UK Chancellor Rachel Reeves’ spending pledges include investment in planning departments, more money for heat pump subsidies, confirmation of funding for commercial hydrogen projects and more money for the Department of Energy Security and Net Zero.
British Chancellor Rachel Reeves said she wants to “get Britain building again” as she delivered her government’s first budget speech, which included several spending commitments impacting the deployment of solar and storage.
Under the plans, the Department for Energy Security and Net Zero, which is leading the UK government’s approach to energy transition, will see its annual budget rise from GBP 6.4 billion ($8.3 billion) in the 2023 financial year – 2024 to a planned GBP amount. 14.1 billion by 2024-25.
Reeves did not mention solar energy in her speech to parliament, but did confirm that the government will spend £125m in 2025 on setting up the state investment vehicle Great British Energy. GB Energy, based in Aberdeen, Scotland, will be supported by £8.3 billion over the five-year parliamentary term. The state-owned company will be tasked with investing in renewable energy projects across the UK, with the aim of attracting private investment. The UK government also plans to establish a new National Wealth Fund in a bid to “catalyze more than GBP70 billion of private investment” in clean energy and other growth industries.
Planning
The budget also included more money for planning departments. Slow planning approvals are a major roadblock to solar and storage deployment in the UK, limiting progress on electricity grid upgrades, as well as other key infrastructure and housing projects.
Reeves has pledged £46 million to recruit 300 new planning officers. Her Budget also commits the Government to providing a further £5 million to make improvements to the planning regime for nationally significant infrastructure projects, the process by which solar projects with a capacity of more than 50 MW gain planning approval in England and securing Wales. In Scotland, the UK and Scottish governments launched a consultation in October 2024 with proposals to streamline the planning system for energy infrastructure projects under Edinburgh’s jurisdiction.
Heat pump funds
Reeves has also allocated more money to a grant scheme that has been vital in supporting heat pump adoption in the UK to date. The Boiler Upgrade Scheme (BUS) was first introduced in England and Wales in April 2022 and provides grants to support the installation of more energy efficient heating in homes and commercial buildings in England and Wales.
From May 2022 to September 2024, there were 55,095 applications for BUS subsidies, 97% of which were for air heat pump installations. An average air source heat pump installation in England and Wales costs around GBP 13,000, but a BUS grant will cover GBP 7,500 of the cost.
Additional funding for the scheme is included in the £3.4 billion allocated to the Government’s ‘Warm Homes Plan’, which also includes £1.8 billion to support fuel poverty schemes. Budget documents also say the government will provide money to “grow the supply chains for heat pump manufacturing in Britain”, but without further details.
In Scotland, grants and loans are available through the Scottish Government’s Home Energy Scotland programme. The Boiler Replacement Scheme in Northern Ireland will close to applicants in 2023.
Green hydrogen
The chancellor also provided some certainty for leading green hydrogen projects in the UK, promising to fund contracts offered to 11 projects under the previous government. The UK government’s first hydrogen allocation round (HAR1) launched in July 2022 and awarded contracts for a total of 125 MW of capacity at a weighted average strike price of GBP 241/MWh.
Reeves said the 11 projects would be “among the first commercial-scale projects anywhere in the world.” The money for the hydrogen contracts is included in the GBP 3.9 billion that Reeves has set aside to finance green hydrogen and carbon capture, use and storage projects in the 2025-2026 financial year.
Cost of carbon
In addition to some major spending commitments, there was no shortage of tax increases in the first Labor budget for fourteen years. This included an adjustment to the energy profit tax (EPL). Introduced in May 2022, the EPL will be applied to the profits of oil and gas companies operating in the UK and on the UK continental shelf, meaning it largely applies to the North Sea industry. Reeves has increased the EPL by three percentage points to 38%, abolished a 29% investment allowance and extended the life of the levy until March 31, 2030. This means that the nominal tax rate for oil and gas projects in the North Sea is now 78%.
Reeves also confirmed that the UK will introduce a Carbon Border Adjustment Mechanism (CBAM) from January 2027. The UK CBAM will levy a levy on industrial goods from sectors with high carbon emissions. A similar mechanism is expected to go live in the European Union in 2026.
Electric vehicles
In terms of vehicle electrification, the UK government will invest £200 million in electric vehicle (EV) charging infrastructure over the period 2025-2026. Reeves has also committed £120m in 2025-26 to support the purchase of new electric vans through the government’s plug-in vehicle grant scheme, and to “support the production of wheelchair accessible EVs.”
Tax incentives for purchasing electric cars, such as reduced vehicle excise duties and reductions in company car tax regimes, have also been maintained. A freeze on planned fuel tax increases on petrol and diesel was also maintained.
Response
In a statement, Trevor Hutchings, chief executive of the UK Association for Renewable Energy and Clean Technology (REA), praised the budget as an ‘important step forward’.
“The shift in fiscal rules to unlock investment marks a bold departure from previous approaches, opening avenues for new infrastructure and sustainable growth,” Hutchings said. “The confirmation of policies such as the Carbon Border Adjustment Mechanism, the Warm Homes Plan and GB Energy funding, together with the continued support for electric vehicles and increased funding for the Boiler Upgrade Scheme, all represent positive leaps forward. Yet opportunities are being missed to achieve more ambitious results, such as increasing fuel taxes and the carbon floor price, which could accelerate our transition to net zero.”
Brett Ryan, head of policy at Hydrogen UK, welcomed the confirmation of commercial-scale hydrogen investment.
“The reaffirmation of the multi-year investment in carbon capture and storage, together with the financing of the eleven HAR1 projects, marks a long-awaited formal announcement on the government’s commitment to these clean energy sectors,” he said.
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