Article

UK Budget 2024 – Key Takeaways for the Energy Sector7 November 2024

Introduction

"We examine the Budget’s key announcements for the energy sector and compare them to the commitments made in the Labour Party’s manifesto ahead of the General Election."

On Wednesday 30 October 2024, UK Chancellor Rachel Reeves published the new Labour government’s first budget since the General Election in July, titled “Fixing the Foundations to Deliver Change” (the “Budget”). In this article, we examine the Budget’s key announcements for the energy sector and compare them to the commitments made in the Labour Party’s manifesto ahead of the General Election, which we analysed in our previous article “Future UK Energy Scenarios: What Is Each Party Promising?”.

Key Announcements (General)

The Budget makes a number of general announcements concerning the UK Government’s strategy for infrastructure and energy development, including:

a departmental settlement of £14.1 bn in 2025-2026 for the Department for Energy Security and Net Zero;
a 10 Year Infrastructure Strategy will be published alongside Phase 2 of the Spending Review to conclude late spring 2025;
capital budgets will be set for five-year terms, with extensions considered every two years at spending reviews to taper “cliff-edges”;
£125m in funding for Great British Energy – £25m for its establishment in Aberdeen and £100m in capital funding;
the formation of the National Infrastructure and Service Transformation Authority (“NISTA”), combining the functions of the National Infrastructure Commission and the Infrastructure and Projects Authority. NISTA will be operational by spring 2025 and be responsible for delivering the government’s infrastructure strategy, liaising with industry and validating business cases ahead of government approval;
a commitment to respond to the National Planning Policy Framework consultation before year-end and legislative changes to streamline the planning system through the Planning and Infrastructure Bill to be introduced to parliament in early 2025;
£5m for improvements to the planning regime for Nationally Significant Infrastructure Projects and £46m to boost capacity in local planning authorities; and
funding for UK Investment Zones and Freeports Programmes.

The Budget also highlights the prior launch of the National Wealth Fund as a new UK impact investor designed to crowd-in a targeted £70bn of private investment to support the government’s industrial strategy.

Comparison to the Labour Party’s manifesto pledges

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Jennifer Charles

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Tom Harvey

Associate London

"CCUS receives significant funding and support through tax incentives."

Subject	Manifesto Pledges¹	Budget Announcements
Net Zero and Energy Transition	“National Mission for clean power by 2030”. Mandate UK-regulated financial institutions and FTSE 100 companies to develop and implement credible transition plans aligning with the Paris Agreement’s 1.5°C goal.	• £163m to continue the Industrial Energy Transformation Fund over 2025-2026 to 2027-2028; • the government will commission advice from the National Energy System Operator (“NESO”) on 2030 Net Zero delivery and commits to publishing a detailed Clean Power 2030 Action Plan. It also commits to respond to the Climate Change Committee’s Progress Report and publish an updated Carbon Budget Delivery Plan; and • wider differences in Vehicle Excise Duty First Year Rates between electric vehicles (“EVs”) and Hybrid/ICE Vehicles.
Renewables	Offshore Wind - quadruple capacity by 2030.	£134m for the improvement of port infrastructure to facilitate floating offshore wind development.
	Onshore wind - double capacity by 2030.
	Solar - triple capacity by 2030.
Fossil Fuels	• maintain “strategic reserve” of gas power stations; • “phased and responsible” transition in the North Sea that recognises the “ongoing role” of oil and gas, which will be with us “for decades to come”; • no cancellation of existing North Sea licences, but no new exploration licences; • no new coal licences; • ban fracking for good; and • “close loopholes” in the windfall tax on oil and gas companies.	A consultation on environmental guidance assessing effects of Scope 3 emissions from offshore oil and gas production and development projects. Further detail on the government’s taxation of oil and gas companies as follows: • an increase to the Energy Profit Levy (“EPL”) from 35% to 38%; • an extension of the EPL until 31 March 2030; • the removal of the 29% investment allowance; • the main rates of the Climate Change Levy will be uprated in line with the Retail Price Index, the main rate for liquified petroleum will remain frozen; • the reduced rates of the Climate Change Levy will remain an unchanged fixed percentage of the main rates; and • Carbon Capture, Utilisation and Storage (“CCUS”) related tax relief will be available (see below). The changes to the EPL will be legislated for in the Finance Bill 2024-2025. The government will also publish a consultation in early 2025 regarding the taxation of fossil fuel profits and responses to price shock after the expiry of the EPL.
Nuclear	• extend lifetime of existing plants; • get Hinkley Point C over the line; and • new nuclear, such as Sizewell C and SMRs to “play an important role”.	• £2.7bn of funding for Sizewell C’s development through 2025-2026, with equity and debt process expected to close in spring 2025. A Final Investment Decision will be taken at Phase 2 of the Spending Review; and • financial decisions on the ongoing Small Modular Reactor competition will be taken in spring 2025.
Grid Reinforcement and Interconnectors	Work with industry to upgrade national transmission infrastructure and “rewire Britain”.	The government has committed to working with the NESO and Ofgem to develop a “robust” and “timely” grid connection process.
Hydrogen	Labour noted general plans to invest without further details.	The Budget highlights the government’s prior approval of two electrolytic hydrogen projects in Cromarthy and Whitellee in Scotland and two in Milford Haven and Bridgend, Wales. The government will also provide support for the first round of electrolytic hydrogen production contracts, no further detail is provided on what form this support will take.

October Surprises

The Budget addresses a number of issues not addressed in the Labour manifesto. Notably, CCUS receives significant funding and support through tax incentives.

"The Carbon Price Support Rates will remain at £18 per tonne of CO2 in 2026-2027."

Subject	Budget Announcement
CCUS	• “leveraging” £8bn of investment in CCUS infrastructure; • £3.9bn of funding in 2025-2026 for Track-1 projects; and • the government will legislate in the 2024-2025 Finance Bill to provide tax relief for oil and gas companies making payments into decommissioning funds in relation to assets sold for use in CCUS (maintaining the tax treatment if the assets had been decommissioned). Receipts for sales of these assets will be removed from the scope of the EPL.
Critical minerals	UK Export Finance will now be able to support companies supplying critical minerals to UK exporters.
EV Infrastructure	£200m in 2025-2026 to accelerate EV charge point installation.
Carbon Pricing	The Carbon Price Support Rates will remain at £18 per tonne of CO2 in 2026-2027.
Carbon Border Adjustment Mechanism (“CBAM”)	UK CBAM to be introduced from 1 January 2027 (following the response to the March 2024 consultation. The registration threshold will be set at £50,000 which the government predict will retain 99% of imported emissions while removing 80% of otherwise registrable businesses (70% of which will be micro, small, or medium sized businesses).

Missing in Action

As shown in the comparison above, certain planks of the Labour manifesto are not addressed by the Budget.

Onshore wind and solar – the commitments to expand capacity in both these sectors have not been reflected in the Budget, however it may be the government’s intention that these goals are achieved by regulatory and planning reform scheduled for the first half of 2025.
Fossil fuels – many of the policy pledges made in the Labour manifesto regarding the regulation of the oil and gas sector are not referenced in the Budget, this might be expected given they were not primarily HM Treasury matters. The Budget does, however, deliver the expected ratchet in the tax obligations of oil and gas companies.
Regulatory Reform – as with fossil fuel regulation, the promised regulation for UK regulated Financial Institutions and FTSE 100 companies is not mentioned in the Budget. However, further consultations and strategy publications are promised and may shed further light on the government’s agenda.