Levelling up and zeroing in

Think tank: Centre for Policy Studies

Author(s): James Heywood; Eamonn Ives

January 12, 2022

This report from UK think tank the Centre for Policy Studies looks at how Net Zero can revitalise the UK’s industrial heartlands.

Levelling Up and Net Zero are two of the Government’s top priorities. Yet as this report points out, the North and Midlands are home to the areas with highest emissions per person in the UK. Where London and the South East have service-heavy economies that are far less carbon-intensive, there are localities around the other regions of the UK that require a great deal of attention to decarbonise. The steel industry, for example, is heavily concentrated in a small number of areas, such as Scunthorpe and Port Talbot. Around 15% of all UK industrial emissions come from just those two places. In another example, 90% of the manufacturing capacity of the energy-intensive ceramics sector is represented in Stoke-on-Trent, employing 7,000 people. In order for decarbonisation to succeed, and to retain public support, we must ensure that the places that will be most impacted by the carbon transition can also benefit from new green jobs and investment.

In the report, backed by Alexander Stafford MP, the CPS proposes a range of policies to help these two agendas work together, including a carbon border tax, to ensure that Net Zero does not leave those industries at the heart of many communities vulnerable to foreign competitors who are not subject to the same environmental standards. The CPS argues that the UK is already positioned to be a world leader in clean technologies and industries. However, the Government must act quickly to ensure the right policies are in place to capitalise on this and seize the opportunities of the future Net Zero economy.

To achieve this, the report recommends six policies for immediate adoption: Make full expensing permanent and introduce a ‘green super deduction’ for clean business investment. Many British businesses will need to spend significant sums to decarbonise, such as on new equipment, machinery and plants. They should be able to fully offset these investments against their tax bills. Extend carbon pricing to more of the economy. The UK Emissions Trading System should be broadened out to include more of the economy – for instance, bringing agriculture, transport, and heating into its scope. Reform skills provision, beyond the young. Broadening the scope of the Apprenticeship Levy to make it much more flexible for employers to use, would accelerate the stated goal to improve and expand lifelong learning, while allowing workers to transition into clean jobs. Support investment into clean research and development. Funding for innovation needs to be maintained as well as examining how to better regulate emergent industries which could help deliver new technologies to cut greenhouse gases from sectors such as agriculture or in the energy supply. Adopt a carbon border tax. The carbon border tax, or ‘carbon border adjustment mechanism’ would provide a level of insurance against ‘carbon leakage’ and give British industries the reassurance they need that taking steps to decarbonise will not mean they are unfairly undercut by cheaper yet dirtier imports. Fund a bold new programme of technical universities. Revenues from the carbon border tax and wider carbon pricing should be used to create technical universities in areas in need of levelling up, to help equip workers for precisely the sorts of green jobs which will form the future green economy. Carbon revenues could also be channelled into economic development funds for local authorities.