Budget 2011 and environmental taxes - Environmental Audit Committee Contents

5 The 'Plan for Growth'

67.  In this chapter we examine whether the measures announced in the Plan for Growth, published alongside the Budget, are sufficient to drive the green economy, and the announcements made on the development of the Green Investment Bank since our inquiry on the Bank.[183]

Green economy

68.  The Treasury listed for us the main policy announcements in the Plan for Growth intended to support delivery of the transition to a low-carbon economy:

  • the £3 billion initial capitalisation of the Green Investment Bank to finance green infrastructure;
  • the introduction of a floor price for carbon for electricity generation from 1 April 2013;
  • government not introducing a levy on electricity bills to pay for future Carbon Capture and Storage demonstration plants; and
  • a cap on the cost of policies funded through energy bills.[184]

69.  Witnesses expressed their disappointment that these measures did not provide the much needed step-change to aid the transition to a low-carbon economy. The Plan for Growth focuses on low-carbon energy generation rather than on the green economy as a whole.[185] It suggests only a marginal impact on the development of the green economy in the UK relative to international competitors.[186] Friends of the Earth called the Budget a 'huge economic opportunity blown, damaging the potential for new jobs and the UK's economic recovery by hobbling some of the country's fastest growing sectors'.[187] Chris Hewett from Green Alliance told us that he was "deeply disappointed, because at headline level putting fuel in your tank was the strap line that set the tone".[188] In some areas, we heard that the Government risked taking a backwards step and of particular concern was the watering down of the 'zero carbon homes' standard.[189] WWF resigned from the Government's advisory board as a result.[190] Paul Appleby, a consultant in sustainable design, pointed out that so-called 'unregulated emissions', such as those from white goods and televisions, were likely to make up between a third and a half of carbon emissions from homes, and that "many of the manufacturers, suppliers, installers and developers who have been gearing up for zero carbon will be left high and dry".[191]

70.  Concerns were also raised about the changes announced to the planning system. Stephen Joseph of Campaign for Better Transport told us that he saw these announcements as the most environmentally damaging part of the Plan for Growth, which "sees land use planning as entirely an obstacle to growth, rather than as something that can genuinely aid sustainable development and sustainable growth and in fact help people reduce the need to travel and car dependence".[192] We have previously reported on the proposed presumption in favour of sustainable development in the Localism Bill.[193]

71.  The Aldersgate Group believes that green economy measures need to be incorporated into all policy decisions to be successful. They suggested that a number of the policy announcements, such as the sectoral growth reviews and introduction of enterprise zones could have incorporated a 'greening' element without changing their overall policy direction significantly.[194] Defra (along with DECC and BIS) is now due to publish a Roadmap to a Green Economy in July, after a 3 months delay,[195] 'that will outline how Government will seek to maximise economic growth, whilst decoupling it from impacts on the environment'.[196]

72.  We are disappointed that there was very little in the Budget and Plan for Growth to help drive the low-carbon economy. The Government must focus on delivering growth that is genuinely sustainable, and that does not degrade the environment or entail increased consumption of resources. The forthcoming Roadmap to a Green Economy must demonstrate a greater commitment to the green economy, and in doing so dispel any suggestion that, with its separate publication, it is an 'add-on' rather than an integral part of the Government's sustainable development plans. We recommend that in the Government's forthcoming review of the Plan for Growth it is consolidated with the Roadmap. This is vital for ensuring that a green economy is at the heart of Government's plans, and to provide a stronger and more coherent strategy for sustainable development. In the build up to the United Nations Conference on Sustainable Development in 2012 ('Rio+20'), which will address green economies as one its two main themes, we intend to conduct a separate inquiry into the Government's green economy policies and the Roadmap.

Green Investment Bank update

73.  Following publication of our report on the Green Investment Bank,[197] the Business Secretary published an update on the design of the Bank which stated that it will be operational from April 2012.[198] In our report we raised concerns that the Government had not contacted the European Commission soon enough to start the process of securing State aid approval for the Green Investment Bank's operations. This can be a lengthy process and the Bank might be restricted in what it is able to do before approval is secured.[199] The Business Secretary announced in May that his Department would make investments on behalf of the Green Investment Bank from April 2012, until State aid approval is secured,[200] at which point the Bank will be established as a stand-alone institution.[201] We noted in our earlier inquiry that the Bank's independence will be crucial for building investor confidence.[202] We are disappointed that unnecessary delays in securing State aid approval seem likely to result in the status of the Green Investment Bank being fudged. We are disappointed that the Government did not heed our earlier advice to make preliminary contact with the European Commission to start the process for securing State Aid approval.

