The question of how Britain will respond to President Biden’s Inflation Reduction Act, a landmark $369 billion law offering deep subsidies for green investment, has been following Britain’s Finance Minister Jeremy Hunt for much of the last year.
Mr Hunt urged patience and promised to respond when the country updated its budget in a few weeks. But as that speech approaches, hopes are fading that he will offer anything as generous as American generosity.
Britain, which is facing tight fiscal constraintsThere will be no “subsidy bowl” like the United States, Mr Hunt said last month, Despite the economic cost, British officials argue that they prefer a more free-market approach but are offering some subsidies on a case-by-case basis or through grants for which companies can compete. They also say that Britain and other countries will ultimately benefit from technological progress supported by US subsidies.
Not everyone is happy with this lax attitude. Economists and business groups have been warning that the government’s approach is too unpredictable, too complex to navigate and Britain risks missing out on potentially huge economic gains in the global race to cut carbon emissions.
Case-by-case provision of subsidies could put the government at risk of being taken advantage of by companies, said Mariana Mazzucato, professor in the economics of innovation and public value at University College London.
Last month, the government said it would contribute 500 million pounds ($606 million) to Tata Steel’s plan to cut emissions at the giant Port Talbot plant, just months after its offer reportedly the same amount Its parent company, Tata Group, to build an electric car battery factory in Britain.
These one-to-one agreements are “parasitic” and extract value from the public sector, Professor Mazzucato said, not “symbiotic deals” that would be “good for people, the planet and profits.” These, he said, were examples of “subsidies without any vision.”
The Inflation Reduction Act’s subsidies are intended not only to meet the climate challenge, but also to create jobs and expand the economy by making many tax credits conditional on domestic production of, for example, electric vehicles or hydrogen power. But the legislation has also been praised for bringing together a large, comprehensive agenda with relatively clear eligibility requirements for funding.
Outside the United States, the Inflation Reduction Act is seen as both a blessing and a curse. While some governments applaud America’s spending on green energy and technology, they have a nervous eye on the companies, money and jobs they could lure from their countries. The legislation has rapidly changed the global landscape for green investment as governments, including the European Union, create incentives.
Britain is finding its footing in this new race. It is widely accepted that the country cannot compete with the scale of US subsidies, which could eventually exceed $1 trillion by some estimates.
A Treasury spokesperson said the UK’s response to the Inflation Reduction Act would be “on an ongoing basis as appropriate”, adding that the government would “continue to monitor” the impact of the legislation.
“The UK has a world-leading track record of delivery on decarbonisation due to early investment in green industries and a strong and attractive business environment, which positions us well to capitalize on the opportunities and mitigate the risks presented by IRAs. ” The spokesperson said.
Britain was the first major economy enshrined in law It aims to achieve net-zero greenhouse gas emissions by 2050. And over the years, the government has published A series of strategy documents In support of Net Zero, which includes the hydrogen sector and transport, and organizations were created that can provide financial support for companies, including the UK Infrastructure Bank.
But recently, many people feel that Britain is falling behind on its green commitments. The Committee on Climate Change, an independent body that advises the government, said this summer that “Britain has lost its clear global climate leadership.” This sentiment was cemented last month when Mr Sunak announced the withdrawal of some net-zero targets. Ahead of the election next year, Mr Sunak justified the changes by citing the cost of the schemes to consumers.
“The government has done a great job of making some exciting announcements, making millions of strategies, but that’s part of the problem,” said Sarah McIntosh, director of Cleantech for the UK, a lobby group that formed partly in response to that fact. Was established. The Inflation Reduction Act is an incentive to move investment into the United States. “There’s really no clear distribution plan.”
And recent changes, such as delaying a ban on the sale of petrol and diesel cars, were “just an anomaly that investors need to deal with,” Ms McIntosh said.
The Inflation Reduction Act has revived debate about the advantages of an industrial strategy, in which governments actively try to shape an economy. Make UK, the trade group representing manufacturers, said, “The lack of a proper, planned, industrial strategy is a weakness of the UK.”
It is one of the dividing lines between Britain’s two biggest political parties ahead of next year’s election. The opposition Labor Party has drawn up an industrial strategy, one of the things attracting corporate executives for the first time at the party’s annual conference this month.
However, some investors agreed with the government’s restrained approach towards subsidies.
“The UK has probably been very smart and very clever in not promising massive tax breaks across the entire economy,” said Ian Simm, founder of Impax Asset Management. This “has the potential for inefficiency and waste, which I think America is facing to some extent with the IRA”.
Britain has shown that the doors are open to international companies willing to invest, Mr. Simm said, and case-by-case analysis determines what might work. This is a better approach, he said, as Britain’s debt levels are at their highest since the 1960s and the government faces a cost-of-living crisis that is likely to get worse due to hyperinflation. It is done.
Dan Wells, a partner at Foresight Group, an alternative investment firm focused on decarbonization with about $15 billion under management, also said a case-by-case approach is appropriate for the UK and some specific areas for the country. It is better to concentrate. ,
“It’s practical, it’s British – not very flashy,” Mr Wells said.
Still, “it would be more helpful if there was positive intent and language” from the government regarding a commitment to net-zero targets.
Even though the Inflation Reduction Act and another major US spending plan, the CHIPS Act, are only a year old, there is evidence that they are succeeding in attracting investment to the United States.
This year, Cambridge-based Pragmatic Semiconductor set up an entity in the United States, Attracted by Chips Act. British firm Johnson Matthey, which has invested in hydrogen, said it wanted to take advantage of the Inflation Reduction Act. and Drax, a power generator, Billions of dollars of carbon capture investment halted in BritainAnd the opportunities created by the Inflation Reduction Act were later noted in the filing.
The risk of departures is something the UK is particularly concerned about. This year, Mr Hunt launched a review of how to attract foreign direct investment. The study followed some high-profile moves by British companies such as pharmaceutical giant AstraZeneca plans to build a plant in Ireland and chip designer Arm’s decision to publicly list its shares in New York.
The hydrogen industry is particularly concerned. Claire Jackson, chief executive of industry group Hydrogen UK, said Britain was committed to increasing production of this alternative energy and setting ambitious targets, but has stalled. And then the United States came forward with generous grants and tax credits, allowing others like Canada and the European Union to join the race. Now, he said, some companies are focusing on the United States or not prioritizing British projects.
“This is a race we are going to lose,” he said. “But if we don’t respond, if we don’t move quickly, we will lose it.”