The Rt Hon Jeremy Hunt MP
Chancellor of the Exchequer
1 Horse Guards Road
1st March 2023
I am writing to you ahead of the Spring Budget on 15th March, regarding five priorities that are required to build an economy fit for the future – and as a response to the economic and geopolitical turmoil of the last 12 months and the ongoing climate emergency.
Provisional figures from the Met Office show 2022 was the UK’s hottest year on record, and the UN Secretary General warned at COP27 that “we are on a highway to climate hell with our foot on the accelerator”. It is therefore profoundly alarming that your Government is still failing to take the necessary action to ensure a smooth transition to a zero-carbon economy. Awarding more than 100 new oil and gas licences for the North Sea and approving the UK’s first new coal mine in thirty years, despite the Climate Change Committee warning that it “will increase global emissions and have an appreciable impact on the UK’s legally binding carbon budgets”, is at odds with the scientific reality that time is fast running out to limit global temperatures to 1.5 degrees and that this necessitates leaving fossil fuels in the ground.
The IEA’s World Energy Outlook 2022 made clear that there is now alignment across the economic, environmental and energy security case for renewables. In responding to high gas prices, the Government should not be doubling down on that same fuel, but shifting away from our fossil fuel economy to one that makes the UK – and its citizens – more resilient for the long-term. I therefore hope that you will take the opportunity in the Spring Budget to implement the following policies in order to create a fairer and greener society and get off oil and gas for good.
- Support households now and into the future
According to National Energy Action, the number of UK households in fuel poverty will increase from 6.7 million to 8.4 million next month, when the Energy Price Guarantee increases to £3,000, at the same time as the £400 Energy Bills Support Scheme comes to an end. This will leave families with a £900 cliff edge and will come at an enormous human cost, with many forced to ration their heating and choose between essential needs. At the same time, falling global gas prices means that the Energy Price Guarantee will come as a significantly reduced cost to the Treasury. I therefore urge you to use this headroom to provide urgent support for struggling households.
Moving forward, there is an urgent need to reform energy tariffs to ensure that no one is faced with fuel poverty and I would encourage you to look at a rising block tariff with either a heavily discounted or a free energy block. The New Economics Foundation propose a new system of “universal basic energy” which would provide a free allowance in order to meet basic needs, with subsequent blocks charged at progressively higher rates depending on energy consumption. This approach recognises that energy is a fundamental need and would provide the greatest support to those on the lowest incomes whilst resulting in slightly increased bills for the richest households, thereby incentivising investment in energy efficiency measures
2. Reduce the UK’s dependence on fossil fuels for the long-term
In addition to supporting households with high bills in the short-term, it is essential that the Government facilitates the transition away from gas altogether. Whilst I welcome the £6bn investment in energy efficiency between 2025 and 2028 which you announced in the 2022 Autumn Statement, more clarity is needed on how this will be spent. Moreover, funding that won’t be released until the next Parliament will be of little comfort to households which are struggling to pay their bills now. In your Budget statement I therefore hope you will provide clarity on the £6bn allocation, whilst urgently bringing forward the Government’s outstanding pledge on energy efficiency and heat decarbonisation for this Parliament. According to the think tank E3G, the Government has yet to spend a third (£2.1bn) of the investment due up to 2025, and which was recommitted to in the last Autumn Statement.
As Lord Deben, Chair of the Climate Change Committee, made clear to you in his letter in November, decarbonising the UK’s homes will not only protect households from volatile gas prices, but is essential to delivering our climate targets. It is concerning therefore, that there remains a significant shortfall in the investment needed over the course of this Parliament in order to put the UK on track to meeting these statutory targets. I therefore urge you to bridge the estimated £8.58bn funding gap, as a first step towards delivering the nationwide, Local Authority-led, home insulation programme, which would be genuinely transformative for households as well as the climate. According to the ECIU, household bills were £1,750 higher in 2022 (£27.6 billion in total) than they would have been had the Government expanded renewable energy faster and insulated more homes over the past decade.
