Will the Budget help or hinder?

Utilities need access to international funds to meet their investment targets, but with austerity still the priority, is the Budget likely to offer them any help? Mathew Beech reports.

On 16 March chancellor George Osborne will unveil his eighth Budget, and his second as chancellor of an all-Conservative government.

The key message the utilities sector – and many others across the country – will be hoping is stored in the red box is one targeted at infrastructure investment, and establishing a climate of certainty to ensure the UK remains an attractive place for international funds to flow into.

This is a particularly pertinent point on the back of the warning contained in an Energy and Climate Change Committee’s (ECCC) report slamming the government for eroding investor confidence.

ECCC chair Angus MacNeil said recent policy changes by the government had “spooked investors and left them wondering what will be next”. He added: “The government will this year have to produce a plan setting out how we will keep on track to reduce our carbon emissions in 2030 and beyond.”

The water companies have similar messages for the chancellor and tell Utility Week they are eager for him to develop and maintain investor certainty.

South West Water managing director Stephen Bird says his company is wishing for a “continued recognition of the importance of infrastructure investment”.

Severn Trent director of strategy and regulation Tony Ballance says it is the “overall package that matters” and that he wants the chancellor to announce “more detail about his plans to ensure UK infrastructure is as attractive as possible”.

The National Infrastructure Committee (NIC) this week called on the government to create a regulatory level playing field to assist with the development of energy storage projects and demand-side management schemes. With an eye on encouraging the builders (as Osborne said last October), introducing reform outlines in this area could be forthcoming.

The oil and gas industry, with oil prices at lows of around $30 per barrel, continues to look for more support to keep the North Sea industry going. The previous two Budgets granted them tax breaks, and the Treasury may aim to give this crucial sector another boost.

However, utilities should be braced for similar announcements to those contained in previous Osborne Budgets. The national debt is growing, even if the deficit is edging downwards (see graph).

The chancellor sounded this warning in recent weeks. At the end of last month, he said the global economy had got “markedly worse” and that the UK economy was smaller than expected.

As a result, Osborne said the UK would have to respond accordingly and “it may require further reductions in spending”.

Within the Department of Energy and Climate Change (Decc), there are concerns with previous levels of expenditure – namely the Levy Control Framework (LCF) – that have to be dealt with. The energy sector is demanding further clarity on the LCF – something which Decc has been quiet on as it tries to get it back within its budget. However, with the current allocation only running until 2020, the sector wants the chancellor to set out what the next decade holds for the LCF so that investment can begin to be made.

Energy secretary Amber Rudd has said that cost-cutting measures have to be implemented before the next round of contracts for difference auctions can be held. With Decc’s budget already set to be cut by £70 million, it is unlikely this will be softened.

Amid the doom and gloom, and the news of further cuts, tax reforms and efficiency savings across Whitehall, there is a glimmer of hope for some positive news. Osborne is expected to continue to push the drive for innovation, and there may be some further support for energy storage and small nuclear.

With the chancellor set to announce further cuts for the country, relief for the utilities may be small. But the biggest relief will be allowing the policy landscape to remain stable, and to encourage investors to continue to place their cash into the UK.