WRITTEN BY:
Ian Price,
Director,
CBI Wales.
With the UK economy starting to show signs of rebounding, the hunt is on for the opportunities of today that can become the drivers of sustainable growth in Wales tomorrow.
While there are many exciting avenues out there, it’s the green economy that local businesses regularly tell me they are most excited about.
This push for green is driven by more than goodwill and the need to leave behind a liveable planet for future generations. It is about commercial opportunity, and the numbers speak for themselves. In 2024, a year when the UK economy fell into a technical recession, our net zero sector grew 9 per cent. The CBI’s own research shows green growth could deliver as much as £57bn to the UK economy.
So why does it feel like we’re sliding backwards?
Last year broke every climate indicator we have. It was by far the warmest year on record, observed sea levels reached record highs, and greenhouse gas concentrations continued to rise.
The politicisation of net zero certainly hasn’t helped. Green scepticism has been getting a lot of airtime recently, with some asking whether it’s worth investing in green, whether it can really drive growth. With all of that in mind, it’s no wonder Chris Stark, the outgoing chair of the Committee on Climate Change, recently asked if the UK had lost its ambition for green.
What gives me confidence that we are heading in the right direction is the conversations I have with businesses. Once regarded as climate laggards, businesses have overwhelmingly become champions of net zero. Recently I had discussions with Principality, which have set a target to be net zero by 2030 and are looking at ways to encourage households to make the shift from gas to air source heat pumps and to retrofit properties, particularly older properties that were not built for the green revolution. The company’s CEO Julie-Ann Haines pointed out that 14% of emissions are currently from homes and is looking at the economics of making it fairer from a cost viewpoint for households and for potential customers to make the switch.
Firms across Wales want to capitalise on the country’s status as an early leader in green investment, they want to leverage our energy expertise, and they want to invent and build climate friendly technologies that will shape the future.
The Welsh net zero economy is also particularly strong, providing 4.6% of the country’s Gross Value Added, and 2.8% of employment. Manufacturing remains the biggest single employer in the sector, contributing 15% of jobs.
The devolved government’s net zero strategies anticipate the creation of thousands of new jobs. Carbon capture usage and storage (CCUS) and hydrogen technologies believed to contain the potential to support up to 500,000 new green UK-wide, including a substantial number in Wales.
During a visit to KLA’s massive new site in Newport, with our CEO Rain Newton-Smith, I was very impressed by high standards being set at the facility for environmental efficiency and net zero.
The Celtic Free Port in Milford Haven and Neath Port Talbot will provide skilled job opportunities on the doorstep of the Tata steel plant and hopefully this can stem the loss of talented, skilled former Tata employees out of Wales to work at facilities such as Hinckley Point in Somerset.
KLA’s investment is an example of the bold action that’s needed, but the private sector can’t be expected to compete with their rivals on their own. The US and EU have used their deep pockets to lure green investment with hefty incentives. It’s an approach we just can’t match pound for pound. But it is one we can outsmart. One of the clearest and most underused ways to unleash private investment is greening the tax system: and the CBI’s latest research sets out three headline proposals for how we can do that.
First, enhanced green R&D tax credits, with a headline rate of 40%. That can help us supercharge UK tech like electric vehicles and batteries, heat pumps, biofuels, hydrogen production and CCUS. Second, lowering corporation tax for green tech profits to 10% would also be a powerful incentive. Third, an enhanced green super-deduction rate of 120% could get green investment flowing to where we need it most.
Greening the tax system would not only build confidence, but really help us to crowd in the investment we need. It would also send a powerful message about Wales’ status as the best place in the world to invest in green.
Taxation powers are, of course, reserved to the Westminster Government. The devolved administration has powers to incentivise decarbonisation opportunities through policy levers such as business rates, which should be incentivising firms that chase after decarbonisation opportunities.
The CBI report also highlighted the wide disparity that exists between the 20% VAT users pay on public charge-points and the levy of just 5% on home charging systems. It recommended the 20% tariff is aligned with the tariff for private charge points which would be a welcome move to boost EV uptake across Wales.
Following on from our research, the Institute of Public Policy Research (IPPR) highlighted some of the benefits available to Wales’s manufacturing sector in the green sector.
It showed that green manufacturing opportunities exist all over Britain, especially in coastal regions, giving them a competitive advantage, with four pockets existing in south and north Wales.
It was good to see Rhyl was named in the IPPR study as in the top 10 UK Travel To Work Areas for green transport, which highlighted the opportunities created by good infrastructure.
Companies across know that the cost of missing out on this golden opportunity to incentivise green growth through taxation could be devastating.