DECC’s Budget settlement

The Department for Energy and Climate Change (DECC) is a relatively small department, about 1/6th the size of the Department for Business, Innovation and Skills, but with a complex task to do. Its task is to use its budget of about £4 billion to facilitate over £100 billion of private investment into the UK’s electricity system by 2020, and to encourage innovation, energy saving and competition to minimise the cost of low carbon energy. And, unlike Health, Schools and International Development, it has to do this against the background of not having a “ring-fenced” budget. It has the further complication that a large proportion of it budget is unavoidably committed to programmes that cannot be cancelled or easily trimmed, such as nuclear decommissioning. In recognition of the political sensitivity of DECC’s programme, despite the pressure on Government spending, in the last parliament DECC actually had a spending increase of about 14%. This came about because of decisions in 2013 to ease energy bill increases by adjusting some of the green levies and investments in carbon capture and storage. However, commentators think it is unlikely that DECC will have such an easy ride in this parliament. Overall cuts in its budget of around 21% were announced this week ahead of the autumn statement. Full details of where these cuts will fall have not been released yet however, because of the internal “ring-fencing” of its committed expenditures, it is expected that cuts in the unprotected areas will be much more severe, probably more than 45%. Commentators fear that “green” expenditure will have to bear a large part of this burden. We know that the Government is already reviewing the response to its proposals to cut the PV feed-in tariffs by around 90% from January. We expect there are likely to be further significant cuts in other green tariffs and incentives. Where this will leave DECC in its ability to achieve its targets is anybody’s guess. Our best hope is that the Prime Minister’s wish to be seen to be Green at the upcoming Paris Climate Change Conference will protect at least some of their programmes to drive the decarbonisation of heat and electricity, and may encourage the remaining DECC employee(s) and ministers to think a bit more creatively about how to use other tools, such as tax, planning and legislation, to achieve their goals rather than the one-dimensional reliance on over complicated and expensive subsidy programmes.

For more information on DECC’s Budget settlement talk to ISO Energy Ltd