Rishi Sunak urged to use this months Spring Statement to ‘green’ UK tax system, support energy efficiency retrofits and provide more net zero clarity

The Chancellor Rishi Sunak is facing calls to turbocharge the UK’s net zero transition and bolster Britain’s energy security through his upcoming Spring Statement, with the CBI warning today that without far stronger incentives for businesses to invest in low carbon infrastructure the UK risks yet further sluggish growth in the coming years.

The Office for Budget Responsibility (OBR) is currently projecting post-pandemic growth in the UK of just 1.3 to 1.7 per cent, and the CBI said Sunak’s upcoming Spring Statement “must be fully utilised if the economy is to see higher growth”, arguing there is an urgent need for a greener taxation regime and wider low carbon policy support.

In particular, the CBI urged the Treasury to use the Spring Statement to deliver direct funding for low carbon projects, green skills support, and a clearer net zero policy framework and tax incentives to support investments in energy efficiency, green heating, and hydrogen, which it said would help establish new markets “to get green growth going”.

In a letter addressed the Chancellor, the business group also suggested the government’s current net zero ambitions lack clarity and direction which, alongside an overly rigid tax system, were holding back businesses from investing in green projects and hampering the low carbon transition.

By removing hurdles for business investment, the UK could buck sluggish growth projections to achieve a rate of 2.5 per cent, which would unlock a net £100bn for the UK economy, according to the group.

CBI chief economist Rain-Newton Smith stressed that tweaks to tax policy and more detailed net zero plans could lift the UK up from the bottom of the G7 league for investment and productivity and help deliver a “lean, green and competitive” UK economy.

“With COP26 fresh in our minds, investing in green growth isn’t just the right thing to do, it’s the smart thing too,” she said. “From decarbonising homes and buildings to building a first-class infrastructure for electric vehicles, the UK has an opportunity to be a world leader in net zero technology and delivery.” 

She added that the private sector was committed to ramping up low carbon investment, but was being hampered by the current policy environment. “Businesses are already aware of the size of the prize, but lack of clear direction from government is holding them back,” she said. “By getting strategies and incentives in place now, we can unleash the wave of private investment needed to turn ambition into action.”  

The CBI is calling on the Treasury to close public investment gaps in crucial green areas such as retrofitting homes and commercial buildings to boost energy security and drive down bills.

For example, a five-year business rates discount on all rates payable for businesses which invest in their commercial properties could further promote energy efficiency improvements and unlock investments, it argued.

It also called for the government to set out a Contracts for Difference model for funding hydrogen projects by the Autumn “to enable investors to move quickly”, following along similar lines to the clean power contract auctions that have successfully driven down costs for renewables.

And more broadly, it is proposing a permanent, 100 per cent tax deduction for capital spending from April 2022 in a bid to unlock an estimated 17 per cent more capital investment each year by 2026, alongside the introduction of a “targeted green super-deduction” for businesses.

Newton-Smith said reforming the UK’s tax system to incentivise green investment was “vital” for achieving net zero as well as capitalising on the economic opportunities provided by decarbonisation.

“That’s why firms are looking to government for a clear strategy on the way ahead,” she said. “By increasing capital allowances to 120 per cent of an investment’s value, we can give firms the confidence to invest early, and reap the rewards of green technologies, without being put off by high upfront costs. Extending allowances to electric vehicle purchases – and rentals – could provide the certainty needed to spur greater investment in sustainable transport. For SME’s we should look at establishing a tax credit ‘green’ uplift to help unlock green investments and prevent them from missing out on the opportunities provided by net zero.” 

The Spring Statement is set to be delivered by the Chancellor on 23 March, ahead of which he has faced growing calls to increase funding for the decarbonisation of the UK’s notoriously draughty homes and gas-reliant heating systems, particularly in the wake of surging gas prices and conflict in Ukraine.

The Treasury was considering a request for comment at the time of going to press. However, the government has long maintained that it has one of the best decarbonisation records of any major economy and has taken wide ranging steps to drive investment in low carbon infrastructure, including the recent move to accelerate the timetable for clean power contract auctions.

Yesterday, Business Secretary Kwasi Kwarteng reiterated that investment in clean power capacity, energy efficiency, carbon capture and storage, and domestic gas supplies were all central to the government’s plans to enhance energy security further in the wake of Russia’s invasion of Ukraine. However, critics maintain that the government urgently needs to deliver more ambitious action to curb fossil fuel imports and enhance domestic generation, especially through increased funding for energy efficiency programmes that have the quadruple effect of reducing bills, curbing emissions, improving health, and enhancing energy security.

Want to find out more about how the net zero transition will impact your business? You can now sign up to attend the virtual Net Zero Finance Summit, which will take place live and interactive on Tuesday 29 March and will be available on demand for delegates after the event.

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