74.  The 2011 Budget stated that the initial capitalisation of the Green Investment Bank will be £3 billion and that this level of Government investment, alongside private finance, could produce an additional £18 billion of investment in green infrastructure by 2014-15.[203] The Government would enable the Bank to have borrowing powers from 2015-16 'and once the target for debt to be falling as a percentage of GDP has been met'.[204] During our previous inquiry we noted that the Green Investment Bank, if properly designed, could play a transformational role in building a highly competitive low-carbon economy, given the critical importance of energy networks and systems, transport, and waste and water management infrastructure to economic growth. Given the Government's fiscal strategy, the increase in the capitalisation of the Bank to £3 billion announced in the Budget is welcome. However, it still falls short of the £4 to £6 billion capitalisation recommended,[205] and the powers to borrow, required to tackle the scale of the green investment funding gap. Transform and E3G considered the £3 billion capitalisation to be 'a reasonable start but still too low'.[206]

75.  The Government expects the Bank, as a long-term institution and the first of its kind in the UK, to require a period of bedding in. Delaying its borrowing powers was described by the Economic Secretary as "sensible and pragmatic".[207] However the sooner the Bank can borrow the sooner it can start lending funds to the stock of viable schemes unable to get finance elsewhere. The Committee on Climate Change's recent review of the potential for renewable energy identified a crucial window of opportunity for the Bank's support for off-shore wind in the period before 2015-16, during which new electricity market arrangements will still be uncertain.[208] The Committee on Climate Change concluded that 'unless it can be demonstrated that risks of a shortage of finance to 2015-16 can be mitigated, allowing the [Bank] to borrow money from its inception should be seriously considered'.[209]

76.  Following the publication of the 'update' on the design of the Green Investment Bank, the Government was exploring the Bank's priorities, including off-shore wind energy.[210]  The Government also said that it is assessing the potential and necessity for the Bank to support the financing of the Green Deal during its 'first stages',[211] which we had recommended in our earlier report.[212] However, preventing the Bank from borrowing may limit its impact on renewables investments and Green Deal support. As we said in our report on the Green Investment Bank, the Government expects green growth to be a major future driver of the economy, able to create new jobs and help transform the UK to a low-carbon economy. The 'step change' that this requires means that this is an urgent agenda. The Government should reconsider its decision on when and under what fiscal circumstances the bar on the Bank's lending powers might be eased.

183   Environmental Audit Committee, Second Report of Session 2010-12, The Green Investment Bank, HC 505. Back

184   Ev 41 Back

185   Q 37 [Andrew Raingold] Back

186   Ev 32 Back

187   Ev w3 Back

188   Q 2 [Chris Hewett] Back

189   The Government would hold house builders accountable only for those carbon dioxide emissions that are covered by Building Regulations (carbon dioxide emissions from energy use through heating, fixed lighting, hot water and building services). They do not cover emissions related to energy use from cooking or from plug-in electrical appliances such as computers. Back

190   http://www.wwf.org.uk/wwf_articles.cfm?unewsid=4799  Back

191   Ev w8 Back

192   Q 41 [Stephen Joseph] Back

193   Environmental Audit Committee, Third Report of Session 2010-12, Sustainable development in the Localism Bill, HC 799. Back

194   Ev 32 Back

195   Department for Environment, Food and Rural Affairs, Business Plan update, May 2011. Back

196   Defra website: http://sd.defra.gov.uk/gov/vision/green-economy/  Back

197   Environmental Audit Committee, Second Report of Session 2010-12, The Green Investment Bank, HC 505. Back

198   HM Government, Update on the Design of the Green Investment Bank, May 2011. Back

199   The Green Investment Bank, op citBack

200   HC Deb, 24 May 2011, col 789. Back

201   Update on the Design of the Green Investment Bank, op citBack

202   The Green Investment Bank, op citBack

203   Q 113  Back

204   Budget 2011, op cit, paragraph 1.112. Back

205   The Green Investment Bank, op cit, page 14. Back

206   Ev w84 Back

207   Q 116 Back

208   Committee on Climate Change, The Renewable Energy Review, May 2011. Back

209   ibidBack

210   HC Deb, 24 May 2011, col 789. Back

211   Update on the Design of the Green Investment Bank, op citBack

212   The Green Investment Bank, op citBack

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Prepared 7 July 2011