21 September 2023

Sunak is gambling with his Party’s hard-won green credentials

By Sam Hall

The Prime Minister has taken a big risk with the Conservative Party’s hard-won environmental reputation this week. He hopes that by adopting more sceptical rhetoric about Net Zero and delaying the transition to electric cars he can bring greater consensus to the climate debate, shoring up conservative support for the agenda. But the worry is that voters will only have heard that the party is backtracking on some commitments and green industry will lose confidence to keep investing in the UK.

Rishi Sunak’s speech was rooted in the language of trade-offs. Net Zero has always been about trade-offs: we bear clean technologies investment costs now to avoid much larger climate damage costs later on. But it was a strange speech implying significant misgivings about the previous Net Zero strategy, with a particular focus on the vast costs and the UK being too far ahead of other countries. Yet in terms of substantive policy, very little was actually altered.

The main move was to push back the date for ending new petrol and diesel car sales to 2035. This was not necessary on cost of living grounds, as 80% of households (including all lower income ones) buy cars second-hand, and upfront price parity between petrol and electric cars is expected to be achieved by 2030. In any case, the zero emission vehicle mandate is reportedly still going ahead, with targets to require 80% of new car sales to be zero-emission in 2030. It’s hard to see how this extra 20% of leeway is enough to stave off the ‘popular revolution’ that Allister Heath warned about in the Telegraph. The government may hope to capitalise on the fact Labour wants to reinstate the 2030 deadline, but dozens of Conservative MPs are on the record loyally defending the government’s previous policy – some speaking up in parliament just days before the PM’s speech.

Some proposals from two-year-old government consultations were finally formally ruled out, such as the ban on replacement oil boilers and tougher energy efficiency standards for landlords. They were never likely to go ahead. The Climate Change Committee’s calls for meat taxes and flying levies were rejected, but they had been slammed repeatedly by ministers in any case. And the target for ending replacement gas boiler installations has always been 2035 and was never a legal obligation. While all reasonable decisions, it is not clear a speech by the PM was merited to announce them, unless it was a deliberate attempt to confect climate dividing lines that don’t really exist.

Towards the end of the speech, the Prime Minister touched on a critical priority for energy security and Net Zero: namely alleviating the huge delays for clean energy projects seeking to connect to the grid. Some projects in the queue now have been given dates of 2038. This is terrible for investors who have to wait years to see a return, terrible for consumers who can’t benefit from cheap power straight away, and terrible for curbing emissions. A determination to tackle this through planning reforms and changes to the queueing system should be a hugely significant legacy from this speech.

Having made those adjustments to policy, it is vital for business confidence that ministers now push back firmly against further attempts to weaken Net Zero commitments. We also need a more positive narrative about the moral, environmental, and economic importance of this flagship government agenda. At the Autumn Statement, ministers have an opportunity to get back on the front foot, close some of the carbon budget gaps that have emerged, and underscore to voters their continued commitment to reducing emissions while helping with the cost of living.

They should start by getting the renewables rollout back on track. Earlier this month, the government failed to procure any new offshore wind capacity in its renewable energy auction, as ministers set too tight a cap on the maximum bids companies could make. They should urgently set out how the next auction will catch up on the lost capacity. They should also increase incentives for clean energy investment by making full capital expensing permanent and fund more upgrades to port infrastructure so we can capture more of the supply chain.

Secondly, the Chancellor should set out a series of tax cuts to help owner-occupiers insulate their homes, as government schemes at the moment are overwhelmingly targeted towards fuel poor households. A salary sacrifice scheme for energy efficiency improvements worth up to £1,000 should be created. Up to 63% of households can sufficiently improve their energy efficiency by spending £1,000 or less. Salary sacrifice would allow more people to access these measures and reduce their taxes by up to £432.50, depending on tax brackets.

He should also cut stamp duty for more energy efficient homes. Lowering the stamp duty levied on sales of homes with a higher Energy Performance Certificate [EPC] rating would encourage upgrades at the point of house sale. Rebates on stamp duty could also be given to households where energy efficiency improvements are made within two years of purchase. Upgrading the EPC of homes from D to C can also save households up to £690 per year on their energy bills.

Finally, the Prime Minister needs to help renters trying to save to get on the housing ladder with the costs of high energy bills. Given minimum standards have been ruled out, the government should make landlord energy efficiency upgrades tax deductible. Whilst replacement furniture, legal fees and property maintenance are tax deductible, energy efficiency upgrades such as insulation are not. This is an affordable policy in the current fiscal environment: it is estimated that, over a five year period to 2028, this would represent maximum lost tax revenue of only £260 million per year.

In truth, it will take months, and perhaps years, to know if Rishi Sunak’s gamble has paid off. It has left many feeling uneasy. But the government can improve its odds of success by taking the political heat out of this issue, embracing fresh ideas to cut the cost of living and carbon, and showing that Net Zero is an opportunity for all of us.

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Sam Hall is Director of the Conservative Environment Network.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.