In the Budget, the government continued its drive for greener growth, including announcements to increase energy efficient buildings from 2025 onwards, boost electric vehicle adoption and advance cleaner sources of energy generation.
Read below to find out how these promises, along with tax increases in aims to decarbonise the industry, could impact investors to the UK.
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The carbon border adjustment mechanism (CBAM) as part of the drive means a carbon price levy will be imposed on imported goods from specified carbon-intensive sectors from January 2027. These include cement, aluminium and steel, with glass and ceramics to be added later.
Other increases include the rate of tax on the use of new plastic packaging and landfill tax rates, both of which will increase in 2025. The heavy goods vehicle VED and the HGV levy will also increase in 2025.
The government is committing £6 billion to increase energy efficiency from 2025 onwards, by boosting energy efficiency in homes and businesses, the aim is to reduce energy consumption across the board thereby reducing dependence on all forms of energy - including any generated via fossil fuels.
Part of this funding is intended to grow heat pump manufacturing supply chains, which would not only reduce energy demands but also decarbonise heat generation in the UK as well.
With more than one million electric vehicles on UK roads, the transition to all new cars being zero emission from 2035 onwards is well-documented. To support the rollout, the chancellor has announced further measures:
The Autumn Budget shows the government's determination to promote the switch from gas combustion engines to zero emission electric vehicles, with the investment into charge points something that is needed to boost the number available to consumers.
While the number of charge points is an issue, investment in other areas concerning electric vehicles, such as mileage constraints and battery health, are also required to make the switch more appealing for consumers.
However, a rise in electric vehicles alongside better energy efficiency in homes and business are two areas which could see a reduction in the consumption of fossil fuels in the UK to drive the achievement of net zero by 2050.
Advancing cleaner sources of energy generation is a key target for the government. The Budget announcement reiterated government ambitions for investment and growth in the clean energy sector including:
The chancellor also shed some further light on government plans:
Taxes on oil and gas companies is one route the government is pursuing to fund decarbonisation.
Oil and gas companies will face greater taxes to support the energy transition. The energy profits levy shall be subject to the following changes:
To ensure stability in the transition, 100% first-year allowances in the energy profits levy will remain. Consultations shall also be held in 2025 to determine how the oil and gas tax regime should respond to price shocks upon the levy’s conclusion in 2030. Investors in this industry should therefore expect higher tax bills and further announcements in 2025 as to how the tax regime will operate once the levy is phased out.
The Budget also confirmed the decarbonisation allowance will remain for oil and gas companies to incentivise investment in cleaner, lower-emission technologies, which shall be 66%.
The Department for Environment, Food & Rural Affairs (Defra) resource budget will move from £4.7 billion in 2023-24 to £4.8 billion in 2025-26. That amounts to an annual average real-term decline of 1.9%. The department’s capital budget will however see an average real-term increase of 12.6% from 2023-24 to 2025-26. Capital budgets are spent on investments that add to the public sector’s fixed assets. This budget will increase from £2.1 billion in 2023-24 to £2.7 billion in 2025-26.
There’s a pledge to provide £5 billion over 2024-25 and 2025-26 to support the ‘transition towards a more productive and environmentally sustainable agricultural sector in England, ensuring food security’. For context, the farming budget under the Conservative government in the last parliament was £2.4 billion investment per year. The news may come as some surprise as reports during the summer suggested that the nature-friendly farming budget was set to be slashed potentially by up to £100 million.
The chancellor has recognised how crucial maintaining investment in nature-friendly farming is and how food production and nature’s recovery go hand-in-hand.
This maintained funding is a much-needed boost for a sector that greatly needed confidence from the government. Increasing funding and prioritising nature-friendly farming will help put agriculture on a more sustainable footing and enable the changes required to continue feeding our nation as climate change presents ongoing challenges.
While the news that the farming budget has not faced a significant axe has been welcomed, the Budget statement came with a warning that its funding for agriculture may be reviewed in the next year.
The government is facing significant funding pressures on flood defences and farm schemes of almost £600 million in 2024-25. While the government is meeting those commitments this year, it’s necessary to review these plans from 2025-26 to ensure they are affordable.
The Budget statement also announced that the government will legislate to extend the scope of Agricultural Property Relief from Inheritance Tax to environmental land management from 6 April 2025. Relief will be available for land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies. This needs to be seen in the context of the overall reduction in scope of APR through the application of a £1 million cap from April 2026.
The government has pledged to provide £3.9 billion of funding in 2025-26 ‘to decarbonise industry, support flexible power generation, and capitalise on the UK’s geographic and technical strengths.'
The 2024 Autumn Budget announced that the Finance Bill 2024-25 will implement changes to the CCL rates, effective from 1 April 2026. These changes will increase the main CCL rates for electricity, gas, and solid fuels in line with the Retail Price Index (RPI), while the main rate for liquified petroleum gas (LPG) will remain frozen, ensuring consistency between LPG and other portable fuels for commercial premises not connected to the gas grid. These changes seek to ensure that the CCL aligns with inflation, maintaining the incentives for energy efficiency.
The Budget announced that, to incentivise businesses to use recycled instead of new plastic in packaging, the government will increase the PPT rate for 2025-26 in line with the Consumer Price Index inflation. HM Revenue and Customs (HMRC) has also published the response to its July 2023 consultation on the adoption of a mass balance approach for chemically recycled plastic in PPT.
The response confirms that businesses will be allowed to utilise a mass balance approach account for chemically recycled plastic for the purpose of PPT. There will be no change to the exemption for the immediate packaging of human medicines for the foreseeable future. It also clarifies that once these changes come into force, pre-consumer waste will no longer be classified as recycled plastic for the purposes of PPT.
The government intends to engage in further technical engagement before finalising the effective date and publishing draft legislation for technical consultation.
