Chancellor Rachel Reeves’s Autumn Budget introduced significant fiscal measures that promise growth, increased spending on public services, and support for sustainability. However, for sustainable investors, it signals both new opportunities and areas where ambitions for a green economy could go further.
Here’s our breakdown of the most pertinent measures and their implications for responsible investment.
The budget emphasises electric vehicle (EV) adoption by allocating £120 million to extend the Plug-in Van Grant and maintaining favourable tax treatment for zero-emission vehicles. Zero-emission vehicles will benefit from the lowest first-year rate of Vehicle Excise Duty until 2030, with an increase in rates for high-emission vehicles to encourage a greener fleet transition. While these changes support fleet managers and the private sector, broader adoption remains challenging for individual buyers, particularly as VAT on public EV charging remains at 20%, compared to 5% for home charging.
To balance the increased spending, Reeves introduced a 1.2% increase in employer National Insurance Contributions (NICs), raising the rate to 15% by 2025. This change will raise significant funds, estimated at £25 billion annually. Small and medium-sized enterprises (SMEs) are partially shielded from the impact with an increased Employment Allowance of £10,500, while corporation tax rates remain unchanged at 25%. These adjustments provide stability for businesses focused on sustainable investments, especially in sectors supporting green infrastructure and renewable energy.
In response to rising concerns about climate impact, the budget raises Air Passenger Duty (APD) for private jets and increases the Windfall Tax on North Sea oil and gas producers, with the intent to channel these funds into renewable energy initiatives. Sustainable Aviation Fuel (SAF) mandates will gradually increase to ensure SAF makes up 22% of total jet fuel by 2040, an initiative expected to cut emissions by 63 megatons of CO2e.
The government allocated £3.4 billion to the Warm Homes Plan to enhance energy efficiency for 350,000 homes, focusing on low-income households. This, along with an extended budget for the Boiler Upgrade Scheme, should help reduce household energy costs and emissions. While this investment is significant, the budget lacks comparable support for energy efficiency in commercial buildings, an area that the Climate Change Committee has previously highlighted for improvement.
Reeves introduced changes to capital gains tax, increasing the lower rate from 10% to 18% and the higher rate from 20% to 24%, with residential property taxes remaining the same. Inheritance tax thresholds will stay frozen, and inherited pensions will be included in the tax from 2027, leading to potentially high effective tax rates on pension assets. Additionally, the non-domiciled resident tax regime will be abolished by 2025, impacting wealth management strategies, particularly those oriented towards high-net-worth individuals seeking tax-efficient inheritance and estate planning.
To finance these budgetary initiatives, the government plans a significant increase in borrowing, with public sector net debt expected to reach 97.3% of GDP by 2028-29. Gilt issuance will increase by £120 billion over four years, which may impact the bond market and present opportunities for asset managers in fixed-income investments. The market responded positively, with sterling remaining steady and domestic equities showing modest gains, reflecting confidence in the government’s approach to growth.
While the budget introduced several green and growth-oriented measures, sustainability leaders point out a few areas where the budget could have gone further. There is a continuing need for a Plug-in Car Grant for individual EV buyers, an alignment of VAT rates on public and home EV charging, and gradual adjustments to the fuel duty freeze to redirect funds toward sustainable infrastructure.
The absence of a dedicated “Just Transition” fund, to support workers in sectors moving away from fossil fuels, is also noteworthy. As Bramwell Blower of ShareAction highlighted, a comprehensive approach that includes a robust stewardship code and reforms to fiduciary duty would help ensure that private capital flows into projects aligned with sustainable, long-term interests. Such measures would empower asset managers to steer investments toward responsible growth, fully leveraging the financial sector’s potential to support a green transition.
For sustainable investors, the 2024 Autumn Budget offers notable steps toward a more sustainable economy. However, the need for a more robust stewardship framework and further policies that support widespread green investment remains. As investors navigate this changing landscape, these developments underscore the growing importance of responsible investment practices to align with the UK’s long-term environmental and economic goals.