3. End the tax system’s support for fossil fuel industry
The UK has one of the most generous tax regimes in the world for oil and gas production, and at a time when households are struggling to make ends meet, the Government’s decision to bring forward a further subsidy for fossil fuel extraction is totally unacceptable. Indeed, the failure to remove investment allowance under the Energy Profits Levy means that despite it increasing to 35%, companies are still able to claim £91.40 in tax relief for every £100 invested, and £109 for every £100 invested in “upstream decarbonisation”. It has been estimated that this loophole has come at a cost to the Treasury of almost £11 billion.
As you will be aware, last month Shell reported £32.2bn in annual profits – double that of the previous year and the highest in its more than 100 year history. Meanwhile, BP recorded £23bn profits at the same time as reportedly stepping back from its climate pledges. In the context of the climate and the cost-of-living crises, it is simply untenable for the Government to continue failing to properly tax oil and gas company profits. I therefore urge you to urgently close the investment allowance loophole in the Energy Profits Levy and end all other tax reliefs, financial support and other subsidies for the fossil fuel industry, in line with the World Trade Organization definition of subsidies.
It is also essential that UK legislation is amended to remove the outdated duty to maximise the economic recovery of petroleum in UK waters – a duty which has no place on the statute books of a country which has any ambition of limiting temperatures to 1.5 degrees.
4. Deliver a Green New Deal for benefit of people and planet
The transition to a zero-carbon economy has the potential to deliver a wealth of opportunities across the UK – from good, green jobs to warm homes and reinvigorated local communities. I therefore urge you to invest in a Green New Deal to support Local Authorities in delivering ambitious climate and nature programmes at the local level, for the benefit of both people and planet. Crucially, implementing a Green New Deal must be coupled with urgently reversing the cuts we have seen to Local Authority funding, and enabling councils to deliver essential services.
Whilst I welcome the additional funding for adult social care worth £2.8bn this year and £4.7bn for the year after, as announced in the Autumn Statement, it falls significantly short of the £13 billion the Local Government Association has called for immediately to address the severity of the pressure facing the service, including rising demand, and to ensure Councils can meet all of their statutory duties under the Care Act. This failure to provide the money Councils need for social care has profound knock-on effects on individuals, communities and the Health Service. Coupled with the shocking decision to delay the implementation of the cap on catastrophic care costs faced by individuals, the Government’s failure on social care must be remedied by this the Budget.
We have a grave national housing crisis and in my constituency it remains acute. Affordable, warm, zero carbon social homes are something Councils desperately want and need to deliver. The lifting of borrowing caps in 2018 was an important step in the right direction but this must be complemented by much more generous grant funding to enable councils to build and create council homes. This would represent intelligent Government investment that pays for itself. Investing in grant funding for more council homes would deliver huge benefits in health, wellbeing and community, as well as in tangible financial terms via huge reductions in housing benefit bills and rent receipts for councils.
Grant funding for social housing (investing in bricks and mortar) to create a major national asset that allows for continued investment in more homes is an efficient and effective use of public money but the Government’s current ambition is grossly inadequate to the challenge faced. Over the full five years, only around 15% of the homes provided by the Affordable Homes Programme are expected to be social rent homes – just 32k homes when we need 100k a year, according to the LGA. The programme is equally unambitious in financial terms: the Government is providing the equivalent of just £2.5bn a year, with only a derisory proportion going to grants to deliver the council homes we so desperately need.
5. Transition to a Wellbeing Economy
Finally, this Budget should mark a turning point towards new measures of economic progress, breaking the UK’s addiction to endless economic growth and instead focussing on the health and wellbeing of individuals, communities and the environment. The Treasury-commissioned Dasgupta Review calls for an “urgent and transformative change in how we think, act and measure economic success to protect and enhance our prosperity and the natural world”. Likewise, the Environmental Audit Committee report on Biodiversity in the UK called for alternatives to GDP to “more appropriate ways to measure economic success”.
When you stand up in the House of Commons to deliver your statement, as well as reporting on the OBR’s updated economic and fiscal forecast, I call on you to also report on the economic, social, environmental indicators that determine whether people can live healthy and fulfilled lives. This would follow the lead of New Zealand, home to the world’s first ever Wellbeing Budget and a finance ministry that uses a Living Standards Framework to shape all economic policy making.
I hope you will consider these proposals in full ahead of the Spring Budget.
Yours sincerely, Caroline