Sustainability: Policies and Priorities for 2024

Now that the dust has settled on the Spring Budget, Mark Lumsdon-Taylor, Partner and Head of ESG at the audit, tax and advisory firm MHA considers some of the measures announced and how they might impact Environmental, Social and to a lesser extent Governance objectives:

1 Budgeting advance loans and debt relief orders: The Chancellor’s extension of repayment periods for budgeting advance loans from 12 months to 24 months and the abolishing of the £90 charge to obtain a debt relief order will have come as a welcome news for the almost one million households on Universal Credit. Two ticks for ‘S’ then, with a third coming from the six-month extension, at current levels, of the Household Support Fund.

2 Fuel Duty Freeze: This is always a contentious area. Fuel duty can act as a blunt weapon to reduce internal combustion engine vehicle usage but can unfairly impact poorer families and sole traders. The current freeze will be extended for a further 12 months. Beyond that we need to reform the way we use and charge for road usage. The current system is broken. Roads are in a poor state of repair leading to higher servicing and repair bills and poorer fuel economy. There is also no distinction between light and heavily used roads or, indeed, so-called ‘rat runs’ that are often not suitable for the volume of traffic. We hope whichever government is in power for the next Budget will look at the way the UK road network is used and maintained, and take a holistic look at all UK transport options to create a connected travel plan that enables people to make fair, appropriate and affordable choices when it comes to their journeys.

3 The Devil is in the Data: The announcement regarding Nissan’s plan to build two new electric car models in the UK was welcome news but what about the revelation that Microsoft and Google have announced data centres worth over £3 billion? More about data centres later, but suffice to say that data centres have huge energy and water appetites. Microsoft and Google may well be planning major environmental advances in their programmes but for me the jury’s out from an ESG perspective. I’m also slightly alarmed at the statement that ‘since 2010, greenfield foreign direct investment has been higher than anywhere else in Europe’. The social benefits may be extensive but what about the environmental impact?

4 Permanent full expensing, the VAT registration threshold and extending full expensing to leasing: The increased VAT registration threshold from £85,000 to £90,000 may seem an odd announcement to include in an article ostensibly about ESG, but this move will likely affect up to 28,000 businesses who can benefit from not having to be VAT registered. This represents not only a significant potential saving in time, but also in compliance costs, such as software or accountancy fees. With VAT returns now being a digital process in the UK, the impact of less computing on our ‘E’ is very welcome.

Any freeing up of funds in the SME sector can lead to greater investment in ESG aspirations. Whilst that investment is not guaranteed, it is an opportunity that could benefit from the extending of full expensing beyond capital expenditure to leasing. Full expensing allows organisations to deduct the full cost of eligible IT equipment, plant and machinery in the year they are purchased (or leased). Given the growing environmental credentials of many of the eligible products, there is a benefit for the planet from this initiative.

5 Village people: The Chancellor’s allocation of £5 million to renovate hundreds of local village halls across England is a modest, though welcome, investment in the communities that are part of the government’s ‘catchment area’. A good tick in the ‘S’ box although a pity it hasn’t been extended to other parts of the UK.

6 Nuclear: The Chancellor confirmed it will be buying two potential reactor sites in Wylfa, North Wales and Oldbury, Gloucestershire from Japanese technology company Hitachi for £160m, stating: “We want nuclear to provide up to 25% of UK electricity by 2050 and I want the UK to lead the global race in developing cutting edge technologies.” To put that statement in context, over the past year nuclear has contributed around 14% of the UK’s power generation mix and over the course of 2023 fell to a 40-year low.

According to National Grid: “In an emissions sense, nuclear power is considered to be clean. It produces zero carbon emissions and doesn’t produce other noxious greenhouse gases through its operation. The lifecycle emissions of nuclear energy (emissions resulting from every stage of the production process) are also significantly lower than in fossil fuel-based generation.”

However, a salutary lesson from history is that when things go wrong with nuclear facilities the resulting impact on the environment, wildlife and agriculture can be nothing short of catastrophic.

7 Pension performance: Recognition that other markets such as Australia generate better returns for pension savers with more effective investment strategies and more investment in high quality domestic growth stocks, is a welcome acknowledgement, as is the announcement that he “will introduce new requirements for DC and local government pension funds to disclose publicly their level of international and UK equity investments”. Improved pension performance, assuming it is achieved, is a huge tick in the ‘S’ box for a country with a growing aging population.

8 Up in the air?: The Chancellor announced the allocation of “up to £120 million more to the Green Industries Growth Accelerator to build supply chains for new technology ranging from offshore wind to carbon capture and storage”. This is a very welcome intervention, as is the “£270 million of investment into innovative new automotive and aerospace R&D projects, building the UK’s capabilities in zero emission vehicle and clean aviation technology”.

9 Data and AI: the Spring Budget highlighted various technological initiatives, including the use of AI in the NHS, space connectivity, a quantum computing error correction programme, funding for the SaxaVord Spaceport, and mentions of drones and facial recognition systems.

The government’s £100m investment in the national component of the £160m Connectivity in Low Earth Orbit (CLEO) programme will certainly support geo-political security aspirations, potentially offering greater connectivity in remote and rural parts of the UK, however, we wonder whether there are more cost-efficient technologies such as stratospheric solutions that could address the same issues. If the government wants to make a major societal gain in a country with a growing aging population, it also needs to consider ways they can be integrated without a complete dependence on digital technologies.

Addressing the Public Sector Productivity Plan, the Chancellor announced that the NHS will receive an additional £3.4 billion to invest in new tech and digital transformation, including making the NHS app a single front door for patients, piloting new AI to halve form-filling times for doctors, rolling out universal patient records, and enhanced AI-equipped scanners so doctors can read MRI scans more accurately and quickly.

These are worthy aims but the energy intensive nature of AI raises concerns. Some AI data centres have invested in alternative energy sources, but it’s likely there will still be a drain on existing energy platforms, often CO2 emitting sources. So acute is the AI energy issue that some organisations are already looking at embedded small modular nuclear reactors as a potential solution.

In a similar vein, new IT infrastructure can certainly be more energy-efficient than older legacy systems but where newer systems are expected to do far more than their predecessors, the trade-off can limit the environmental gains and energy displacement benefits.

Lastly, while “making the NHS app a single front door for patients” may appear as efficiency nirvana, on a social level, it may fill the hearts of the 31% of over-65s who don’t own a smartphone with sheer terror.

10 Energy Profits Levy: This ‘windfall tax’, mainly on North Sea oil and gas firms will be extended to March 2029 indicating energy prices will continue generating high profits for energy providers, at least until then. This highlights our continuing dependence on fossil fuels, and the need to redouble efforts to move away from that dependence. However, the Chancellor affirmed: “we want to encourage investment in the North Sea…”. With that in mind, it was not surprising that there was no mention in the budget regarding home insulation which, given the aging housing stock in the UK, could make a significant difference in achieving the UK’s net zero obligations.

11 Another 2%: The latest reduction in National Insurance by 2p, from 8% to 6% means an additional £450 a year for the average employee or £350 for someone self-employed. Let’s hope that at least some of that finds its way to the ‘E’ or the ‘S’, or perhaps both.

I commend this article to every house (and business)!

If you would like to discuss any of these issues, or any other Tax & ESG related matters, please get in touch.

Mark Lumsdon-Taylor

Partner & Head of ESG at MHA

You can find out more about our firm and our services on our website: www.mha.co.uk or contact us by email: [email protected] or call: 01628 955915