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How green will the 2012 Budget be?

The UK Budget is to be announced on the 21st March, and will outline the government’s economic plans for the year. What can we expect in terms of environmental policy and taxes?
Much of the news coverage up to the 2012 budget has been around cutting the 50p rate of tax for top earners and how this will affect the dynamics within the coalition government. There are potential areas for environmental policy changes, for example towards low emission cars, carbon pricing or congestion taxation.

Greenest Government Ever?

There have been doubts as to whether this government is truly committed to “being the greenest Government ever” as they have often claimed. A recent article by the Guardian cites a poll that only 2% believe this claim. The Chancellor of the Exchequer, George Osborne, who will deliver the budget this Wednesday, has had some anti-environmental rhetoric over the past year, stating “we’re going to cut our carbon emissions no slower but also no faster than our fellow countries in Europe”.

Some important policies that the government have introduced include Electricity Market Reform (for more information see: Electricity Market Reform) the Green Deal, and plans for the Green Investment Bank. The Green deal aims to improve the energy efficiency of buildings in the UK, but it has come under some criticism, for example by George Monbiot, for its regressive implications, and by the Committee on Climate Change [PDF 209.51KB], who argue that it will not affect enough homes. The Green Investment Bank has great opportunity to give funding for private sector projects to help the UK progress to a green economy, but has yet to start making investments, which are expected to begin in April.

Last Year's Budget

Last year’s budget reiterated the fact that the government planned to be the greenest ever, and promoted a simple framework to meet environmental and economic goals. It stated that the Government would increase the proportion of environmental taxes, and to make the tax system simpler. One of the goals was to price carbon, and consult on whether a carbon price floor should be introduced. Changes were also made to the fuel duty and the climate change levy.

Budget 2012

The Institute for Fiscal Studies (IFS), an economic think tank, produce a document outlining the issues that the chancellor will have to deal with when designing the budget. This year they noted that the country could improve the environmental tax system to improve output and encourage lower emissions. One example given is to tax congestion, which has the costs of emissions but also the economic cost from time wasted in traffic and has been predicted to bring annual benefits of 1% of national income by 2025.

IFS have also highlighted that the UK could have a more effective emissions taxation policy that charges the same amount for carbon independent of the source. At the moment carbon emissions are charged very differently, with gas generated electricity for business at almost £40 per tonne compared to around £28 for domestic usage. This is partly due to the multiple environmental initiatives overlapping, such as the Renewables Obligation, the Climate Change Levy and the EU Emissions Trading Scheme.

A letter from 101 MPs, investors, scientists and other public figures, asked for a clearer plan for the future of the low carbon economy and for renewables such as solar, wind and biogas. Richard Branson, one of the signatories has said that the budget provides an opportunity to tackle climate change. There have been other letters from companies such as Shell, Tesco and Unilever and also M&S Microsoft and PepsiCo, that call for the budget to strengthen environmental policy.

Overall, it seems unlikely that this budget will bring about major changes to environmental policy, however, small changes may make a significant difference, such as increasing the fuel duty, which may be announced, or greater clarity may be given for existing policies, such as the funding from the Green Investment Bank, which could greatly help business and investors make plans for the future.

Fund context:

There are many funds in the Worldwise Investor Environmental fund sector which follow the trends for industries that may be affected by environmental policy, such as Clean Energy, Water companies or Sustainable Transport, which are some of the investment themes covered by funds such as Henderson Global Care Growth and Schroder Global Climate Change. Most of these are global, however, and so will not necessarily be greatly exposed to the UK.

There are also funds that focus on individual themes such as Clean Energy funds or Agriculture funds, that can be found in their respective Worldwise Investor theme sections.


Related funds:

Henderson Global Care Growth
Schroder Global Climate Change

Useful links:

Worldwise Investor: Green Alliance bring in the Germans! (article about the economic effects on the transition to a green economy)

Business Green: Green Chips to Osborne - "Environmental policies do not have to be a burden on business

The Guardian: George Osborne’s attacks on the environment are costing UK billions

HM Treasury: Budget 2012

IFS: Green Budget 2012

DECC: Green Deal

Department for Business, Innovation and Skills: Green Investment Bank

Mark Hoskin: Snippets from George Osborne’s Autumn Statement

BBC: A 12-point guide to George Osborne’s Budget 2012


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Louise Fallonall articles

Louise Fallon starting working for Worldwise Investor as an intern over the summer and has written a number of articles during that time.

Louise is studying for a degree in Mathematics and Economics BSc at London School of Economics and Political Science, and graduates next summer.

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