Budget 2011 reaction

Our initial reaction to the Budget 2011 was one of dismay but has that changed after a little reflection? Are things really that bad? Well a quick skim of the press would suggest that they certainly are. George Monbiot describes the budget as “the blackest budget in living memory”, saying it “is perverse, regressive, destructive, cowardly”. Caroline Lucas MP, leader of the Green Party has said that “it is a betrayal of our environment”. So what has got people so incensed? Here are a few thoughts...

  • Fuel Duty – Not only has the Fuel Duty Escalator, which would have meant an additional 1% rise in petrol costs on top of inflation, been suspended for the rest of this Parliament, but fuel duty was actually cut by 1p. The inflation-only increase is also being delayed. The Fuel Duty Escalator has been replaced with a Fair Fuel Stabiliser. The idea being that if oil prices are high (above $75/barrel) then companies extracting oil in the North Sea will be taxed at a higher rate (32% rather than 20%) to offset the loss from fuel duty, if oil prices fall then fuel duty will be increased. Now we are all in favour of taxing the oil companies more but we shouldn’t be doing this to subsidise our oil addiction – in climate change terms this really is robbing Peter to pay Paul. The Chancellor framed the fuel duty decision as “being about doing what we can to help with the high cost of living” but he wasn’t saying that when he increased VAT, which lead to increases in fuel prices as well as pretty much everything else. Let’s not forget either that rail fares went up by 6.2% on average in January.
  • Air Passenger Duty – the idea of switching to a duty on planes rather than passengers, which would place a much greater incentive on the airlines to not fly half full planes, has been scrapped for now, although an effort to build consensus on this with international partners has been indicated. The Budget says that the proposed rise in Air Passenger Duty will be suspended until April 2012, which given how undertaxed flying is anyway is another negative point. Interestingly the Airline industry is not happy as they say they knew nothing about a proposed rise so it was just spin to say that it is deferred.
  • Green Investment Bank – The budget saw an extra £2bn worth of funding to add to the £1bn announced previously for the Green Investment “Bank”. However, as Chris Huhne said recently “ducks quack and banks borrow and lend”, which raises the question of exactly what the Green Investment “Bank” is, as it was also announced that it wouldn’t be able to borrow until 2015 and then only if (and a this is a big if) the Government has met its targets for debt reduction. This decision has been “attacked from all sides” and reflects a complete failure to recognise the scale and urgency of the challenges that we face.
  • Zero Carbon Homes – Buried in the Budget report is an announcement that sees a major weakening in the commitment to zero carbon new homes by 2016. The ‘zero carbon’ definition will no longer cover energy use for cooking or plug in electrical appliances, which currently account for around a third of household emissions – a proportion that will increase as heating emissions come down. It was expected that developers would have had to fund renewable energy projects to offset these emissions. This is clearly another negative point and also raises the question of why this is in the budget - discussions about the definition have been going on for a long time and to just announce this in an annex to the budget seems to be a case of burying bad news.
  • Carbon Floor Price – A chink of light perhaps? The Budget announced a floor price for Carbon of £16 per tonne of CO2 rising to £30 per tonne in 2020. This means that energy generators using gas and coal will have to pay an additional sum for every tonne of CO2 associated with energy production. Currently there is a carbon price set through the EU Emissions Trading Scheme and the idea of the floor price is to set a minimum level, effectively adding a levy on top of the existing carbon price. Any additional costs will be passed on through electricity bills. This is designed to encourage investment in zero carbon energy but questions are being asked as to whether it will provide investors with confidence when it is dependent on the support of Parliament and could be changed (see the Fuel Duty Escalator for a good example).
  • Climate Change Levy – The discount from the Climate Change Levy that energy intensive firms can get by signing climate change agreement to reduce their energy use is being increased to 80% from 65%. This is something that does seem to have been broadly welcomed. However, it should be said that the rate has been 80% and is just about to drop to 65%, so it is effectively just moving things back to where they were.
  • Planning – This is a difficult one to call. The Budget announced that there would be “a powerful new presumption in favour of sustainable development, so that the default is ‘yes’ ...”. What do we make of this? The presumption in favour of sustainable development has led some to see a positive in relation to the development of wind energy. However, the default ‘yes’ raises real questions about what Government means by ‘sustainable development’ here? The suggestion is that it might be the ability of development to continue (as unabated as possible), which has huge implications for actual sustainability. There also seem to be major contradictions with the Localism agenda. Finally, as with the zero carbon homes – why is this being announced in the Budget?

So overall, there is very little positive to take away. There is absolutely no indication that the Government is looking long-term to provide leadership towards a low carbon, sustainable future. So who will - can the changes happen from the bottom up to force the Government’s hand?

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