Last week, Chancellor Rachel Reeves delivered Labour’s first Budget in 14 years. Here, Johnny Bowie, Sustainability Analyst at ethical financial planners EQ Investors, picks out the key announcements that affect the planet and society, and what they might mean for sustainable investors.
Clean energy
Reeves announced that a significant portion of the Budget will be dedicated to advancing the UK’s clean energy sector, including a £70 billion private investment initiative through the new National Wealth Fund.
This investment will be aimed at projects in renewable energy, battery production, and port upgrades for green hydrogen infrastructure.
Great British Energy will receive £125 million in funding for 2025-26 – significantly short of the £8.3 billion that was promised in Labour’s manifesto.
Despite this, the announcements are a reassuring signal for companies and investors in the renewables value chain, the grid, and its smart management.
Electric vehicles
Tax incentives will continue for electric vehicles (EVs) but will exclude hybrid vehicles in a bid to encourage a shift towards fully electric options. There is also £200 million for EV charging infrastructure between 2025-26 and a £120 million scheme to support people buying electric vans. With EV sales having slowed in recent months, this may help to boost sales.
Labour is also committed to ending new internal combustion engine vehicle sales by 2030, with a full transition to zero-emission vehicles by 2035.
Reeves did announce a freeze on fuel duty tax for polluting vehicles, however we see this as a short-term solution to ease the cost of living while the UK transitions to EVs and low- carbon vehicles.
Carbon capture and nuclear power
Carbon capture and storage (CCS) projects will receive £3.9 billion in funding, reflecting the government’s intention to decarbonise industry while leveraging the UK’s geographic assets for CO2 storage.
Labour also reaffirmed its support for nuclear energy with a £2.7 billion investment for nuclear power station Sizewell C, alongside ongoing support for fusion research. This signals that nuclear energy is seen as a core element of the UK’s low carbon energy mix.
Carbon border policies
The Budget confirmed the UK will implement a carbon Border Adjustment Mechanism (a policy that aims to cut greenhouse gas emissions by accounting for the carbon cost of imported goods) – from 1 January 2027. This will cover aluminium, cement, fertiliser, hydrogen, iron, and steel sectors.
This will benefit sustainable investors by creating a more level playing field for green investments in the UK, encouraging both domestic and foreign businesses to lower emissions.
North Sea oil
The current windfall tax on energy producers operating in the North Sea will rise from 35 per cent to 38 per cent. This hurts profit margins of oil and gas exploration companies, which are not held across EQ’s sustainable portfolio ranges. The Budget also includes measures encouraging North Sea companies to invest in low-carbon projects.
For example, companies may receive tax breaks or reduced levies if they invest in CCS or offshore wind, helping them move towards cleaner energy sources.
Homes and building standards
£3.4 billion has been allocated to the Warm Homes Plan, which aims to enhance the energy efficiency for up to 350,000 homes across the UK and upgrade five million homes by 2030, with a particular focus on low-income households. When coupled with Budget increases to the Boiler Upgrade Scheme, this should help to reduce energy costs across UK households.
Some of our portfolio companies provide the technologies or know-how for greener buildings, and could benefit from this.
Social impact investment vehicle
The Budget introduced a new social impact investment vehicle to attract private investment for social goals. Supported by the social investment sector, this initiative aims to drive Labour’s five key missions: economic growth, clean energy, crime reduction, educational reform, and health system improvement. Although details and funding specifics will follow in the spring, this has been welcomed by the impact investing community.
In summary
While markets are still digesting the Budget news, and we are still awaiting important details, the reassurance provided by the new government provides a more positive outlook for many sustainable businesses. The commitment to addressing climate change and social inequalities offers notable steps towards a sustainable future.
