The Prime Minister’s 10-point Green Recovery Plan was ambitious in sentiment but details on how it would be delivered were short. The additional financial commitment that was made to achieving net-zero was relatively small and there is clearly a hope that the private sector will lead the charge towards sustainability.
However, there is also an opportunity for UK business if Green technology entrepreneurs can find ways to reduce carbon emissions. Jobs created through UK expenditure on infrastructure, such as building wind farms, are clear, but there are vast opportunities overseas if the UK can get ahead of the competition in technological advancement. Climate change activism is usually focused on existential risk but the risk to economies that fall behind is also great. Carbon levies, trade embargoes and increasing pressure from overseas customers face jurisdictions that fall behind in the race to net zero, while at the same time local Governments face financial pressure caused by the impact on public health and loss of resources.
Green technology is making advances in carbon capture, battery storage capability and in energy generation. Research and development activity is inherently risky as significant sums can be spent on ideas that ultimately prove unviable and successful projects can quickly be eclipsed by newly emerging technology. Therefore, for the UK to be at the heart of the Green Recovery, the Government needs to incentivise the private sector to invest heavily in it.
Enhanced Research and Development tax credits on approved Green technology would provide welcome cash flow advantages to scientists and technology entrepreneurs and be a statement of intent from the Treasury. The Office for Tax Simplification recently recommended that Capital Gains Tax was aligned with Income Tax, offering a significant increase on the more favourable rates that are currently available. The Government faces an obvious challenge in finding ways to raise extra revenue to pay down borrowing caused by the Coronavirus pandemic, but care should be taken when assessing the impact on taxes on investment in UK Enterprise.
Lower rates for Entrepreneurs in Green technology would help to inspire investment in the UK, creating jobs and the opportunity to export technology and expertise in future years. The return on Green investment will be over decades and there is a risk that decision makers look too closely at the short term due to current pressure on spending. Globally, there are many attractive Accelerator programmes aimed at supporting start-up technology businesses and a number of these require the entity to set up overseas. This can lead to intellectual property outside of the UK and the future benefits to the UK economy significantly reduced, therefore the UK Government needs to create a favourable environment for Green technology.
Attracting private sector investment will be crucial in ensuring that concepts developed by UK entrepreneurs are brought to market. Substantial capacity exists via institutional investment within the UK and in order to be at the forefront of the Green economy the promise of economic returns needs to be clear. Some of this may be achieved through extending tax incentives to investors, particularly in start-ups through extensions to existing schemes such as the Enterprise Investment Scheme. At the same time Government grants to households that encourage the switch to sustainable energy sources, electric cars and carbon reducing technology (e.g. learning thermostats) will encourage investment as such grants create demand exceeding supply. No new diesel or petrol cars will be available after 2030 but for investor confidence in related technology there needs to be a clear demand from consumers for whom the change makes economic sense.
Larger projects will require the Government to borrow more significantly. Hydrogen as an energy source represents a significant prospect in reducing emissions in manufacturing, construction, and logistics but the required infrastructure and expertise will necessitate the Government to lead the way when it comes to finances. For public confidence in the Green Recovery Plan a clear and transparent plan for the UK’s preferred way forward is required, along with clarity on where technological advancement is required and where it is sought. Contracts awarded to the private sector need to represent value for money to ensure that the general public perceive value as taxpayers and more crucially are emotionally invested in the transition to a carbon neutral economy.
A long-term approach to paying down the borrowing is appropriate as future generations benefit from addressing the threat of climate change no differently to current ones benefitting from economic advancement in the industrial revolution. Carbon credits generated from UK intellectual property exported overseas can help to pay down the debt over a period that is more manageable for the Chancellor.
Addressing climate change is a clear and obvious challenge the world over. Government borrowing to fund infrastructure can create jobs in the UK but creating an environment that encourages Green technology specialists to flourish represents a significant opportunity for the UK to secure a large viable export income stream for decades to come.
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