UK Budget 2021: Green investment at a glance

Setting out the government’s tax and spending plans for the year ahead, Chancellor Rishi Sunak announced a change to the Bank of England’s remit as part of green measures in the budget.

The Chancellor spoke at length of his commitment to a low-carbon future, revitalising old industrial hubs into clean energy powerhouses and hiring local people into “green” jobs.

Here’s our summary of the main green investment points:

UK Infrastructure Bank to launch in Spring 2021

A new UK infrastructure bank is to be set up in Leeds, to invest mainly in green projects.  It will have £12bn in capital, with the aim of funding £40bn worth of public and private projects. 

The bank will have a broad mandate to support a range of sectors highlighted in the National Infrastructure Strategy, including energy, waste and water. Carbon capture and storage and hydrogen are two nascent technologies, critical to the net zero transition, which could benefit from its support.

Investment in green energy projects

The government pledged £27m for Aberdeen Energy Transition Zone to help the area move away from oil and gas – and £5m for a Global Underwater Hub in Scotland for undersea technologies.

Other confirmed funding packages include the launch of a new £68m competition for original energy storage prototypes or technology demonstrators. A £4m competition for the first phase of a biomass feedstocks programme, £20m to support the development of floating offshore wind technologies, £4.8m to support the creation of a ‘Holyhead hydrogen hub’ and up to £30m towards the construction of the ‘global centre for rail excellence’.

All projects are aimed at helping high-carbon sectors transition away from fossil fuels and elevating the UK’s clean energy capacity.

Green gilt and green retail savings

The remit of the Bank of England will change to include a duty to support the move towards near zero emissions. There will be £15bn of green gilt issuance in the coming financial year, including for retail investors, to help finance the transition to net zero by 2050, and create green jobs across the UK.

Green Finance campaigner Simon Youel welcomed the move, saying it “should at a minimum mean the Bank dumping risky fossil fuels from its corporate quantitative easing programme and shifting funds towards green job-creating projects”.

Green Homes Grant disappointment

The Green Homes Grant (GHG) offers home owners up to £10,000 to insulate their homes and install low carbon heating such as heat pumps.

The Chancellor had previously allocated £1.5bn for the GHG until the end of March, but many householders couldn’t contact installers, and some installers didn’t get paid because the voucher system was so arduous.

That meant only 6% of the cash was spent. Environmentalists wanted to roll over the money to next year’s fund – but that hasn’t happened. Instead a diminished pot of £320m is allocated for the coming tax year, as announced by Energy Minister Anne Marie Trevelyan last month. 

Campaigners said the Treasury has failed to grasp the size of the task to renovate the UK’s homes and reduce emissions. Heat – mainly from gas – produces around a quarter of the UK’s emissions.

Joanne Wade from the Association for Decentralised Energy, which promotes energy efficiency, told BBC News: “We won’t tackle climate change unless we sort out insulation and heating. We need a long-term government programme to allow the industry to grow with confidence year-on-year.”

Fuel and carbon tax freeze

Fuel tax is to be frozen for an eleventh consecutive year, despite ever-rising emissions from road transport. Currently set at 58p per litre on petrol and diesel, the Fuel Duty Escalator has been frozen since 2010. 

Likewise, carbon tax will continue to be frozen at £18 per tonne until April 2022. The tax was introduced in 2013 in an effort to reduce emissions and meet climate targets, by making polluting fossil fuel power production more expensive.

Air Passenger Duty rates will increase with retail price index (RPI), meaning that short haul rates remain frozen at £13, whereas long haul economy will increase by £2, and for those travelling in premium economy, business and first class £4. Those travelling long-haul by private jets will see the rate increase £13.

R&D tax relief scheme for clean technologies

A ‘super deduction’ tax incentive has also been introduced to encourage firms who can invest in cleantech to do so.  The two-year incentive will allow firms purchasing eligible equipment to claim back 130 per cent of the cost of those assets.

Critics said the chancellor’s measures stopped “way short” of the action needed to tackle the climate change emergency. 

Fatima Ibrahim, from the group Green New Deal UK, said: “Our response to the climate crisis should have been front and centre of the Budget, not a footnote.

Independent think tank the Green Alliance wanted the Treasury to test for all government spending decisions against whether they would help the environment.