Dr. James Crosby, Head of Sustainability at energy sustainability consultancy Advantage Utilities, provides his analysis of what the latest Spring Budget means for UK businesses.
Dr James Crosby
Nuclear power is to be reclassified as ‘environmentally sustainable’
Having studied nuclear power generation and the associated waste products, in theory, the emissions from fuel production and energy generation are low relative to fossil fuels. Furthermore, there is an abundance of fuel to power it. As a result, nuclear power can be considered semi-renewable and on the face of things is environmentally beneficial. However, there is a very big problem with radioactive waste disposal. This waste is highly toxic and has a lifetime of 100,000+ years. It essentially writes the area off where it is disposed. (Grade A, B and C waste). So whilst there are no GHG emissions, there are significant wider ecological and geopolitical concerns over the security of the waste. It’s somewhat of a double edged-sword in the race to achieving sustainability. The impact of this should be to see wider implementation of nuclear power generation. Nuclear generation is significantly cheaper at the p/kWh than fossil fuels, so will provide more manageable energy costs to businesses in the medium to long term.
Super-deduction replaced by capital expense allowance to year end tax profits
Given taxation on profits will be increasing in April to 19% and 25%, on the face of it, companies now have a greater tax incentive to install more efficient infrastructure, so long as they remain eligible. However, this policy is limited to only companies operating with declarable profit. With many businesses now facing steep hikes in operational costs, this now makes many companies ineligible, possibly leading to ‘economic discrimination’ for those most affected by the difficult trading conditions. Products such as solar PV are actually considered ‘long life assets’ and therefore would fall under the ‘First Year Allowance’ expensing scheme. Whereby, 50% of a projects value can be deducted from year-end profits. Overall, this would amount to a 9.5% to 12,5% deduction from the cost of installation. This is a fantastic attribute to extend and eligible companies will continue to receive excellent cost initiative for these installations.
Fuel duty frozen
No change in fuel duty will be welcome by many businesses operating fleets, but doesn’t help the transition to greener transportation. Electric vehicles are still more environmentally friendly and have lower operating costs, although many businesses continue to face high costs to upgrade their fleet. Had fuel duty increased, the incentive to transition to greener vehicles would have been greater.
£20bn to support carbon capture
The UK is committed to net-zero and this requires us to reduce our emissions. However, it is unlikely our emissions will ever be zero. Therefore, we need methods to draw down CO2. Forestation is the obvious one here, but carbon-capture & storage also forms a strong component in global net-zero modelling. The UK initially cut investment into this in previous budgets, although academia remained heavily involved. Overall this is a good agenda to re-ignite on a net-zero pathway. Given carbon-capture & storage is undertaken at large scale, it is difficult to see how day-to-day operations of business would be altered. However, it will ultimately provide additional avenues for carbon offsetting/carbon credits.
In summary, the overall budget is overall a welcome to many businesses and sustainability experts. The upgrade of nuclear power as a sustainable source of energy and the re-investment in carbon-capture and storage will delight many global energy and environmental professionals in the long term. The short term win for businesses is very much in the capital expense allowance. This could see businesses deduct 19% to 25% for the total cost of projects from year-end corporation profit tax. However, this will be limited to profitable firms and does not provide the universal incentive to transition to net-zero.
