation was the leading theme of Sunak’s speech when it came to net zero. He described the government’s “ambitious Net Zero Strategy” as an innovation strategy, and announced plans to ramp up research and development (R&D) spending by another £20bn a year by 2024-25 – although industry figures quick to point out this marks a two-year delay on what had previously been promised.
Sunak reiterated plans to invest in public buses, rail connectivity and active travel to support the ‘levelling-up’ agenda, while the government also today announced plans to give the National Infrastructure Commission a specific net zero remit for its work.
It follows the announcements trailed in recent days to set up a £1.4bn Global Britain Investment Fund to support domestic manufacturing and life sciences – including around £800m dedicated towards electric car making – and reforms to the tax tonnage regime to support green shipping.
“There’s more to becoming a science superpower than just what the government spends on R&D,” Sunak said. “Our ambitious Net Zero Strategy is also an innovation strategy, investing £30bn to create the new, green industries of the future.”
Overall, the Budget published today claims that the since March 2021 the government will have committed a total of £30bn of public investment for the “green industrial revolution” in the UK, a mark-up from the £26bn figure touted in the Net Zero Strategy last week.
And of course, with the government having unveiled its Net Zero Strategy last week with a flurry of new funding support for decarbonising homes, transport and industry – and having already set aside billions in funding for electric vehicles, greener homes and innovation over the coming years – expectations of fresh support for the green economy today were certainly not sky high.
Even so, many green groups were quick to highlight the optics of a Budget speech so light on climate and net zero rhetoric coming only days ahead of the biggest and most important climate summit ever held on British soil, where world leaders are set to attend crucial talks geared at putting the world on a 1.5C pathway.
Responding at the dispatch box, Labour’s Shadow Chancellor Rachel Reeves claimed the Chancellor was “out of touch and out of ideas”, as she criticised Sunak’s failure to mention climate change throughout his speech, while giving “only the sparest of mentions” to net zero.
“Adapting to climate change presents opportunities… but only if we act now, and we act at scale,” she said. “The only way to be a responsible Chancellor is to be a green Chancellor.”
Reeves also slammed the decision to cut APD for domestic flights within the UK just a week before COP26. “We are burdened with a Chancellor unwilling to tackle the challenges we face,” she added.
Green business figures, meanwhile, noted that despite ongoing calls from businesses for changes to VAT to help build the market for green products and supply chains, such as for home insulation and solar panels, such changes were yet again absent from the Budget.
Jayne Harrold, environmental tax leader at PwC, said that sandwiched between last week’s Net Zero Strategy and COP26 next week, it was “surprising to see that the Chancellor did not present more of a ‘green focused’ Budget”. But she pondered whether further green fiscal announcements might yet emerge in Glasgow.
“He [Sunak] could have used environmental tax measures like carbon taxes to help drive a shift in behaviour, but it is possible he is holding back on these topics for COP26,” she said. “Consultation on reform of carbon pricing through the emissions trading scheme was undertaken earlier in the year, and the Red Book does confirm that the government is committed to carbon pricing as a tool to drive decarbonisation and intends to publish more later in 2021. Bearing in mind that it is already the end of October we think that those announcements might be being held back for COP26.”
Sunak has faced heavy criticism from green groups in recent months, particularly since the Treasury’s Net Zero Review last week, which was seen as focusing too heavily on the ‘costs’ of decarbonising the economy, and less on the myriad economic benefits, nor the huge dangers of not acting on the climate crisis.
And it was notable in today’s speech that the Chancellor was keen to preach the importance of fiscal responsibility, as he announced a new rules that would ensure everyday spending is paid for through taxation, and that in “normal times the state should only borrow to invest in our future growth and prosperity”.
Sam Alvis, head of green renewal at the Green Alliance think tank, said the Chancellor’s approach to climate was “increasingly difficult to understand”.
“Just days away from a vital climate conference championed by the prime minister, Rishi Sunak barely mentions net zero and encourages people to fly around the UK rather than take the train,” he said. “The Chancellor is preaching fiscal responsibility when his own watchdog is urging him to decarbonise now to avoid economic pain later. Without more investment in climate, we’ll see jobs and skills and private sector innovation left by the wayside.”
