Beneath the CSR topline: energy and infrastructure

Bad news at the Department of Energy and Climate Change, where budget cuts of 22% have been announced. According to Carbon Brief, cuts since 2010 have already seen the budget fall by over 11% and given its low profile it was always going to be an easy target.

However, much of DECC’s £8bn pot is already set aside for the clean-up of legacy civil nuclear projects. This money is not necessarily ring-fenced – the Nuclear Decommissioning Authority has been instructed to make efficiency savings of around £1bn up to 2020 – but it is much more difficult to make savings there than elsewhere. This means any retrenchment will have to fall disproportionately on other areas including staff costs and existing projects such as renewables and energy efficiency support mechanisms. 

The Autumn Statement, it is suggested, will save £30 of the average household energy bill, largely by reforms to and subsequently replacement of ECO. The detail of the statement also suggests that the Government’s response to the consultations on controlling the budgets of the RO and feed-in tariff will shortly be announced and that the savings accrued there will be in the region of £6 off the annual bill and £500 off that of a business user.

The Government appears to have recognised that some of its actions may have harmed investor certainty, and has changed the rules around tax-advantaged venture capital schemes by excluding those involved in energy generation. But by far its largest exclusion was the decision to remove energy intensive industries from the obligation to pay the RO and FIT. The Government has been sensitive to the argument that it has not done enough to help these industries who face stiff competition from abroad and does not want to face another situation where energy creates a tactical defeat for them.

Despite having done a lot to get shale going, the government has gone even further to give it a helping hand.  The detail suggests the Government will commit up to 10% of shale gas tax revenues to a Shale Wealth Fund, delivering up to £1bn for local communities hosting shale gas developments. It will also give the Oil and Gas Authority additional powers to scrutinise companies’ offshore decommissioning plans and take action to ensure they represent value for money.

Infrastructure was a mainstay of Osborne’s speech, unsurprising given the Chancellor’s desire to tie his political future to Britain’s industrial revival. In setting out his priorities in this area, Osborne noted the importance the Government attached to building the Northern Powerhouse through investment on transport in the North. He also hailed the Treasury’s multi-billion commitment to spending on capital investments even as it brought borrowing under control.

As part of the Comprehensive Spending Review plans, the Government has committed to publising a National Infrastructure Delivery Plan next spring, setting out in detail how it will deliver key projects and programmes over the next five years. It says it will more than meet a pledge to spend £100bn on infrastructure, with a revised forecast of £120bn. The Treasury will also extend the availability of the £40bn UK Guarantees Scheme to 2021.  

On transport, the Spending Review and Autumn Statement touts £300m over the next five years for a new Transport Development Fund, designed to support the next generation of transport infrastructure projects. The Government has additionally announced it will publish a Second Roads Investment Strategy before the end of this Parliament setting out how the Roads Fund will be invested.

At a local level, new and infrastructure investment includes £150m to support smart and integrated ticketing in the Manchester area, alongside £50m for the new Transport for the North body and £400m for a Northern Powerhouse Investment Fund. In London, £11bn support has been set aside to assist the Mayor in delivering investment including Crossrail, new Underground trains, new buses, and a network of cycle superhighways. However, Transport for London will lose all its government operational grant by 2020, something that represents 6% of the organisation’s annual budget.

Photograph: Rt Hon George Osborne MP

Larry Smith

Hill & Knowlton Strategies Search