Hurting industry and public services
David Toke says Tory/Reform plans to axe carbon pricing would deal another body blow to British industry
Tory plans to cut out green measures threaten British industrial exports. They also threaten to blow a hole in the Government’s tax receipts.
It’s really hard to believe that only 18 months ago, the Tories were still behind the net zero target, still firm on the targets for phasing out diesel and petrol cars, firm on the need to have carbon pricing, firm in support of the climate change legislation, and also firm on the need to give incentives for people to install heat pumps. But now, wielding a great brown scythe, Kemi Badenoch and her team of merry ‘cut the green crap’ shadow ministers, are pledging to sweep it all away. Indeed, in doing so, they are following hurriedly in the footsteps of Reform, and keen to persuade all that, really, they are just like Reform, except without Nigel Farage and his crew.
But in doing so, the right-wingers are teeing up another potentially ruinous battle with the EU, not to mention leaving the Treasury short of money. That is because the Tories (and Reform) are promising to get rid of the UK’s version of the EU’s Emissions Trading Scheme (ETS). The ETS is a tax on fossil fuels consumed by industry, including fuel used for power stations. Yes, it is true that electricity bills would be cut by getting rid of the ETS, but it will be at the cost of British industry and public services.
The EU is busy implementing, in stages, its Carbon Border Adjustment Measure (CBAM). This is intended to compensate European manufacturers who must pay carbon prices on their fossil fuel consumption. The compensation works because countries which do not have their own carbon pricing regimes get taxed when they export to the EU. The scheme is being implemented from 2026. The UK will be okay (i.e. not subject to the EU CBAM) as long as its ETS remains in place; British exporters to the continent will not have to pay the CBAM. But under the Tory-Reform proposals, the EU is bound to react by slapping an import tax on British goods to compensate for the fact that UK manufacturers will not have to pay carbon prices.
In many ways, this is continuity. After all, the Tories and Reform (in their former guise as UKIP) engineered the Brexit trade disaster with the EU that we are now experiencing. So why not carry on down the road of wrecking what is left of British industry’s ability to export to the continent? After all, Nigel Farage will enjoy shouting at the EU, trying to blame Brussels as British companies go bust.
The other bad part of the idea of abolishing the ETS is the damage to public finances. According to the Office for Budget Responsibility, last year the Government earned £3.6 billion out of the ETS. So you can imagine that this will lead to some substantial cuts in public services. Of course, Tory-Reform will claim they are saving money by cutting green subsidies. But, in reality, there is not much green tax subsidy that can be cancelled. There is a subsidy for new heat pumps, which amounts to under £200 million a year and little else. There are some subsidies for new electric vehicles of about £150 million a year, but these are scheduled to end in 2029 anyway, so no savings look likely from that. Basically, we would be looking at over £3 billion a year of public spending cuts being made to fill the hole created by the abolition of the UKETS, plus great damage to British industry as they try to export to the EU!
The supposedly great flood of tax-subsidies going from the Treasury to green causes is a figment of the political right’s imagination. The only big annual energy subvention from the Treasury is to give EDF £2 billion to pay for Sizewell C. This project, along with its sister plant at Hinkley C, will also add increasingly to electricity bills. Nigel and Kemi certainly will not be cutting public funds to subsidise their beloved nuclear power, no matter how much consumer bills are increased. The only silver lining would be that if electricity bills are decreased, this would help make heat pumps more affordable compared to gas boilers. But, alas, the ending of subsidies for new heat pumps would wipe out even this gain.