Blog: Budget 2014 - a missed opportunity

21st March 2014

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Cathy Berry

George Osborne's latest budget raises serious questions over the "greenest government's" commitment to sustainability, argues Martin Baxter, IEMA's executive director of policy

The chancellor framed his budget as securing the UK’s recovery and building a resilient economy. Viewed from a sustainability perspective, the budget raises significant questions over the government’s commitments to a sustainable economy and in particular, achieving the UK’s carbon budgets.

Cast your mind back a couple of years to the CBI’s report The colour of growth – maximising the potential of green business, and you’d be forgiven for thinking that the green economy was the economy.

According to the CBI’s report, more than one-third of UK economic growth in 2011/12 came from green business activities. Green business was growing in real terms, with UK firms having a £122 billion share of a global market worth £3.3 trillion, and a projection that in 2014/15 it would help to almost halve the UK’s trade deficit.

Furthermore, with the low-carbon and environmental goods and services sector employing 940,000 people, according to the latest government stats, you’d be forgiven for thinking that it would play a significant element of any long-term government strategy aimed at rebalancing the economy and increasing exports, growth and employment? Well, you’d be wrong.

Energy and climate change

The budget announcement to freeze the carbon floor price at £18/tCO2e and to launch a £7 billion package of measures to reduce energy costs, undermines the government’s approach to tackling climate change.

In his 2011 budget Osborne stated the carbon floor price would by £30/tCO2e by 2020. Following Wednesday’s announcements, not only will companies that invested in efficiency measures based on the government’s previous long-term price signal be unfairly penalised, but the incentives to accelerate energy efficiency are substantially weakened.

Long-term certainty is vital for businesses to secure investment in measures such as low carbon technology and energy efficiency. By making significant changes to policies that set long-term prices, the government risks failing to achieve its climate change policy objectives or shifting the additional effort that will be required to other sectors of the economy.

Where there is a genuine issue in certain industry sectors about the impact of carbon taxes on competitiveness, the government should use carbon tax receipts to support targeted low-carbon and energy-efficiency investments that will allow those businesses to make the transition necessary over the long-term.

Other measures

An additional £140 million has been allocated for repairing flood defences, which is welcome. However, the long-term flood plan that’s being developed must set out how best to allocate flood defence funding and it doesn’t appear to address the funding shortfall identified by the committee on climate change. Overall, it seems a poor response to the risks posed by climate change, particularly when set against additional tax breaks for oil and gas extraction.

The climate change levy and landfill tax rates are set to increase with inflation. The government claims its commitment to increase the proportion of revenue from environmental taxes is on track – rising from 0.5% to 0.8% over the lifetime of the parliament, although as IEMA and others have previously noted, this assertion depends on how you define an environmental tax.

Read EEF’s Richard Warren blog that argues the 2014 Budget is a positive step ensuring the UK makes a cost-effective transition to a low-carbon economy.


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