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The 2021 budget gave much less space to climate change and the UK’s net-zero target than last year, with the budget using the word “climate” only nine times, against 31 last year, with seven appearances for “net-zero”, down from 17.
Climate change and net-zero do however remain a key theme with the budget stating that it “lays the foundations for a strong recovery and greener economy, levelling up the country and spreading prosperity across every part of the UK.”
Bank of England and Green Finance
In one of the most significant parts of the budget for climate action, the Chancellor announced that the UK’s net-zero goal would be added to the Bank of England’s remit. In letters to the Bank of England’s governor Andrew Bailey, the Chancellor writes:
“I am today updating the MPC’s [the bank’s monetary policy committee] remit to reflect the government’s economic strategy for achieving strong, sustainable and balanced growth that is also environmentally sustainable and consistent with the transition to a net-zero economy.”
He followed this with much stronger language in a second letter which said:
“As the world recovers from the pandemic, we also face a tipping point for our climate. The shift to a world where we are at net-zero will mean systemic changes across all parts of our economy. This includes delivering a financial system which supports and enables the transition to an environmentally sustainable net-zero economy by expanding the supply of green finance, and that is resilient to the physical and transition risks that climate change presents.”
It remains to be seen what the wider implications of this change in remit will be, but The Bank of England has already responded by saying that it will adjust its approach to buying corporate debt to take climate risks into account. The bank ignored such risks when buying debt to prop up the economy as part of its emergency coronavirus response, a move widely criticised by green groups.
Sovereign Green Bond
The budget also contained a promise from the government to issue its first “sovereign green bond – or green gilt” in summer 2021. The bond was announced last November and at least £15bn in government debt will be specifically allocated for supporting “green objectives”.
The green bonded will be coupled with a “green retail savings product” in summer 2021, which will “give all UK savers the opportunity to take part in the collective effort to tackle climate change”.
New National Infrastructure Bank
Alongside a variety of commitments to infrastructure projects, the Chancellor launched a new National Infrastructure Bank, which will have £22bn of “financial capacity”, and tackling climate change will be one of two core objectives. The Chancellor said the UK’s “future economy needs investment in green industries” and, the bank would be established “to finance the green industrial revolution”.
It will begin in the spring, with an initial provision of £12bn of money and the ability to guarantee up to another £10bn of debt, with the expectation that it would support at least £40bn of investment in infrastructure.
However, there are concerns that this new bank will offer loans and investments worth two-thirds less than its EU predecessor, the European Investment Bank (the “EIB”). The EIB lent an average of £5bn a year to projects in the UK, according to the Treasury’s independent Office for Budget Responsibility, the new UK infrastructure bank is expected to lend just £1.5bn a year.
The Chancellor confirmed that fuel duty will remain frozen for yet another year. The tax levied on sales of petrol and diesel has remained at a rate of 58 pence per litre plus VAT since 2011.
The budget document does however signal potential rises in the future, stating, “Future fuel duty rates will be considered in the context of the UK’s commitment to reach net-zero emissions by 2050.”
The budget also contains a handful of smaller funds as part of the government’s “commitment to double spending on energy innovation”.
Three competitions to develop new technologies to help achieve net-zero emissions have now been added to the government’s £1bn net-zero innovation portfolio, specifically £20m to develop floating offshore wind projects, £68m for green energy storage systems and £4m to boost clean energy crops and forestry.
It is clear that the UK government is moving to put climate action at the centre of its economic policy as it aims to achieve ‘net zero’ by 2050. It remains to be seen if the Chancellor’s moves will be enough to achieve this aim, but what is notable is that the move is being made. What the response will be in Northern Ireland is much less clear – hopefully some of the wider UK actions will have an impact in NI but we are still awaiting the consultation on the new energy strategy for Northern Ireland. As we have stated previously, as climate change policies are developed in the rest of the UK, Ireland and Europe, it will be vital that the Northern Ireland Executive act quickly and decisively to help Northern Ireland meet its targets and embrace the opportunities of the “green industrial revolution”.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Banking & Finance team at Cleaver Fulton for further advice or information.