4 December 2025: Professor Patrick Bayer examines last week's UK Budget in the context of climate change, in particular announcements on household energy bills and taxes for electric vehicles, writing that – while mindful of competing spending demands – it is a budget that lacks climate ambition.

Blog by Professor Patrick Bayer, University of Glasgow

Rachel Reeves has published her second autumn budget last Wednesday. With stability, investment, and reform as main themes, the budget’s key objectives are to enable conditions for sustainable growth and to cut the cost of living. This sounds reassuringly green, but what does it mean for climate change?

The UK budget comes at a time when world leaders, minus the United States, have just left Belém in Brazil after the conclusion of this year’s United Nations climate summit (COP30). This context is important because negotiations in Brazil have reminded us, once again, that governments, firms, and societies everywhere around the world, including in the UK, need to work harder and faster to fight climate change. That’s why last week’s budget matters. It sets the policy space to deliver on the government’s continued commitment to keep leading the way on clean energy and climate action.

Two measures are worth highlighting here as they nicely illustrate the difficult policy choices that governments face as they seek to decarbonise our societies.

First is the headline-grabbing announcement to take an average £150 off households’ energy bills. At face value, this is to address the ever-rising cost of living and to relieve inflationary pressures. Yet, it also shines a spotlight on the bigger question of how to sustainably reduce the cost of electricity in support of the energy transition. While the budget does get it right by bringing down the cost of electricity for private households, it had little in store for businesses and industry. The British Industrial Competitiveness Scheme, currently under consultation, promises to cut electricity costs in frontier sectors, but only from April 2027.

Despite the short-term respite for households, they will continue to feel the energy price pinch. Electricity prices in the UK, both for households and industry, have been among the highest across Europe. The reason for this is structural. Contrary to what vocal climate opponents claim, high energy costs are not the result of green policies but are mainly driven by high wholesale gas prices. While these prices have stabilised compared to their peak right after the Russian invasion of Ukraine four years ago, prices are still about twice of what they were before the Covid-19 pandemic.

Freeing the UK from the whims of gas markets and addressing the dual challenge of greening and, at the same time, increasing the UK’s electricity supply, will require even greater investment in renewables capacity, transmission, and distribution as well as continued electrification of heat, transport, industry, and everything in between. Planned public and private investment of more than £50bn in grid infrastructure says it low and clear: this transition will cost money. However, where policymakers’ commitments to the green transition are firm, markets are prepared to follow, as recently published research shows.

The other announcement that similarly illustrates policymakers’ pains around climate policy was on road transport taxes. The topline measures here were the introduction of a new pay-per-mile charge for electric vehicles (EVs) from April 2028 and the freezing of fuel duty, which motorists pay on petrol and diesel. With carbon emissions from transport now accounting for almost a third of the UK’s total emissions and not having come down significantly over the last two decades, the announced policies seemingly point in the wrong direction. However, they recognise the need for the government to raise money for road infrastructure upgrades. They also help to balance lower income for the Treasury from fuel tax as the number of EVs on Britain’s road has increased to over 1 million cars, or 4% of total stock. Other measures, like the electric car grant, will likely dampen the blow-back on EV sales, and frozen rail fares in England may help drivers to jump onto trains instead.

Of course, the budget is first and foremost about spending priorities, and the government currently faces competing demands from the cost of living, NHS waitlists, defence, and AI, while needing to maintain the Treasury’s fiscal headroom. Mindful of these challenges, the latest budget, for my taste, remains too timid on ambitious climate action. It lacks a clear vision for how individual climate and energy policy measures can be joined up to no longer just be seen for their cost, but as long-term investments into the UK’s future. Such a more coherent approach to effective decarbonisation would help spur regional growth and boost economic productivity, which Keir Starmer’s government is so urgently looking for.

Author

Patrick Bayer is Professor of Political Economy in the School of Social and Political Sciences at the University of Glasgow. His research focuses on international cooperation and the political economy of climate politics. He is particularly interested how political incentives and markets shape responses to climate change and the energy transition by governments, firms, and individuals.

Patrick Bayer is an Affiliated Researcher at the Centre for Public Policy.

Connect with Patrick on LinkedIn and Bluesky.

Preview image by Alex 張飛 on Unsplash

First published: 4 December 2025

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