Spring Budget 2024: A cold wind for climate change?

I read recently that just 9% of the world’s plastic is ever recycled and that by 2050 there is expected to be more plastic in the oceans than fish.

The accuracy of the statistic is a moot point but there is certainly at least a degree of truth in the statement. There are countries in the world where plastic bottles appear to be littered everywhere and one thing is certain: we really do need to reduce and recycle – reduce our dependence on plastic and recycle more of it.

In his Spring Budget, the Chancellor had the opportunity to announce many initiatives that might help us to protect our natural environment, address the issue of global warming & climate change, and help us to meet the UK’s net zero target.

One thing the Chancellor didn’t do was make any announcements regarding a ‘plastic tax’ or indeed anything to do with the plastic challenge.

This set me thinking about the ESG impact of the announcements the Chancellor did make. Here’s a selection from some of the Chancellor’s ‘Budget for long-term growth’ announcements and how they might impact E, S & to a lesser extent G:

1. Budgeting advance loans and debt relief orders: the Chancellor’s extension of repayment periods for budgeting advance loans from 12 months to 24 months will come as a welcome announcement for the almost one million households on Universal Credit; as will the abolishing of the £90 charge to obtain a debt relief order which will come as welcome news for many households. Two ticks for ‘S’ then, with a third coming from the six-month extension, at current levels, of the Household Support Fund.
   
   
2. No increase in fuel duty: this is always a contentious area. Fuel duty can be used as a blunt weapon to reduce internal combustion engine vehicle usage but, conversely, as the Chancellor stated, it can unfairly impact poorer families and sole traders. The current freeze will be extended for a further 12 months. Beyond that we need to look at reforming the way we use UK roads and charge for their use. The current system is broken. Roads are in a poor state of repair causing increased servicing and repair, vehicle damage and poorer fuel economy. That affects not only drivers of ICE vehicles but also those of Electric Vehicles too. In addition, there is no distinction between little-used roads and those used heavily or, indeed, so-called ‘rat runs’ that can often divert enormous quantities of vehicles along roads that are simply not suitable for the volume, including residential roads. Again, this can lead to road damage, as well as to increased vehicle emissions from running ICE engines in stationary traffic. We hope to see whichever government is in power for the next Spring Budget take a long hard look at the way the UK road network is used and maintained, as well as taking a holistic look at all the UK transport options to create a connected travel plan that enables people to make fair, appropriate and affordable choices when it comes to their journeys.
   
   
3. The Devil is in the Data. The Chancellor’s announcement regarding Nissan’s plan to build two new electric car models in the UK will come as welcome news to many but what about the revelation that Microsoft and Google have announced data centres worth over £3 billion? More about data centres later but suffice to say that data centres can have huge energy appetites, and even be cooled by water that is used then discarded. Microsoft and Google may well be planning major environmental advances in their programmes but for me the jury’s out on whether this is a good or bad thing from an ESG perspective. I’m also slightly alarmed at the statement that ‘since 2010, greenfield foreign direct investment has been higher than anywhere else in Europe’. The social benefits may be extensive but what about the environmental impact?
   
   
4. Permanent full expensing, the VAT registration threshold and extending full expensing to leasing. The Chancellor today increased the VAT registration threshold from £85,000 to £90,000. This may seem an odd announcement to include in an article ostensibly about ESG, but this move will likely affect up to 28,000 businesses who can benefit from not having to be VAT registered. This represents not only a significant potential saving in time, but also in costs - some sources indicate that businesses can spend an average £4,100 on expenses such as software or accountants in order to comply with their VAT obligations. And with VAT returns now being a digital process in the UK, the impact of less computing on our ‘E’ is very welcome.
   
   Freeing up of any funds-availability in the SME sector can lead to the opportunity for greater investment in ESG aspirations. And whilst that investment is not guaranteed, it is an opportunity that might also benefit from the extending of full expensing beyond capital expenditure to leasing. Full expensing allows organisations to deduct the full cost of eligible IT equipment, plant and machinery in the year they are purchased (or leased). Given the growing environmental credentials of many of the eligible products, there is probably an unintended benefit for the planet from this initiative.
   
   
5. Village people. The Chancellor’s allocation of £5 million to renovate hundreds of local village halls across England is a modest, though welcome, investment in the communities that are part of the government’s ‘catchment area’. A good tick in the ‘S’ box although a pity the initiative isn’t extended to other parts of the UK and a little more generous. After all, according to some sources it is estimated that there are around 10,000 village halls in the UK.
   
   
6. Nuclear: the Chancellor referred to two potential reactor sites the government will be buying back following the developer pulling out. He confirmed the government has paid £160m to buy projects in Wylfa, North Wales and Oldbury, Gloucestershire from Japanese technology company Hitachi.
   
