He had a lot of fish to fry so the Chancellor probably wasn’t aware just how risky it was to cap the carbon price floor in his last Budget. He would have seen it as an opportunity to back big businesses by reducing their energy bills.
The government remains committed to the CPF as a means “to stimulate investment in low-carbon infrastructure”, but also believes freezing it could save businesses up to £4bn by 2018-19. The Chancellor said capping the price would save a mid-sized manufacturer £50,000 on annual energy bills and cut household bills by £15.
These moves do make business sense because the Chancellor is most concerned about the impact of energy costs on UK business competitiveness, but his thinking is too short-term. There is an equally strong argument for saying our businesses could benefit from sticking to the original strategy of driving up the cost of energy waste and emissions.
By abandoning the “polluter pays” principle to mitigate environmental impact, he risks unravelling the country’s strategy for tackling rising energy costs and greenhouse gas emissions.
The price floor was established to give businesses a figure against which they could measure the real cost of their carbon emissions for the future. The principle is that if you put a real price on pollution, you will encourage polluters/wasteful energy users to invest in methods to mitigate the impact of that pollution because it will be in their financial interests.
It is not right to label the CPF as just another tax. It is a useful means of delivering the low-carbon economy the country simply has to develop, with all the benefits that will bring.
“For this policy to work, the price needs to be stable,” explained Helen Miller of the Institute for Fiscal Studies. “This constant chopping and changing is not what is needed to create long-term investment certainty for businesses.”
Cuts to energy bills might score short-term political points, but deep-rooted incentives for energy efficiency could kick-start a large-scale programme of housing retrofits creating business growth and jobs. Also, driving energy efficiency improvements in the commercial building sector can help UK businesses improve competitiveness by cutting long-term running costs.
B&ES will also continue to support the campaign for a cut in the rate of VAT charged on refurbishment and renovation work. This did not make it into the latest Budget, but could provide a £15bn economic stimulus over five years and up to 95,000 jobs. It would also bring wider social benefits by improving the condition of buildings and cutting energy costs.
The Chancellor had a difficult balancing act to perform between reducing fiscal burdens on companies in the early stages of an economic recovery and ensuring we meet our future energy needs. However, he needs to find a better balance in favour of energy efficiency to underpin financial recovery and support our businesses with long-term energy security.
Roderick Pettigrew is chief executive of the Building and Engineering Services Association