This was an agenda-setting budget. Ed Miliband, and the green economy, emerged as winners as Rachel Reeves sought to side-step political challenges and set a narrative for investment and growth.
However, for as much as the budget gave; it did not give. It left many questions unanswered which, successful or not, will provide ample opportunity for the opposition to hold Government to account.
In this blog, we outline where the Budget delivered for the energy sector, where questions remain, and what that means for opportunities for public affairs engagement.
Where the budget delivered:
Billions more for energy spending
Ed Miliband has well and truly won the fight on energy, investment, and growth; receiving the largest rise in budget of any Department.
The largest year-on-year budget increases were given to the Department for Energy Security and Net Zero (£3.3 billion), followed by the Department for Health and Social Care (£1.8 billion), Department for Science, Innovation and Technology (£1.4 billion), and Department for Education (£1.2 billion).
GB Energy
GB Energy will receive £100m of investment in 2025-26, in addition to £25 million to set up in Aberdeen. This is long short of the £8.3bn of capitalisation promised for GB Energy in this parliament.
Indeed, the OBR assessment notes that it has not received information about the allocation of the £8.3 billion and cannot therefore provide an assessment of its impact.
It was also confirmed that the National Wealth Fund (formerly UKIB) will undertake investment on behalf of GB Energy while it is established, making “initial investments as quickly as possible” and drawing on their “pipeline of projects”. (The UKIB made a £165 million investment into the construction of the first commercial-scale liquid air energy storage plant in the UK in June).
In this light, £100m for the entirety of GB Energy next year seems small; while the use of the National Wealth Fund has done little to address confusion over what GB Energy will actually do.
This will do nothing to placate Conservative attacks on how GB Energy is actually delivering for tax-payers.
Windfall tax clarification
Made much of in the manifesto, the Energy Profits Levy (EPL) rate will increase by three percentage points to 38% from 1st November, with its expiration now the 31st March 2030. Labour have also closed the “loophole” left by the previous Government that enabled fossil fuel producers to reduce their taxes through investment allowances.
While the market responded better than anticipated, the OBR estimate that the cost of the levy will see a 26% reduction in investment in oil and gas and 9.2% reduction in gas production. As gas production decreases, so too will the amount of tax received – all in all, welcome fuel for Conservative attacks and industry pushback on Labour’s approach to the North Sea.
Where questions remain unanswered:
What left of the Warm Homes Plan?
While the Government confirmed an initial £3.4bn for Warm Homes Plan between 2025-27 and 2027-28, including an increase to the Boiler Upgrade Scheme, there remains questions about the rest, given £6.6bn was promised. This will be determined in Phase 2 of the spending review – with an update expected in Spring.
What about energy bills?
On inflation, the OBR expect a temporary rise, from around 2% at the end of this year to an average of 2.6 per cent in 2025. This, they state, is partly driven by “higher gas and electricity prices”. The Ofgem price cap is also anticipated to increase by 3% in January. The budget did not outline any support for energy bills, such as a social tariff, and with electricity prices expected to rise this could cause challenges for the Department, especially given the Conservative focus on the campaign message of “£300 off energy bills”.
Will we ever see progress on nuclear?
In the hours following the budget, Shadow Energy Secretary Claire Coutinho got into a spat with Energy Minister Michael Shanks on X (formerly Twitter) about the future of nuclear in the UK.
Coutinho highlighted that there has been no update on Sizewell C or SMR projects. Indeed, the budget states that “a Final Investment Decision on whether to proceed with the project will be taken in Phase 2 of the Spending Review.”
Shanks responded that the Conservatives had not built any new nuclear in 14 years and that the budget confirmed £2.7bn for Sizewell for 25/26 – touché – though the Treasury later confirmed this was not new money.
What about the opportunities for public affairs engagement?
Energy continues to be a critical part of the Government’s fiscal agenda. From supply chains to manufacturing, it forms a crucial part of the Industrial Strategy, Skills England Bill, and the Warm Homes Plan.
This provides significant opportunity for engagement; namely:
1. Engagement with the Industrial Strategy, with responses due in late November.
2. Engagement with NESO who is in charge of options for the clean power plan.
3. The Phase 2 spending review – including engagement with Treasury. From nuclear to the Warm Homes Plan many of these decisions have been left to a later date.
