George Osborne has announced a £7 billion package designed to help British manufacturers cut their energy bills in his Budget announcement.
The chancellor said Britain needed to cut its energy costs to boost the manufacturing sector – pointing out that US industrial energy prices are currently half of those in Britain.
Osborne outlined that Britain will cut its energy costs by “investing in new sources of energy: new nuclear, renewables, and a shale gas revolution”.
The budget focused on relieving the pressure of rising energy bills for Britain’s most intensive energy users, through a £7 billion package introduced today.
Part of the package includes the widely predicted announcement that Osborne was freezing the carbon price floor support rate at £18 per tonne of CO2 from 2016-17 until 2020, a move that the chancellor estimates will knock almost £15,000 off manufacturers’ annual energy bill.
Responding to the carbon price floor freeze, Tony Ward, head of power and utilities at Ernst & Young, said: “The immediate imperative for the freeze in the CPF is clear – to reduce upward pressure on electricity costs to all end users and in turn to avoid a growing competitive disadvantage for the UK's energy intensive industries.
“The difficult balancing act that government is trying to achieve is to encourage investment in low carbon, sustainable and indigenous power generation while at the same time protecting energy users from the costs of doing so. Freezing the CPF and offering support to energy users to mitigate rising costs clearly addresses the latter objective. However, relief felt by energy users may be temporary. This change of heart on a measure to quickly increase the cost of carbon in order to incentivise low carbon investment so soon after its introduction is the latest in what looks to be an emerging pattern of policy adjustments in mid-flight. With the changes to solar feed -in tariffs, to the ECO scheme and now this change to the CPF so early in its life, investors who have committed to build assets or businesses off the back of the original policy instrument will be increasingly suspicious of any new UK government policy.”
Ward concluded: “While not retrospective in form, such changes increasingly will feel to have just that effect in substance. The consequences for the wider sweep of much needed UK energy infrastructure investments may be negative – both in undermining confidence that investors have to commit funds to projects, but also in the returns that they will require if they do proceed. Both of these in the longer term will lead to higher end user costs than would otherwise have been the case.”
In addition, Osborne announced that he would be “extending the existing compensation scheme for energy intensive industries for a further four years to 2019-20”. He added: “Our steel makers, chemical plants, paper mills and other heavy energy users make up 35% of our manufacturing exports and employ half a million people. This scheme helps the companies most at risk of leaving to remain in the UK.”
Osborne also revealed that he was introducing new compensation worth £1 billion to “protect energy intensive manufacturers from the rising costs of the renewable obligation (RO) and the feed-in tariffs (FiTs)”. He continued: “Otherwise green levies and taxes will make up over a third of their energy bills by the end of the decade.”
For the third budget running, Osborne announced incentives to encourage the extraction of oil and gas. Osborne promised to review the whole North Sea oil and gas tax regime to ensure that Britain extracts ‘every drop of oil we can’. He continued: “We will introduce now a new allowance for ultra high pressure, high temperature fields to support billions of pounds of investment, thousands of jobs and a significant proportion of our energy needs.”
In response to the Budget, Labour leader Ed Miliband said that the measures announced today would do nothing to stand up to the energy companies and tackle rising energy bills. Summarising his thoughts on the government’s energy policy, Miliband said: “Remember the husky, the bike, the tree? That was before they said ‘cut the green crap’.”