What an Autumn Budget for national renewal should look like

On the 30th October, the Chancellor will present this government’s first budget. This will be the first big test of whether the Labour administration is willing to put money behind their promise of national renewal to make it happen, or whether it is destined to wither on the vine thanks to lack of funding. The fate of this key election pledge comes down to which strategy Rachel Reeves decides to pursue to address the dire state of public finances inherited from the Conservatives. The Chancellor can either continue with austerity cuts, which would further increase poverty, inequality and undermine our economy, or raise money through taxing polluting companies and the super-rich more while boosting the economy through green infrastructure investment. To create financial headroom the government also has the option to change the fiscal rules which currently stymie opportunities for green investment.  

The economy-boosting potential of green infrastructure investment remains crystal clear. Targeted and temporary borrowing for good public net investment reduces the debt-to-GDP ratio over time and is fiscally responsible, and many respected economists such as Lord Stern, Mariana Mazzucato and Joseph Stiglitz argue that a focus on sustainable growth is the key to long-term economic and fiscal resilience. But right now Britain is stuck in a cycle of underinvestment that is hurting its economy as well as its people. The other sensible option available to the Chancellor for day-to-day spending is to tax the super-rich and corporate polluters, making them pay their fair share, which is enormously popular across different demographics. It is clear that these choices, alongside changes to the fiscal rules, would help achieve the government’s ambitions to revitalise the economy, tackle climate change, and help families with the cost of living crisis. 

The Prime Minister recently pledged that “those with the broadest shoulders should bear the heavier burden.” The government must make good on Keir Starmer’s pledge, show the country how different its economic approach is from the Conservatives, and seize the enormous green industrial opportunities of the twenty-first century. As some Cabinet Ministers have warned, if the Chancellor chooses the wrong path and implements further austerity cuts, the government will also fail to meet its manifesto commitments and the expectations of voters.

Changes to fiscal rules

• To create financial headroom the government should prioritise changing the current fiscal rules which stymie opportunities to invest in the green economy. They should be changed to allow for more flexibility on public borrowing for investment, for example in clean energy and public transport systems.
   
• The new National Wealth Fund should have the ability to leverage its balance sheet and issue its own debt, enabling it to mobilise the necessary levels of investment outside of the government’s fiscal rules, in line with a mandate to deliver against the government’s net zero and wider environmental objectives. 
  
• In the medium term, the government should consider broadening its fiscal framework to account for public sector net wealth alongside more traditional measures of debt, debt interest and borrowing. This could help to more accurately reflect both sides of the government balance sheet: assets (financial and non-financial) and liabilities, and help to take into account the actual value, as well as  the economy-boosting nature of green investments.

Tax

• Wealth taxes: The government should begin to increase wealth taxes on the super-rich to raise more money for public services, support for the poorest households, and workers in high-carbon industries to retrain and reskill.
  • The government should introduce a temporary National Renewal Tax of 2.5% on individual wealth above £10m to be paid annually over the five years of this parliament, which could raise between £130bn and £183bn. This could fund investment in warmer homes, cheaper transport fares and new opportunities for workers in high-carbon industries.  
  • As well as measures Labour is already considering, the government should equalise capital gains with income tax rates, which could raise up to £15.2bn a year; and close inheritance tax loopholes, which are used by a small minority of very wealthy people and currently cost around £1.4bn a year. 

• Fossil fuel industry taxes: The government should place new polluter taxes on oil and gas companies to raise urgently needed funds for climate-impacted communities at home and abroad, and to help fulfil the UK’s responsibility to provide new and additional public finance to support developing countries on climate:
  • Deliver its promised increase to the oil and gas windfall tax. This would bring the overall tax rate on the industry’s profits to 78%, lasting until 2030, and would abolish tax incentives for further investment in new drilling.  
  • Fossil fuel producer subsidies should also be ended and funds redirected immediately for the purposes outlined above (worth around £3.35bn/yr). 
  • Commission an independent review into further domestic polluter tax options such as a tax on fossil fuel extraction, taxes on fossil fuel trading, and higher taxes on fossil fuel dividends and share buybacks, with a view to introducing additional mechanisms before the end of 2025.

• Fuel Duty: It has been rumoured that the government will undo the 5p per litre fuel duty cut introduced by the Conservatives in 2022, and possibly raise fuel duty by a further 5p. Since its introduction in 2011, the fuel duty freeze has cost a total of £100 billion to the Exchequer. Allowing fuel duty cuts to expire could save the Chancellor £15 billion in this Parliament, and fuel duty cuts actually benefit the richest most. Both the above measures would be sensible alongside investment in public transport and a polluting vehicle scrappage scheme to enable people to shift to more sustainable forms of transport. 