   ‘We want nuclear to provide up to 25% of UK electricity by 2050 and I want the UK to lead the global race in developing cutting edge technologies’, the Chancellor stated. To place that statement in proper context, over the past year nuclear has contributed around 14% of the UK’s power generation mix and over the course of 2023 fell to a 40-year low.
   
   Nevertheless, the Chancellor insisted that Great British Nuclear will begin the next phase of the Small Modular Reactor selection process.
   
   According to National Grid, ‘in an emissions sense, nuclear power is considered to be clean. It produces zero carbon emissions and doesn’t produce other noxious greenhouse gases through its operation. The lifecycle emission of nuclear energy (emissions resulting from every stage of the production process) are also significantly lower than in fossil fuel-based generation’.
   
   However, a salutary lesson we have learned from history is that when things go wrong with nuclear facilities the resulting impact on the environment, wildlife and agriculture can be nothing short of catastrophic: perhaps we should be calling now for increased research into ensuring future nuclear developments have a new higher standard of failsafe protection.
   
   
7. Pension performance. The recognition that ‘other markets such as Australia generate better returns for pension savers with more effective investment strategies and more investment in high quality domestic growth stocks’ is a welcome acknowledgement from the chancellor, as is his announcement that he ‘will introduce new requirements for DC and local government pension funds to disclose publicly their level of international and UK equity investments.’ Improved pension performance, assuming it is achieved, is a huge tick in the ‘S’ box for a country with a growing aging population.
   
   
8. Up in the air? The Chancellor announced the allocation of ‘up to £120 million more to the Green Industries Growth Accelerator to build supply chains for new technology ranging from offshore wind to carbon capture and storage.’ This is a very welcome, although modest, intervention, as is the ‘£270 million of investment into innovative new automotive and aerospace R&D projects, building the UK’s capabilities in zero emission vehicle and clean aviation technology.’ Again welcome, but again, modest.
   
   
9. Data and AI: the Chancellor’s Spring Budget statement referred to the use of AI in the NHS, connectivity from space, a quantum computing error correction programme and funding for the SaxaVord Spaceport, as well as mention of drones and facial recognition systems.
   
   Whilst the government’s £100m investment in the national component of the £160m Connectivity in Low Earth Orbit (CLEO) programme will certainly support geo-political security aspirations as well as potentially offering greater connectivity in remote and rural parts of the UK, we wonder whether there might be other more cost-efficient technologies that could address the same issues, especially the latter, such as stratospheric solutions for example. We would also like to put in a plea for the significant segment of the UK population that cannot either afford, or perhaps are not of an age where no matter how much connectivity there is they will be unable or unwilling to use it. If the government wants to make a major societal gain in a country with a growing aging population, perhaps it also needs to look at the ways they can be integrated without a complete dependence on digital technologies.
   
   Referencing the Public Sector Productivity Plan, the Chancellor announced that ‘The NHS will receive an additional £3.4billion as part of this to invest in new tech and digital transformation, including making the NHS app a single front door for patients, piloting new AI to halve form-filling times for doctors, rolling out universal patient records, and over 100 upgraded AI-fitted scanners so doctors can read MRI scans more accurately and quickly.
   
   Don’t get me wrong, these are extremely worthy and valuable aims but let’s not forget that AI is hugely energy hungry, consuming vast quantities of energy to process the huge amounts of data it is capable of dealing with. Some AI data centres have invested in alternative energy sources, but it is unlikely there will be no drain on existing energy platforms, which can often mean CO2 emitting sources. So acute is the AI energy issue that some organisations are already looking at embedded small modular nuclear reactors as a potential solution.
   
   In a similar vein, new IT infrastructure can certainly be more energy-efficient than older legacy systems but not all are, and if newer systems are expected to do far more than their predecessors, the trade-off can be limited in environmental impact and energy displacement terms.
   
   And while ‘making the NHS app a single front door for patients’ may appear as efficiency nirvana, on a purely social level, I am certain it will fill the hearts of the 31% of over-65s who don’t own a smartphone with sheer terror.
   
   
10. Energy Profits Levy. This ‘windfall tax’ mainly on North Sea oil and gas firms is to be extended to March 2029 indicating that energy prices are likely to generate high profits for energy providers at least until then. That, in turn, highlights our continuing dependence on fossil fuels, and the need for a redoubling of effort to move away from that dependence. However, the Chancellor affirmed ‘we want to encourage investment in the North Sea…’ so that dependence is likely to remain with us for a long while. With that in mind, it was sad, but not surprising, that there was no mention at all in the budget regarding home insulation which, given the aging housing stock in the UK, could make a significant difference in achieving the UK’s net zero obligations.
    
    
11. Another 2%. And the latest reduction in National Insurance by 2p, from 8% to 6%? That means an additional £450 a year for the average employee or £350 for someone self-employed. Let’s hope that at least some of that finds its way to the ‘E’ or the ‘S’, or perhaps both.

I commend this article to every house (and business)!