05 March 2021

UK Budget 2021 - Clean Energy and Infrastructure Focus

The UK’s Chancellor unveiled the government’s tax and spending plans on 3 March 2021 at a time of unprecedented borrowing, not seen since the World Wars.  To plug this hole in the nation’s finances, there’s no surprise that UK taxes will need to increase; although the government did (just about) manage to keep its election promise and not raise the headline rates of income tax, VAT and national insurance.  So, what other interesting news is there from this year’s Budget?

Increase in corporation tax

From April 2023, the rate of corporation tax in the UK will increase for larger companies from the current rate of 19% (now renamed the “small” rate for, broadly, companies with profits up to £50,000) to 25% for companies with profits of more than £250,000 (with a marginal rate applying to profits inbetween).  According to the government, this higher UK rate is still the lowest in the G7.  Whether this increase will adversely impact the recovery or international interest in the UK post-Brexit remains to be seen.

Focus on an investment-led recovery: super-deductions

As the UK emerges from lockdown, the government has set out plans to drive jobs, growth and investment in the UK to help businesses grow and improve access to skills, capital and ideas. With unemployment expected to rise sharply when the furlough scheme inevitably ends, this is sensible national planning for those hit hard by COVID-19.  One such measure, from April 2021, will be a new “super-deduction” to encourage companies to invest in new plant and machinery.  Until 31 March 2023, expenditure that would ordinarily qualify for 18% writing down allowances, will be relieved by a super-deduction of 130%.  In addition, certain long-life assets that would ordinarily qualify for 6% allowances, will have a new 50% deduction in the first year.  It is hoped that this will encourage investment and stimulate growth. 

First ever National Infrastructure Bank

In order to catalyse growth in the UK and support the transition to net zero carbon emissions by 2050 – a particular mantra of our Prime Minister, Boris Johnson – the government is establishing the UK Infrastructure Bank.  Together with the private sector and local government, the Bank will lead a shared mission to accelerate investment in the UK’s infrastructure.  In order to achieve these aims and confirm the government’s commitment to “green” growth, it will provide initial capital of £12 billion to the Bank this spring, with the ability to issue £10 billion of guarantees.  The government expects this Bank to support at least £40 billion of investments in UK infrastructure.  Government guarantees have traditionally been an area fraught with difficulty under prohibitions on “State Aid”.  The UK has historically adhered closely to the principles regarding State Aid; and this represents a shift to a more bullish stance on government support for projects and industries that promote UK Plc’s future national trajectory. 

World’s first Sovereign Green Savings Bond

In order to give all UK savers the opportunity to invest in “clean” energy and transport projects, the government has announced plans to launch the world’s first “green” savings bond through NS&I (the government-backed organisation which issues premium bonds to the public).  This new bond will help fund projects that will accelerate the UK’s transition to a low carbon economy, create green jobs and support the collective effort to tackle climate change.  NS&I savings bonds are popular amongst certain demographics.  It remains to be seen what advantage this will give to savers. Will it, for example, be index-linked?  Many clean energy projects use indexation in their financial modelling to attract long term, inflation resistant investment.  Aligning this traditional energy project approach with a new investment opportunity is likely to be extremely popular with the British public. 

UK “Freeports” announced

As part of a policy which is only possible since the UK’s Brexit from the EU, the Chancellor announced eight new English Freeports – in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.  Freeports will have more favourable customs and tax rules (including, enhanced allowances and reliefs for stamp duty land tax and business rates) compared to the rest of the country, as well as simpler planning laws to accelerate development and housing delivery.  The government wants these Freeports to be national hubs for global trade and investment across the UK, promote regeneration/ job creation and be hotbeds for innovation. 

Possible capital gains tax increase

There were rumours that capital gains taxes in the UK would be increased.  This has not materialised, however, the government has announced that it will publish additional tax-related consultations and calls for evidence on 23 March 2021, when such an increase in tax may well be included as a topic of consultation.  

As well as announcing extensions to the popular UK coronavirus support measures (such as, the furlough scheme and stamp duty land tax holiday), this year’s Budget had a real focus on clean energy and infrastructure projects that may interest many businesses and investors in the UK.  If you have any queries in this regard, or in relation to any of the measures in the UK’s Budget, please contact Sam Coleman (Tax Partner) or John Danahy (Real Estate and Energy Partner) in our London office.

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