15 November 2017

Update

Boost productivity by pulling the right levers for energy policy at Budget

As we approach the Autumn Budget, the CBI is calling on the government to focus on the drivers of productivity and business confidence to achieve prosperity and growth. With secure, clean and affordable energy a key thread running through a modern Industrial Strategy, it’s important that the government provides further clarity on the long-term policy framework. 

Boost productivity by pulling the right levers for energy policy at Budget

The CBI’s Autumn Budget submission set out a series of measures aimed at bringing the UK’s new Industrial Strategy to life through concrete action, as a means of reinforcing the UK economy against future challenges. To build a more prosperous society over the longer-term, the government must focus on the drivers of productivity, which underpin much of the growth we seek in the UK economy. 

Secure, affordable and clean energy will underpin a modern Industrial Strategy, and a long-term, stable and pro-market energy policy framework is needed to ensure continued investment and innovation in the UK’s energy transition. The government’s recently published Clean Growth Strategy provides some welcome clarity for business, and sets a clear direction of travel. This followed a successful Contracts for Difference (CfD) auction in September which demonstrated the role of competitive auctions in delivering cost reductions for renewable energy. The announcement of a further CfD auction of £557 million in 2019 is also welcome news, and should be part of a clear pipeline of regular auctions going into the 2020s. 

The Chancellor must now build on this momentum in his Autumn Budget, with action in the following areas:

  • UK carbon price trajectory – In a context of uncertainty regarding the UK’s participation in the EU Emissions Trading System post-Brexit, business needs to see clarity on the trajectory of the UK’s Carbon Price Support (CPS). Businesses, on balance, want to see an extension of the freeze of the CPS to 2022, with the provision of sufficient support to electro-intensive industries for the pass-through costs. This will support the transition to a low-carbon energy system, while maintaining competitiveness for the UK’s energy-intensive industries. Government should also work with industry to consider the UK’s long-term carbon pricing objectives, regime and trajectory post-Brexit. 
  • Energy efficiency and cost transparency – Energy efficiency will play an important part in keeping bills manageable, and should be a key focus of the Government’s future plans. As such, business would like to see the Government take forward its proposal to establish an Industrial Energy Efficiency Scheme, in consultation with business, as soon as practically possible. This will help support and enable investments. Finally, to improve transparency around policy impacts and costs, the government should document all policies and levies that are added to consumer bills, explain how these will be kept under control, and provide projections of these policy costs on an annual basis. 

Providing clarity in these areas of energy policy will support continued business investment and innovation. This will be crucial as the UK faces future challenges.  

For more information on this work please contact Hannah.Richmond@cbi.org.uk