The Net Zero Review (the Review) makes ambitious suggestions on how all sectors of the economy can contribute to put the UK on a path to net zero. The Review is comprehensive, covering all aspects from infrastructure, new building regulation to nuclear energy and carbon tax. It is therefore not surprising that the call for action is aimed at a plethora of stakeholders including government, industry, local authorities and individual households.
The Review makes 74 recommendations that should commence in 2023, a seemingly unrealistic feat given the current focus of government and business on the cost of living crisis. However, the inflationary pressures are forecast to be only short term and going green has huge potential to stimulate the economy, create highly skilled jobs and improve productivity.
The Review calls for the Government to set out clear, comprehensive industry specific strategies to tackle net zero. This chimes with our budget submission to HM Treasury, in which we called for a set of interlinked strategies to improve the resilience and performance of the UK economy.
Since 2015, the UK’s business community has witnessed the leadership of government change four times and with it a constant changing of strategy and priorities. Stability and certainty together with the right government incentives will drive investments into a brighter, greener future. The Review rightly states that the opportunities are there, and that the UK has a fantastic chance to take a leading role in the green transition with prospects of new jobs, growth and increased productivity. The UK has some comparative advantages by being an early adopter of wind energy and having strong R&D but other countries are not standing idly by, most notably the US, via its ‘Inflation Reduction Act’ which is providing huge subsidies for green projects.
We therefore strongly support Skidmore’s call for the creation of four ‘Mission Zero’ networks to bring together the relevant experts, business leaders and local communities to put into action some of the report’s recommendations. The four missions will initially focus on local, industry, buildings and solar.
Whilst we support the Review in its entirety, we have considered those recommendations we believe should be the greatest priority and where ICAEW and its members can contribute to their delivery. The recommendations we are considering here in more detail fall into four broad categories:
- Governance and regulation
- Finance and reporting
- Skills and business
- Local and regional government
We will look at each of these key categories in more detail and highlight the key actions for the government to consider. Chartered accountants are standing ready to assist but we really need to see the UK Government start to take action on some of the 129 recommendations made in the Review.
1) Governance and regulation
Good governance plays a key role and we fully support the creation of an ‘Office for Net Zero Delivery’ (Skidmore recommendation #7) to ensure that the cross-departmental priorities for net zero are properly managed. A key outcome must be clear overall ownership of the delivery of net zero and with it the transparency and scrutiny to hold those responsible to account.
At the time of writing, it was announced that the Department for Business, Energy and Industrial Strategy (BEIS) is to be restructured with more emphasis on net zero via the creation of the Department for Energy Security and Net Zero. We support the creation of a standalone department and hope that Parliament will establish an accompanying select committee. We hope that this new department will enable long-term climate planning that goes beyond election years and party manifestos.
Not only should the new department manage cross-cutting risks, share best practice and ensure policy cohesion across Whitehall, it should also have oversight of the activities of the different UK regulators to ensure the business environment and investment opportunities are optimised for net zero where possible. (Skidmore recommendation #4)
In relation to taxation, whether businesses invest or not runs much deeper than just the headline corporation tax rate. Policy makers must look at the bigger picture and consider capital gains tax, R&D incentives, grants, labour skills, infrastructure and political stability as being equally, if not more, important. Recent announcements to reduce R&D tax incentives, hesitation regarding the re-joining of Europe’s Horizon scientific community, the abolition of the super-deduction for capital allowances all point towards a less friendly business environment. We agree with the Skidmore recommendation to review how policy incentivises investment in decarbonisation, including via the tax system and capital allowances. (Skidmore recommendation #58)
2) Finance and reporting
The UK has successfully positioned itself as a global leader in green finance – to maintain this position, we urge government to bring forward its updated Green Finance Strategy at the earliest opportunity (Skidmore recommendation #69). This should include a ‘Net Zero Investment Plan’, which will outline sectoral transition pathways to net zero and an assessment of the low carbon investment gap for sectors and how these can be bridged.
According to the Climate Change Committee’s advice on the sixth carbon budget, low carbon investment in the UK must triple by the end of this decade if it is to meet its climate goals. For this to happen, the private sector needs strong and consistent science-based market signals, targeted public investment and transparent policies in support of new and growing sustainable markets.
