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Energy Issues at the Heart of Autumn Statement

In recent years many within the energy sector, including Powerstar, have criticised some chancellor’s statements for glossing over the issue of energy and sustainability. That certainly couldn’t be said of yesterday’s Autumn Statement, which saw energy make up a cornerstone of both Chancellor Jeremy Hunt’s fiscal planning and Shadow Chancellor Rachel Reeves’ riposte. Here, we summarise the key energy issues covered in today’s Autumn Statement.

Energy Bill Relief

An area of key focus for the Treasury over the past year, new information on the Energy Bill Support Scheme for domestic customers and Energy Bill Relief Scheme for business customers was relatively thin on the ground. Jeremy Hunt had already slashed the period of domestic support from two years to six months, and today stated that while support will continue after the initial cut-off of April 2023, it will be at a reduced rate. A typical household will see annual energy costs rise to £3,000, up from £2,500, but lower than the £3,700 figure they would face without support. Business energy customers still find themselves waiting for clarification past April of next year. With the British Chamber of Commerce announcing earlier this week that 47% of SMEs face not being able to pay their energy bills come the end of the current scheme, the growing sense of impatience, if not outright panic, feels warranted.

Electric Vehicles

Part of a package of measures positioned as ‘fairer’ taxation, electric vehicles will be subject to vehicle excise duty from 2025 onwards. What level this will be put at in comparison to petrol and diesel vehicles will be revealed in the coming months. Some advocates for the rapid decarbonisation of Britain’s roads may question the message this sends to consumers, removing a clear benefit of electric vehicles compared to their fossil fuel counterparts. This comes at a time when the Government is more broadly trying to encourage EV take-up that needs to accelerate for the UK to meet its net zero obligations.

For businesses investing in EV fleets the reduced tax on electric vehicles will increase, albeit with a delay. The benefit-in-kind tax will remain at its current rate of 2% until April 2025. Following that, it will increase 1% per year, reaching 5% in 2027/28.

Energy Efficiency

A particular bugbear for many in the energy industry following announcements earlier this year, such as the Energy Security Strategy, was a focus on long-term goals and a lack of granular detail for resolving issues over the next few years. This applied most acutely to energy efficiency, which the Government has repeatedly been criticised for overlooking. It received some welcome focus in the Autumn Statement, with a new target of a 15% reduction in energy consumption from building and industrial use by 2030 announced, as well as a doubling of funding for domestic energy efficiency from £6 billion to £12 billion from 2025.

Despite this new focus, which also identified energy efficiency as key to improving the UK’s energy independence, it was also a key area of criticism from Labour. Reeves highlighted the Government’s patchy record to date in the area, with home insulation levels in 2021 ten times lower than in 2010 due to the withdrawal of incentives for home energy efficiency.

Other Energy Issues

A windfall tax on energy providers has been a key area of debate between the Government and opposition for months now, with Labour accusations that their own policy that was initially discarded out of hand has now been revived and enacted. The Statement announced that the windfall tax on fossil fuels will increase from 25% of profit to 35%, although stressed that the measure would only be temporary to prevent deterring investment.

A similar announcement was made for other electricity generation, primarily green energy, which will see a 45% windfall tax introduced. It makes sense broadly to introduce some level of tax on renewable electricity given that wholesale electricity prices are linked to gas prices and have therefore gone up across the board, while renewable generators have not seen the increase in costs that wholesale gas has. However, a higher rate for renewable generators doesn’t entirely tally with reassurances that the UK remains committed to decarbonising its energy sector.

Sizewell C is set to become the first state-backed nuclear power station for 30 years, with official confirmation for the project that Boris Johnson gave the green light to in one of his last acts as prime minister. Contracts are expected to be signed in the coming weeks with energy firm EDF. The fact that EDF’s other nuclear power project, Hinkley Point C, is substantially over-budget and delayed shouldn’t be overlooked, as the Government again appear to be positioning nuclear power as a silver bullet for the UK’s energy security concerns despite lead times closer to decades than years.