The Autumn Budget 2024: Will the Budget deliver growth in UK energy and infrastructure?

On 30 October 2024, the Chancellor, Rachel Reeves, delivered the first Budget under a Labour government since 2010, emphasising in her speech that “the only way to drive economic growth is to invest, invest, invest”. Transport, infrastructure, industry, trade and clean energy are highlighted as having a key role to play in driving the “Growth Mission”, with the Chancellor setting out plans to increase taxes and public borrowing in order to boost capital investment by more than £100 billion over the next five years, and to use institutions such as the National Wealth Fund and Great British Energy to foster long-term certainty and stability for investors.

In addition to the package of tax rises set out in the Budget (see our blog here), the Chancellor also confirmed a previously announced change to the government’s fiscal rules to focus on net financial debt, thereby allowing increased borrowing for investment. Rain Newton-Smith, chief executive at the CBI, observed “a more balanced approach to our fiscal rules which prioritises capital investment should help to unlock private sector investment in our infrastructure and net zero transition over the long-term". The Budget also highlighted government's plans to use the Pensions Investment Review to unlock more pension fund investment into UK growth assets.

Net Zero

Transitioning to net zero and delivering on the government’s mission to become a clean energy superpower are said to be “central to ensuring sustainable and resilient long-term growth”. But whilst important measures were included in the Budget, we expect further commitments will be required following the publication of key policies over the coming months, including the government’s Clean Power 2030 Action Plan and its new Industrial Strategy (see the 2035: Industrial Strategy Green Paper published recently).

Measures announced in the Budget included funding for Great British Energy, which will have a budget of £125 million in 2025-26. The National Wealth Fund will support Great British Energy in making investments whilst it is being established and is expected to mobilise more than £70 billion of private investment in clean energy and growth industries, supporting the government’s Industrial Strategy. 

In order to encourage private sector investment in renewable energy infrastructure, the Chancellor has announced she will consult in 2024 on whether capital allowances should be allowed for pre-development costs. This may reverse the position following the Gunfleet Sands Limited v HMRC case in 2023, in which the Upper Tribunal held that expenses on environmental and technical studies preparatory to the construction of the Gunfleet Sands offshore wind farm did not qualify for capital allowances. 

Specific growth sectors highlighted in the Budget included Carbon Capture, Usage and Storage (CCUS) technologies, with the Chancellor confirming £3.9 billion of funding in the 2025-26 financial year for the first two CCUS clusters, so called Track-1 projects. Industrial decarbonisation will be further supported by £163 million to continue the Industrial Energy Transformation Fund over 2025-26 to 2027-28. 

£2.3 billion in revenue funding (over 15 years) was also confirmed for 11 electrolytic hydrogen production projects, totalling 125 MW, under the first allocation round for the Hydrogen Business Model. In addition, £134 million will be provided to support the delivery of port infrastructure to facilitate floating offshore wind. 

Noting that “new nuclear will play an important role in helping the UK achieve energy security and clean power”, the Budget sets out £2.7 billion of funding to continue Sizewell C’s development through 2025-26. The equity and debt raise process for this project will shortly move to its final stages and will conclude in the spring. As with other major multi-year commitments, a Final Investment Decision on whether to proceed with the project will be taken at Phase 2 of the government’s Spending Review. 

North Sea Transition

The Budget confirms Labour’s manifesto pledge to increase the Energy Profits Levy (EPL) on North Sea energy producers from 35% to 38% of profits from 1 November 2024. It also confirms the extension of the EPL until 31 March 2030 (unless oil and gas prices fall for six consecutive months), the removal of the 29% investment allowance and that the rate of the decarbonisation allowance will be 66%. To provide certainty and to support a stable energy transition, 100% first-year capital allowances within the EPL will remain. In addition, tax relief will be given for payments made into a decommissioning fund for oil and gas assets transferred for use in CCUS and the receipts from the sale of these assets will be removed from the scope of the EPL. The government will legislate for these measures in Finance Bill 2024-25. It will also consult in early 2025 on how the oil and gas tax regime should respond to price shocks once the EPL ends in 2030.

