On Wednesday 23rd November 2016, Phillip Hammond delivered his first Autumn Statement as a Chancellor. Unsurprisingly, there was little change in the UK energy policy from the previous budget, with the main attention focused on the economy, public borrowing, taxation, boosting productivity, welfare, housing, infrastructure and transport. While the economic growth forecast has been upgraded to 2.1% in 2016, it has been downgraded to just 1.4% in 2017 due to Brexit, before picking up to 1.7% in 2018 and 2.1% in 2019. Meanwhile, the government finances will be £122bn worse off in the period until 2021 than forecast and the total debt will rise from 84.2% of GDP last year to 87.3% this year, peaking at 90.2% in 2017/18.
Despite some expectations that the Carbon Price Floor (CPF), the UK’s top-up carbon tax implemented in 2013 on top of the price paid through the EU emissions trading scheme and applied to power stations, would be scrapped, the Chancellor announced the CPF will remain at its current level of £18/t until 2020/21. While the Autumn Statement was supposed to set out a longer-term direction for the CPF, there was no indication of the future of the tax beyond 2021. This was viewed as the least the government could have done, given the recent pledge to phase out all coal fired power generation by 2025.
The Levy Control Framework (LCF), which caps subsidies for low-carbon energy set at £7.6bn in 2020/21 to ensure consumer bills remain affordable, was also a topic of interest as its future beyond 2020-21 remains ambiguous. The Chancellor abstained from any announcements, but assured there would be an update in the 2017 budget. Clarity on the direction of the LCF is crucial if the UK attempts to replace the lost generation from ageing fossil fuel power stations with low carbon generation – mainly solar, wind and nuclear. The government expects the private sector to invest more than £100bn in the UK’s energy industry in the next 15 years, providing new cleaner generating capacity, upgrading to a smarter energy system and developing new resources such as shale.
Despite strong public opposition, the government reiterated its support for the struggling shale oil and gas in the North Sea. While no new tax breaks were confirmed for the North Sea sector, there was a commitment to continue with the industry-friendly framework, subsidising the industry by up to £1bn of additional resources through the Shale Wealth Fund, ensuring a stable tax regime that maximises economic recovery.
Fuel duty rise has been cancelled for the seventh year in succession at a cost of £850m. While saving the average car driver £130 a year, it is not the best news for climate change and air pollution. The Chancellor has also pledged to invest £390 million by 2020/21 to support ultra-low emissions vehicles, renewable fuels and connected and autonomous vehicles.
The reaction in the UK energy markets has been limited, with longer dated UK electricity prices rising between 0.1% and 0.7% since Tuesday’s market close, while prompt prices have fallen on comfortable supply. If you have any questions about the latest Autumn Statement, the energy markets or your supply contracts, please contact us on 02920 003 741 or firstname.lastname@example.org and we will do our best to help you.