A string of policy reforms, tax tweaks, and grant schemes designed to support the green economy have come into effect in the UK this month, all of which could play a sizeable role in accelerating the development of a greener economy
Today has been dubbed ‘April cruel day’ by The Daily Mirror as households experience a 54 per cent increase in energy bills on the same day as hikes to National Insurance payments and council taxes came into effect.
And with food prices and the general cost of living already on the rise, there is little doubt today’s latest wave of cost increases present a serious challenge for British businesses and households, particularly with many parts of the economy still struggling to find its feet after two years of disruption from the Covid-19 pandemic and the UK’s departure from the European Union.
But in happier news, April has also brought with it a clutch of crucial green policy changes which could prove hugely beneficial in driving the net zero transition, even if they have grabbed fewer headlines in the national media. The string of tax tweaks and new policy measures coming into force today will sadly not be enough to help homes and businesses absorb all of the steep cost increases they now face, but they could help curb energy costs and carbon emissions in some crucial areas. Moreover, they represent significant victories for environmental campaigners and business groups, which in some cases have been campaigning for years to secure the changes that have just come into effect.
For example, this morning marked the launch of the long-trailed £450m Boiler Upgrade Scheme, which offers homeowners in England and Wales thousands of pounds off the costs of replacing their gas boilers with low carbon heating systems.
A key pillar of the government’s Heat and Building Strategy published last autumn, the scheme offers up to £5,000 off the costs of installing air course heat pumps or biomass boilers, and up to £6,000 off the installation of ground source heat pumps.
To be eligible, properties must have to have a valid Energy Performance Certificate (EPC) with no outstanding recommendations for loft or cavity wall installation and a maximum heat capacity of 45kW. Low carbon heating systems installed from today are entitled to support, even if the scheme does not open for grant applications and payments until 23 May.
Experts have warned the target to support the installation of 90,000 heat pumps through the Boiler Upgrade Scheme falls massively short of the 4.8 million homes that would be eligible for grants, and the government certainly has a lot more to do if it is to meet its target for 600,000 heat pump installations a year by 2028. There is a compelling case for a further increase in the scheme’s budget and increased support for skills programmes that aim to train up thousands of heat pump installers, especially in light of the government’s desire to slash gas imports following Russia’s invasion of Ukraine.
But industry insiders are broadly optimistic the new scheme could play a major role in catalysing the nascent market for low carbon heating technologies in the UK, by driving economies of scale and helping to bring down manufacturing costs of heat pumps. Some of the leading companies in the market are confident the combination of the grants and soaring gas prices mean heat pumps could now prove cheaper than gas boilers on a total cost of ownership basis. There are also plans to drive down the cost of heat pumps further still so they become competitive on an upfront cost basis.
Jess Ralston, senior analyst at the Energy and Climate Intelligence Unit (ECIU), said the Boiler Upgrade Scheme had “huge potential” to deliver hundreds of pounds of bill savings in addition to bolstering domestic energy security against a backdrop of volatile gas prices influenced by Russia.
“One in three Brits say they are more likely to get an electric heat pump to shield us from Putin’s influence,” she said. “There are seven million homes that are interested in making the switch and could do so easily with insulation already in place. The question now is whether the government is investing enough to help more of these households avoid future gas price spikes and will they prioritise this in the forthcoming energy security strategy.”
The launch of the scheme comes alongside changes to VAT announced by the Chancellor Rishi Sunak in his Spring Statement last week, which will see energy saving products such as heat pumps, solar panels, and insulation zero-rated for the next five years starting from today. Long sought by green economy advocates, the tax relief is designed to make technologies that can decarbonise the UK’s notoriously draughty housing stock cheaper for households to purchase, and it is hoped could drive further investment in the much-needed skills needed to install such measures.
Sunak last week claimed the VAT tweaks would save a family installing solar panels roughly £1,000 in VAT, in addition to a £300 saving on their energy bills from living in a home that can generate some of its own power.
Elsewhere, tax tweaks have also been targeted at building a more circular economy in the UK, with a new plastics packaging tax coming into force today. More than four years in the works on Whitehall, the new tax means supermarkets, retailers, and other businesses manufacturing or importing 10 tonnes or more of plastic packaging containing less than 30 per cent recycled plastic will face a tax of £200 per tonne of packaging.
The Treasury has argued the tax, which is expected to impact roughly 20,000 companies, will help to divert plastics from landfill or incineration, thereby stimulating demand for recycled plastic and boosting the UK’s domestic recycling capacity.
Campaigners, however, have called for the tax to be accompanied by measures that address plastic production to begin with, arguing that at present the tax does little to address supply of the polluting material. They have also warned it could result in plastic waste being exported, given that packaging intended for export within 12 months is exempted from the levy.
Nevertheless, the introduction of the tax – announced in 2018 by then-Chancellor Philip Hammond – marks a key milestone on the journey towards the government’s aim to eradicate all ‘avoidable’ plastic waste by 2042, with the measure likely to prompt thousands of businesses across the country to rethink their use of the material.
Stephen Jamieson, global head of circular economy solutions at software management firm SAP, described the Plastic Packaging Tax as “crucial and necessary” to help prompt firms to take a more circular approach to their business, but warned that there still remained uncertainties around the regulation.
“The need for this regulation is clear and we welcome it,” he said. “What will be less clear for a lot of businesses is how they can actually juggle their obligations under this new regulation. In many cases, companies – and particularly multinational businesses – often don’t have sight of their sustainability commitments across complex supply chains and legacy technology.”
But perhaps the biggest change affecting major businesses from this month are fresh climate risk disclosure rule, which will for the first time make it mandatory for the UK’s largest companies and financial institutions to disclose the threats posed to their businesses by climate change and the net zero transition.
From next Wednesday 6 April, the UK’s largest traded companies, banks and insurers, as well as private companies with over 500 employees and £500m in turnover, will be required to disclose such risks in line with the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD), in a move expected to apply to more than 1,300 firms in the UK.
The hope is that standardisation of climate disclosures at large companies will help to encourage greener decision making and capital allocation, and in doing so accelerate the transition to a low carbon economy. More uniform financial filings around climate-related risks will also make it easier for investors, citizens, and civil society to compare the ways businesses are stepping up to tackle the climate crisis and preparing for a warming world.
The UK is the first G20 country to roll-out such measures and the new rules mark the first step in the government’s plan to slowly expand mandatory TCFD reporting rules over the coming years with an aim for them to cover the entire economy by 2025.
The corporate disclosure rules, tax tweaks, and grant programmes all set to come into force this month will be far from enough to satisfy growing demands from businesses and campaigners for the government to deliver more ambitious policies that can both support the net zero transition and help shield homes and businesses from soaring energy costs.
Yet the measures could also prove hugely influential in driving the economy towards greener, cleaner, and more efficient behaviours and business models, and in doing so underscore the the benefits of well-designed, ambitious policies in pump-priming new markets and unlocking crucial investment in the transition ahead. April may be the cruellest month, but there are some silver linings for the green economy.
