Government “without answers to key questions” of what Net Zero by 2050 will “cost British consumers, households, businesses or government itself” - or “how it will fund the transition”

Today the Public Accounts Committee says that after taking two years to publish its plan for achieving the target, set in law, of ‘Net Zero by 2050’, Government still has “no clear plan for how the transition to net zero will be funded” or “how it will replace income from taxes such as fuel duty”, and “no reliable estimate of what the process of implementing the net zero policy is actually likely to cost British consumers, households, businesses or government itself”.

Certainty for business and consumers is critical but as the Committee has noted repeatedly in recent reports, Government has “too often pursued stop-start strategies which undermine confidence for business, investors and consumers in committing to measures which would reduce carbon emissions - especially when some green alternatives are still significantly more expensive than current options.” 

Dame Meg Hillier MP, Chair of the Public Accounts Committee, said: “Government is relying heavily on rapidly changing consumer behaviours and technological innovations to drive down the costs of green options, but it is not clear how it will support and encourage consumers to purchase greener products or incentivise businesses and drive change.

“Every Government department has a responsibility for delivering policies towards the target of net zero but two years after enshrining the ‘Net Zero’ by 2050 target in law, the government has unveiled a plan without answers to the key questions of how it will fund the transition to net zero - including how it replace significant income from taxes such as fuel duty.

“The government’s net zero strategy requires government, local government, regulators, businesses, and consumers working all together to deliver its targets. A top-down strategy from government won’t deliver on its own. There is a risk that a series of disconnected initiatives announced by central government will not bring about the changes that are now set out in law.”

PAC report conclusions and recommendations

8. Government has no clear plan for how the transition to net Zero will be funded.  Its ability to track its performance against the 2050 target is hampered by vague performance measures, a lack of overall budget or plans to collate and report what it is spending and limited assessment of the cost impact on consumers. Currently, the government does not plan to report spending in pursuit of its net zero objectives, which the Department considers may be challenging to separate from other costs. While we acknowledge the challenge, which will increase over time as behavioural changes are embedded, this should definitely not be a reason for the Department, working with HM Treasury, to shy away from tracking and reporting public money spent on achieving its net zero objectives and outcomes achieved. For example, the NAO overcame similar challenges to create its Covid Cost Tracker. In addition, some of the net zero measures are cast as best endeavours “as many as possible” or “as many…as reasonably practicable”. These features will make any assessment of progress less transparent and more challenging.  

HM Treasury was reluctant to be drawn on the future costs of achieving net zero, cautioning that while the Committee on Climate Change has provided estimates, they contain ‘heroic assumptions’ with errors potentially compounding over very long periods.¹ To publish policy without commensurate funding merely amounts to an aspiration not a real intention by government. At a time when people are worried about their energy bills, government must be clearer about the costs facing consumers, households and business of achieving its net zero objectives. Our previous work on green taxation did not give us any confidence that there is a clear plan, and we highlighted our concern that HM Treasury and HM Revenues & Customs (HMRC) have taken a very limited view of tax so far and could not clearly explain to us how the tax system is to be used in achieving the government’s environmental goals. One example is government’s goal of increasing ownership of electric vehicles, which requires HM Treasury to take account of Fuel Duty and Vehicle Excise Duty receipts forgone and provide clarity on how these impacts on the consumer and Exchequer will be managed. At present HMRC and HM Treasury only recognise four environmental taxes as these are the only ones with specific environmental objectives. They have focussed on the revenue these taxes raise but have not kept track of the impact of other taxes such as tax reliefs to support energy saving and clean technologies, or the impact of tax measures affecting the consumption of fossil fuels. We were encouraged to hear that the departments have started to assess the impact of fuel duty freezes on the environment, but environmental assessments should be made for all taxes.  

Recommendations: Alongside the Treasury Minute response, the Department and HM Treasury should write to the Committee setting out in detail how it will report progress in implementing its net zero policies, including: 

• specific metrics, including the effects of tax measures such as vehicle and fuel related duties.
• how it will use these metrics to track progress against long-term targets on an annual basis, for example by setting interim or annual ambitions; and 
• what it will do if progress demonstrates underperformance./cont’d>

Recommendation 8 Cont’d/ The Department and HM Treasury should also set out how it will ensure Parliament can scrutinise the implementation of its net zero policies. We expect this to take the form of annual reports that include the updated costs to 2050 and the amount spent in that year in the public sector to achieve net zero as well as the impact on consumers, households, businesses and local and central government across all sectors and departments and what the expected CO2 reductions will be. 

9. Significant uncertainty remains as to whether consumers will rapidly change their behaviours in line with the expectations of government’s Net Zero Strategy. For government to achieve net zero by 2050 requires extensive consumer engagement with its policies and behaviour change in line with its objectives, from installing heat pumps and better insulation to driving electric vehicles. For example, government has a target of installing 600,000 heat pumps a year by 2028, and that by 2035 all new cars and vans sold are to be zero emission. However, government has a poor track record of engaging consumers, including over-estimating buy-in to its policies. For now, the cost to consumers of these products can be high, although government is confident that this will change and the cost of, for example, a heat pump will be lower by 2035 than the cost of a gas boiler. In addition, the Department does not yet have a picture of the cumulative impacts its net zero policies are having on individuals and groups, although it is monitoring public attitudes to net zero issues on a quarterly basis.

