22 October 2010: UK Spending Review – not too bad, but open goal missed

The UK government has now announced the results of its Comprehensive Spending Review. Climate programmes have not fared too badly: there is money for CCS, and we are promised that the Renewable Heat Incentive will happen and that a Green Investment Bank will be created. However, money remains very tight. Yet, the government has opted not to change Winter Fuel Payments, which gives a subsidy to everyone over 60, most of whom are not poor and do not need it. This costs the government £2.7 billion every year.

Cuts in climate programmes are smaller than the average across government. HSBC has calculated that overall spending on climate and the environment will fall by 5% to 8%, compared with overall spending cuts of around 20% over the next four years (see Reuters: Snap Analysis: Uncertainty still clouds UK green investment). £1 billion has been promised for CCS. This comes after Eon had withdrawn its plan to build a new coal station at Kingsnorth, of which only about a quarter would have been fitted with CCS. That excellent news means that only one participant remains in the competition to build the first large-scale plant in the UK – Scottish Power – which would retrofit CCS to its existing Longannet power station. The government should cut out further delay and announce that the money will go to Longannet.

Another £1 billion has been promised for a UK Green Investment Bank. This is not nearly enough, of course, but a bank would have the ability to borrow many billions from financial markets. Yet, some in the government are arguing that the £1 billion should go into a fund, which would not then be able to borrow. This would make it pretty irrelevant (see The Green Alliance: The Comprehensive Spending Review: analysis of government’s low carbon spending).

There is also £860 million funding for the Renewable Heat Incentive, which will be introduced next year. DECC says that:

“This will drive a more-than-tenfold increase of renewable heat over the coming decade, shifting renewable heat from a fringe industry firmly into the mainstream. The Government will not be taking forward the previous administration’s plans of funding this scheme through an overly complex Renewable Heat levy.”

(See DECC: HMT Spending Review Press Release: 20 October 2010.)

So, the money comes from general taxation, rather than increasing fuel bills. Given that 4.5 million British households already have to spend more than 10% of their disposable income on fuel bills (the official definition of fuel poverty), this is sensible.

However, the government also needs to do much more to make buildings more energy efficient. The main programme to do this for vulnerable people, Warm Front, has been cut:

“DECC will fund a smaller, targeted Warm Front programme for the next two years with a budget of £110 million in 11/12 and £100 million in 12/13. From 2013, support for heating and insulation for the most vulnerable will be delivered through the Green Deal for energy efficiency and a new obligation on energy companies. At the same time, from April 2011, energy suppliers will provide greater help with the financial costs of energy bills to more of the most vulnerable fuel poor households, through Social Price Support – with total support of £250 million in 11/12 rising to £310 million in 14/15.”

(See DECC: HMT Spending Review Press Release: 20 October 2010.)

Social Price Support, which will provide lower fuel tariffs to those on low incomes, is excellent. The Green Deal will offer low-interest loans, attached to the property rather than the current occupants. It has good potential, but loans of any sort will not help the poorest. Grants are also needed. The government is promising a new obligation on energy supply companies. This is needed to raise the money, but energy supply companies are not the best way to deliver energy efficiency – this is akin to asking the milkman to persuade customers to drink less milk. Local government, responsible for social housing and enforcement of energy efficiency regulations, could and should play a much greater role on this, and both Conservatives and Liberal Democrats are in favour of increasing the role of local government. However, most local government money in the UK comes from central government, and this has been cut by over a quarter.

The obvious way to provide more money for energy efficiency schemes would be to make Winter Fuel Payments means-tested. At the moment, everyone over 60 gets £250 a year, and everyone over 80 gets £450, no matter how wealthy they are. The government has probably backed away from changing this because of the furore caused by its decision to make child benefit means-tested. The Labour Party has been vociferous in support of universal benefits. They were introduced on the advice of William Beveridge, the architect of the UK welfare state and a Liberal. Ideally, universal benefits would be retained to give everyone a buy-in to the welfare state. But we do not live in an ideal world.

The government did raise £1 billion for public funds by changing the Carbon Reduction Commitment energy efficiency scheme. The revenue, collected from private and public organisations using more than a certain amount of energy, was to have been given back to those organisations making the best improvements in energy efficiency. But instead:

“Revenue raised from the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme will be used to support the public finances (including spending on the environment), rather than recycled to participants.”

(See DECC: HMT Spending Review Press Release: 20 October 2010.)

This change has been condemned as a “green stealth tax” by business (see NewEnergyFocus: Dismay at CRC “stealth tax”). It was in the DECC press release, but wasn’t said in the Commons by the Chancellor. This was a mistake by him – better to be up front about difficult decisions. As he often says, we’re all in this together. That includes companies.

One other thing the government got right was to end support – and the potential for enormous subsidy – to a long barrage across the Severn estuary. The estuary has the second largest tidal range in the world, so has enormous potential. However, the proposed scheme would have had a new motorway on top of it, seriously reducing the climate benefits. The motorway would have led to the destruction of large areas of countryside and the barrage to flooding of many protected habitats. This would almost certainly have been contrary to EU law. Other barrage schemes are possible, and some of these are supported by major NGOs such as the RSPB. Also possible are schemes to harness the tidal power by building lagoons rather than a barrage. All these options should now be properly explored.

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