The Department of Energy Security and Net Zero should create a Net Zero Delivery Tracker to assess the financial flows in support of the climate and nature goals contained in each Budget and Spending Review. To make this work, all stakeholders must agree on science-based definitions of what is green and what is not. Clear and simple to apply definitions are required to allow good actors to demonstrate their green credentials and to make greenwashing more difficult. (Skidmore recommendations #15 & 16)
As investment increases in the transition to net zero, the implementation of UN’s Sustainable Development Goals and their accompanying assurance will become more vital for maintaining investor and public confidence. Chartered accountants here in the UK, and globally, will be at the heart of delivering this important work. We endorse the Skidmore report’s recommendation that the updated Green Finance Strategy sets out an ambitious approach to disclosure and standard setting – including how government will meet its existing commitments to implement SDRs across the economy, and endorsing and implementing ISSB standards as soon as possible (Skidmore recommendations #14 & 69)
3) Skills and business
All businesses must play their part in the transition to a sustainable economy. Not only do the majority of ICAEW members work in or advise small and medium sized businesses, 99% of the business population in the UK are SMEs.
Given their size, limited resources and time to devote to issues that many do not view as core to their business (except for a handful of purpose-led entities) on top of a rather difficult economic environment, the transition seems to be a luxury issue they cannot afford.
ICAEW have long advocated for initiatives to support SMEs in this transformation, and we welcome Skidmore’s recommendation #65 proposing a ‘Help to Grow Green’ campaign, offering information resources and vouchers for SMEs to upskill, plan and invest in the transition to net zero. SMEs will benefit from the capital not only to operationally decarbonise but to invest in training to ensure the UK labour market has the appropriate skillset to support the transition.
A report from the Green Alliance stated every major sector in the UK needs to close a significant skills gap to enable them to reach net zero. Eighty per cent of the current workforce will still be active in 2030, so as well as attracting new green entrants there should be a focus on transferring existing skills and retraining for the green economy. We agree with the Skidmore report (notably recommendations #59 and 61) that government should drive forward delivery of the recommendations of the Green Jobs Taskforce, with a particularly important role for Apprenticeships in meeting the skills gap of our economy – government should increase the flexibility of the Apprenticeship Levy, assess whether it aligns with net zero and growth priorities, and incentivise their use to upskill our labour force.
As a key training provider, ICAEW recognises it has a role to play in ensuring chartered accountants have the knowledge and skills to deliver the transition. In addition to embedding sustainability in the ACA qualification and launching an introductory sustainability certificate, we are developing role specific training and, where applicable, signposting other materials members can explore to increase their competence in sustainability.
4) Local and regional government
More than 300 local authorities have set a net zero target or declared a climate emergency but action on the back of these declarations is wholly lacking, primarily due to a lack of funding but also due to a shortage of relevant expertise.
Local authorities will play a key role in the UK’s transition to net zero but are impeded by the current funding arrangements that require local authorities to waste valuable resources preparing funding bids from multiple pots. The short-term nature of this approach discourages vital long-term investment in the infrastructure and skills that are needed to have a significant impact on delivery of net zero. We would prefer to see multi-year funding settlements that provide local authorities with the freedom to use their local knowledge to invest in the net zero projects most suitable for their areas. This view is shared by the Skidmore report which calls for a simplified net zero funding landscape by the next Spending Review (Skidmore recommendation #92).
However, delivery will also require that central government provides guidance, reporting mechanisms and additional capacity and capability support to enable local authorities to better monitor and report their net zero progress. This is essential for local authorities to be effective delivery partners in the transition to net zero. ICAEW and our members are keen to work with government to support the design and implementation of recommendation #96.
Assuming local authorities are better funded and supported as per the above recommendation, ICAEW would support the introduction of a statutory duty for local authorities to take account of the UK’s net zero targets, based on a clear framework of local roles and responsibilities. We would like to offer our support in developing such a framework (Skidmore recommendation #91).
And finally, in order to galvanise public sector employees working on net zero, be it policy, regulation or financial reporting, ICAEW fully supports Skidmore’s recommendation for central and local government to work together to convene an annual Local Climate Summit that helps to share best practice, attract green investment and showcase progress made. It would be a real opportunity to demonstrate to the public where the money is being spent and what impact it is having on our climate (Skidmore recommendation #97).