Osborne announces budget boon for manufacturers

18th March 2015

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Energy intensive industries will receive compensation for the indirect costs of small-scale renewable energy subsidies earlier than previously planned, chancellor George Osborne announced today.

The compensation scheme was originally announced in last year’s budget. Under the proposal, energy intensive industries such as the steel sector would be compensated for the higher costs of electricity resulting from feed-in-tariffs (FiTs) and the renewables obligation (RO).

Manufacturers organisation EEF has estimated that the combined cost of the RO and FITs would be £14/MWh by April 2015, which represents 15% of an average industrial user’s electricity bill.

Today, Osborne announced that the FiTs components of the compensation would be implemented as soon as state aid approval is received, which is expected later this year. The measure will save energy intensive industries £25 million in 2015-16, according to the Treasury in its budget report.

However, Gareth Stace, director of UK Steel, said that the chancellor should have gone further as the deal would still leave energy intensive industries paying 80% of the costs of renewables support until April 2016. He singled out the UK steel industry as needing further support. “Only the full compensation package will give UK steel companies the ability to compete in an increasingly fierce global market,” he said.

Osborne also announced that the government had started negotiations on financial support for the Swansea Bay Tidal Lagoon. This would determine whether the project is “affordable and value for money for consumers, and whether it will drive down costs for tidal lagoon energy in the UK,” states the budget document. The project has not yet received planning consent.

Other new environment measures announced in the budget include:

- A 0.54 pence per litre rise in fuel duty planned for September will be cancelled. By the end of 2015-16, duty will have been frozen for five years, the longest freeze for more than two decades, Osborne said.

- Company cars emitting under 75 grams of carbon dioxide per kilometre (gCO2/km) will pay less tax. There will be a 3 percentage point differential between the 0-50 and 51-75gCO2 /km bands and between the 51-75 and 76-94gCO2 /km bands, the government said. Company car tax for vehicles emitting over 75gCO2/km will increase by three percentage points.

- Tax breaks for offshore oil and gas include: a new investment allowance to stimulate investment at all stages of the industry’s lifecycle; simplification of the existing system of offshore field allowances; and a reduction in the supplementary charge from 30% to 20% on top of the 2% cut announced in the autumn statement.

- A consultation on bringing planning notification arrangements for deep geothermal energy projects into line with those for onshore oil and gas.

- An extra £16.8 million for flood defence schemes in the next four years. This is in addition to the £240 million announced for the next six years in December 2014.

- Proposals for legislation for competitive tendering of onshore electricity transmission infrastructure to reduce construction costs.

- A marine protected area in the Pitcairn Islands, a British overseas territory in the south Pacific.

- Exploring alternative options with the Scottish coal industry to pay for the environmental liabilities resulting from unrestored opencast mines in Scotland.

- An additional £4.2 million to tackle waste crime. Also, a "loss on ignition" test for waste fines will be implemented from 1 April. This aims to prevent waste materials being incorrectly described as ‘low rated’ in terms of landfill tax and will enable HMRC to crack down on misclassification of waste fines.

Reaction to the budget from the energy and environment sector was mostly negative.

Josh Fothergill, IEMA’s policy and engagement lead said: “The chancellor has given us little indication that his vision of the UK’s economic future will be driven by anything other than traditional economic metrics.

“This is a real disappointment for those businesses wanting to see the government provide the leadership that will help the UK be a winner in the race to build economic prosperity by resolving long-term sustainability challenges,” he said.

The Aldersgate Group said that the speech did little to acknowledge the important economic potential of environmental policies beyond support for a new tidal power scheme.

Greenpeace executive director John Sauven said that the potential support for the tidal lagoon does not make up for “six budgets of business bungs for fracking, tax breaks for oil giants, and neglect for the green technologies of the future”.

The UK Green Building Council said the budget was “barren” on energy efficiency, and criticised Osborne for not extending a scheme to give landlords up to £1,500 to install insulation. The scheme ends next month.

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