Recommendation: The Department should: 

• Include consumer take-up relative to expectations, and how different social groups are being impacted, in its annual progress updates.
• Conduct scenario planning to prepare for and inform situations where consumer take-up falls below expectations.
• Evaluate the causes of any consumer take-up shortfalls, to inform policy responses.

10. Government’s Net Zero Strategy relies heavily on private investment and innovation driving down costs; however, government has a poor track record of providing investor confidence. The Strategy relies on government leveraging billions of pounds of private investment to spur innovation in pursuit of its objectives. Despite this, in some areas such as heat and buildings government is only ‘fairly confident’ that the measures it is putting in place, including grant funding and regulatory reform, will encourage economies of scale that will drive down the cost of net zero technologies. The private sector needs to have confidence in government’s policies to risk investing resources in developing technologies and upskilling the workforce. However, government has a repetitive track record of making stop-start decisions on green schemes that erode investor confidence, which we have seen again most recently in relation to the Green Homes Grant Voucher Scheme debacle. It remains to be seen whether departmental budgets set over a three-year period gives investors sufficient long-term clarity. The Department indicated that the new Strategy would have greater permanence because it was developed in conjunction with HM Treasury’s multi-year spending review and has long-term targets and trajectories with legal commitments to carbon budgets and achieving net zero.

Recommendation: The Department should monitor how quickly technology costs are falling and the levels of private investment it is attracting, and set clear triggers for interventions such as new policies and regulations for when things go off course. The Department should write to the Committee every 12 months with an update on its progress.  

11. We are disappointed by government’s apparent lack of urgency in clarifying how it will work with local government to achieve net zero. We have previously reported that local authorities have significant scope to influence emissions in their local area, but government had not sufficiently engaged with them on their role in achieving net zero. The Strategy includes the Department’s new role of having overall responsibility for improving coordination with local government, and its plans to establish a Net Zero Forum to bring together senior officials from national and local government on a regular basis to discuss policy and delivery options on net zero. However, we are concerned that there is still a lack of clarity in the roles and responsibilities of local authorities in delivering net zero objectives, and a lack of capacity at the local level to carry out these activities. We are also concerned that some local authorities continue to struggle to access central government money to fund net zero activities. The Department indicated that its funding model was intended to ensure funds got to where they were most needed, for example the poorest social housing stock; however, it committed to consider how it could balance its objectives with a simpler funding system. The Department acknowledges that it has much work to do in relation to local authorities and net zero.

Recommendation: The Department should urgently provide further clarity on how it intends to work with local government on achieving net zero. This should include how it will: 

• clarify the role it expects local authorities to play in achieving net zero;
• manage risks around local government’s delivery of net zero; and 
• make net zero funding simpler for local government to access and utilise.

12. We are concerned that neither the private sector nor the civil service yet have the necessary skills to deliver the Net Zero Strategy. The Department acknowledges that the private sector does not currently have the skills to deliver key aspects of the Strategy, such as for buildings and low-carbon heating. It is, nevertheless, confident of this capacity and capability in future. For example, it considers it will achieve its target to install 600,000 heat pumps a year by 2028 because discussions with industry have suggested that heating engineers with ‘transferable skills’ can be retrained as heat pump engineers. However, the recent failure of the Green Homes Grant Voucher Scheme was in part driven by the lack of skilled workers. The civil service will also need to ensure it has people with the requisite skills to deliver net zero. The Green Book has been updated, requiring officials to assess the carbon impacts of policies; however, the distribution of officials with these skills is not uniform across government, with the highest concentrations in the Department, Department for Transport and Defra. The Department, working with the Government Skills and Curriculum Unit, is trying to develop the civil service’s future development pipeline, including through specialisms and the fast stream.

Recommendation: The Department should: 

• Set out its strategy for encouraging the private sector workforce to develop the skills needed to achieve net zero, drawing on the recommendations included in the Green Jobs Taskforce.
• Work with the Cabinet Office to perform a comprehensive analysis of the skills needed in the civil service to deliver net zero and fill gaps either through increased cross-departmental working, training or recruitment.

13. Increasing focus on its domestic Net Zero Strategy should not detract government from leading global action to tackle climate change. Climate change is a global challenge which requires a global solution. Government aims to lead by example domestically to help drive action and ambition internationally. However, delays in publishing targets for reducing public sector emissions risk undermining its credibility nationally and internationally. There is also a risk that policies driving emissions reductions domestically increase emissions elsewhere, and the Department acknowledges that so-called ‘consumption emissions’ are harder to measure as it requires information on emissions generated by the manufacture and transport of imported goods. Although HM Treasury is considering the challenges of carbon ‘leakage’ for UK competitiveness, that is displacing emissions from one country to another, the Department recognises that international supply chain emissions, and product standards are areas where it needs to do more work. There are obvious limitations without solutions in obtaining accurate, quality data from many foreign jurisdictions. It is not easy to see how these limitations can be overcome. It plans to launch a call for evidence on demand-side low-carbon products to address issues on product standards and help consumers identify low-carbon products.

Recommendation: The Department, together with Defra, should work to increase public awareness of consumption emissions (for example, the carbon footprints of products sold in the UK), so the impact of consumer decisions play a more central role in tackling climate change. /ENDS