• CBAM: The EU is setting up a Carbon Border Adjustment Mechanism to operate from the beginning of 2026 which could raise €14bn by 2030. There is an urgent need to press ahead with the UK scheme which would raise about £1.5bn. 
  
• Aviation: To help curb demand to meet climate goals while ensuring access to flights is fair and equitable, a new progressive aviation taxation regime is required, beginning with a frequent flyer levy. This would replace APD, which is applied at a flat rate, and would levy an escalating charge, applied to each flight over a one-year period (with the rate on each person’s first annual outbound flight being zero). Using modelling by the New Economics Foundation (NEF), it is estimated that a frequent flyer levy could have raised around £4.09 billion in 2022.

End destructive spending

The Government could save money by avoiding spending on destructive infrastructure projects that damage the climate and environment, as well as wider health and well-being:

• Drax subsidies: The Government must end subsidies to Drax. Since the subsidy scheme was set up, a series of scandals and exposés about Drax’s sourcing of biomass from the USA, Canada and Estonia have proven its unsustainability. Think tank Ember has calculated subsidies to Drax at £893 million (2021 levels), which would rise to £1.73bn per year if the Drax plant goes ahead. 
• Airport expansion: The Government must rule out all new airport expansion, including at Heathrow. The third runway project is now estimated to cost around £14 billion and Heathrow has historically only offered to cover £2bn of that, potentially implicating huge sums for the taxpayer to cover if it goes ahead.
• Sizewell C: We don’t need new nuclear plants. Sizewell C will add to people’s energy bills and may well require a further cash injection of billions to go ahead even if there are no construction cost overruns (which is very likely if you look at what’s happened across Europe), on top of the £7.5bn already committed (although not yet spent). 

Priorities for Government investment

These measures will benefit the economy, reduce impact on the health service, increase well-being, as well as help tackle climate change. 

• Energy support: Scrapping Winter Fuel Payments could see up to 2 million pensioners face fuel poverty this winter. This decision should be reversed and an emergency package of support should be implemented for those most in need. The Government must also move at pace to consult on and deliver a lasting solution to this crisis by working out the best way to support low income households every winter until homes are properly insulated.
  
• Home insulation: At least £6bn is needed per year over the next decade to deliver a national home retrofit programme on the scale needed. The Chancellor should reiterate the Government’s existing support for its Warm Homes plan, its commitment to bring homes up to an energy efficiency rating of C, and top them up by an additional £15bn over the Parliament – £3bn per year – to deliver the full scale of funding required.
  
• Heat pumps: At least an additional £1bn per year is needed to support low-income households in the delivery of a target to fit at least 900,000 heat pumps each year by 2028.
  
• Transport – Road transportation is the UK’s biggest carbon polluter, and a major cause of poor air quality. Significant public transport investment is therefore needed to encourage people to switch away from private vehicle use:
  • An extra £8-10bn per year of public investment is needed to boost bus, rail and cycling infrastructure expansion and electrification.
  • A further £1bn is needed per year to indefinitely cap single bus fares outside of London at a maximum of £1.65; and provide free bus travel for under 25s. 
  • Ministers should trial a monthly ‘climate card’ to save rail commuters money, cut emissions, bring economic and health benefits, and simplify ticket fares.
  • Finally, £1.5bn should be allocated per year for a UK-wide scrappage scheme to support some of those with the most polluting vehicles to transition
• Skills investment for a just transition: At least £1.1 billion funding should be provided per year until 2030 to help provide retraining for the approximately 3.2 million workers who will need to undergo reskilling by 2030. Over 60 leading climate organisations have backed union demands for workers to be involved in every stage by expanding sectoral collective bargaining across the energy industry and supply chain. 
  
• Renewables: There needs to be a major step change in renewable energy deployment, predominantly offshore wind, alongside onshore wind and solar. To deliver this, we need:
  • The boost to funding for the recent AR6 auction was welcome, but annual funding for auctions such as AR7 in 2025 needs to move to £1.5bn per year. 
  • Roughly £4bn over this Parliament to invest into ports and supply chains for floating offshore wind.
  • To accelerate innovative technologies and long-term storage, there will be a need for more money to go into GB Energy before the end of this Parliament. 
• Nature-friendly agriculture: A further £3bn – on top of the existing £3bn per year – should be provided for agro-ecological farming and land management, which would enhance ecosystem service delivered including flood protection and biodiversity enhancement, while supporting the delivery of the Government’s goal to protect at least 30% of our land and seas for nature by 2030.