A consultation has also been published on new environmental guidance for assessing Scope 3 emissions related to offshore oil and gas activities following the Supreme Court’s judgment in relation to the appeal case R (on the application of Finch on behalf of the Weald Action Group) (Appellant) v Surrey County Council and others (Respondents) (see our blog here).

Transport and digital infrastructure

Highlighting that transport is critical in boosting regional growth and innovation, the Chancellor said the Budget would provide public investment to deliver priority transport schemes across the country. These include the Transpennine route upgrade between York and Manchester as part of the Northern Powerhouse Rail project. In addition, the Chancellor confirmed that the government will “secure delivery” of the HS2 rail link connecting London and Birmingham, and that it would provide funding to begin tunnelling work to London Euston station.

The Budget also pledges over £1 billion funding to support local areas and bus operators in 2025-26, and is extending the bus fare cap, which was due to end in December 2024. A new cap will run from January 2025 to December 2025 at the higher rate of £3.

The government is also committed to realising the benefits that aviation decarbonisation offers for net zero and growth. To support the development and production of innovative advanced fuels to decarbonise aviation, the government will extend the Advanced Fuels Fund for a further year. 

Despite predictions of changes to the fuel duty, the Chancellor surprised commentators by maintaining the freeze on the duty and retaining the temporary 5p cut introduced by the previous government at the start of the war in Ukraine two years ago. There was also confirmation that tax incentives for buying Electric Vehicles (EVs) through company car tax schemes will continue, and that the government is extending 100% First Year Allowances for zero emission cars and EV chargepoints for a further year. £200 million was also earmarked in 2025-26 to accelerate EV chargepoint rollout, including funding to support local authorities to install on-street chargepoints across England.

The government also plans to invest over £500 million in 2025-26 to deliver Project Gigabit and Shared Rural Network to drive the rollout of digital infrastructure to underserved parts of the UK, including delivering nationwide gigabit broadband coverage by 2030.

Carbon Border Adjustment Mechanism

The accompanying material published alongside the Budget confirmed government plans to introduce a Carbon Border Adjustment Mechanism (CBAM). As proposed under the previous government, from 1 January 2027, a levy will be introduced on imported goods in carbon intensive industries that are at risk of carbon leakage: iron and steel, aluminium, cement, fertiliser, and hydrogen. This decision crystalises a mismatch with the timetable for the EU CBAM, which will see EU importers being required to purchase and surrender EU CBAM certificates for the embedded emissions of their imported goods from 2026.

Planning

To ensure the planning system supports public and private investment, the government commits to responding to the National Planning Policy Framework consultation before the end of the year to confirm “pro-growth reforms” to the planning system. The Planning and Infrastructure Bill is also to be introduced in Parliament early in 2025 to simplify and streamline the planning system. In addition, the Budget provides £5 million in extra funds to deliver improvements to the planning regime for Nationally Significant Infrastructure Projects, as well as £46 million to boost capacity and capability in local planning authorities. 

Tax certainty for major infrastructure projects

As part of the government’s Corporate Tax Roadmap, Rachel Reeves has committed to providing investors in major infrastructure projects with certainty on their tax treatment. There will be a consultation in spring 2025 on how best to achieve this, but we would expect some form of advance clearance process run by HMRC.

Will the Budget deliver growth in UK energy and infrastructure?

Given key policies are still under development following the election in July, it is unsurprising that the Budget largely delivers on Labour’s manifesto promises and commits funding for projects that are largely already in flight. Its tone clearly signals a commitment to growth in the UK’s energy and infrastructure sectors, which will be welcomed by investors. However, investor confidence and capital flows will also depend on how the government implements its policies to increase state-participation in energy and infrastructure.

Slaughter and May regularly advise clients in relation to the sectors and issues highlighted in this blog post. Please get in touch with your usual Slaughter and May contact if you would like to find out more.