Westminster Watch: What the manifestos mean for the energy and natural resources sector

With the UK General Election on Thursday, it is in the interests of all clients to understand each party’s manifesto promises and the impact they could have on their businesses.

The Financial Times’ aggregation of national voting polls suggests the Labour Party maintains a 20 percentage point lead on the Conservatives (FT, 1 July 2024). No incumbent party has ever bounced back to close such a significant polling gap so far into the campaign season. As such, it seems likely that the Labour Party will achieve an electoral majority on 4 July. While there is always a possibility that unexpected developments may change the trajectory of the campaign, as of today, we advise clients to carefully consider the policy commitments that are being proposed by the Labour Party in their manifesto.

This is the third in our series of Westminster Watch client alerts, analysing the impact of the party manifestos on key sectors across the UK economy – including technology and financial services. In this article we offer an overview of the manifesto commitments affecting the energy and natural resources sector in the UK. We’ve focused on the two major political parties, with additional insight into the manifestos of the Liberal Democrats, SNP and the Green Party, who propose particularly extensive transformations of the sectors concerned.

In 2008, the last Labour government introduced the Climate Change Act to make it a legal obligation for future governments to cut greenhouse gas emissions by 80% by 2050 (net zero). All parties wholeheartedly supported the proposal.

Net zero continues to remain a crucial topic for all parties ahead of the upcoming election. With this obligation on future governments, and the ever-increasing public interest on the topic, the drive to decarbonisation features prominently in each Party’s manifestos. On the whole, the manifestos recognise the need for reduced emissions and increased energy efficiency, alongside commitments to enhance the UK’s energy security.

This Westminster Watch has been written in collaboration with James Carter, Head of UK Energy and Natural Resources, and the UK Government Affairs team.

 

THE LABOUR PARTY MANIFESTO

The Labour Party’s manifesto promises to make Britain a “clean energy superpower”, with a significant focus on energy investment. The Labour Party’s overall energy goals, as outlined within their 2024 manifesto, focus on achieving significant clean and renewable energy advancements, as well as improving energy efficiency, with a specific emphasis on finding a way to achieve these goals via economic investment and growth. Key initiatives include:

• Great British Energy, a publicly funded green energy company – and the Labour Party’s flagship policy. GB Energy would be funded by GBP8.3 billion over the next parliamentary term. The first GPB3.3 billion will be invested into community clean energy projects, with the following GBP5 billion intended to be co-invested with businesses in emerging and established clean energy infrastructure in the UK. Compared to similar publicly owned energy companies, like France’s EDF or Denmark’s Ørsted, GB Energy would initially be a small player in the sector. As Ed Miliband, Shadow Secretary of State for Energy Security and Net Zero has said, “It’s not going to become an Ørsted overnight.” (Politics Home, 2 May 2024).
• A new Energy Independence Act would establish the framework for Labour’s energy and climate policies. The Bill would build on The Energy Act 2023 in leveraging private investment in clean technologies to build a home-grown energy system (take a look at our Energy Act 2023 online hub for analysis of the legislation’s commercial implications). Labour intends to work with the private sector to “double onshore wind, triple solar power, and quadruple offshore wind by 2030”. These targets form a central part of the Labour Party’s strategic policy ambitions. It remains to be seen whether they are realistically achievable within the time frame proposed.
• Labour’s Warm Homes Plan would invest an extra GBP6.6 billion over the next parliament to upgrade five million homes to cut bills for families.The plan will offer grants and low interest loans to support investment in insulation and other improvements (e.g., solar panels, batteries, and low carbon heating to cut bills). The Labour Party proposes to work with combined authorities, local and devolved governments and the private sector (including banks and building societies) to provide further private finance to accelerate home upgrades and low carbon heating.
• On nuclear, the Labour Party pledges to “ensure the long-term security of the sector, extending the lifetime of existing plants”. They commit to getting Hinkley Point C over the line and using new nuclear power stations (such as Sizewell C) and Small Modular Reactors to retain jobs and increase the UK’s energy security.

To support investment in their plan, the Labour Party proposes to broaden the Energy Profits Levy (EPL) by closing “the loopholes in the windfall tax on oil and gas companies”, extending the sunset clause in the EPL until the end of the next parliament, increasing the rate of the levy by three percentage points and removing unjustifiably generous investment allowances.

The Labour Party’s approach to the energy sector is more hard-line than the plans outlined in the Conservative manifesto. Labour will reject new North Sea licenses (although it will not prevent the development of the Rosebank oil and gas field), while the Conservatives plan to ensure annual licensing rounds for oil and gas production. Meanwhile, the Conservatives have stated that windfall taxes will be kept until 2028 – 2029 “unless prices fall back to normal earlier”.

Overall, the Labour Party manifesto sets out an ambitious array of targets, commitments and promises when it comes to the energy sector. The proposals are less clear on how Labour will support increased grid capacity and planning so that the new projects funded by GB Energy can benefit from efficient and timely connection to the grid.

There is evidently potential for a surge in green industry under a Labour government. Businesses will welcome the manifesto’s emphasis on opportunities for collaboration with the private sector. There will likely be a boost in job creation from the ambitious amount of energy projects proposed, assisting in the Labour Party’s overall aim to increase the UK’s economic growth. Should we see a change of government on 4 July, businesses will be keen to examine the details of the Energy Independence Bill to fully understand the impact of the proposed reforms on their commercial interests.

 

THE CONSERVATIVE MANIFESTO

In September 2023, Prime Minister Rishi Sunak announced a more “pragmatic, proportionate and realistic approach” to net zero, a theme which is developed throughout the Conservative Party’s manifesto. The key focus is on cutting the cost of climate change, with policies including:

• Cutting the cost of climate change for households and businesses: the Conservative Party would reduce household bills and ease the “burden” on working people, “ensuring that families are given time to make changes that affect their lives and never forcing people to rip out their existing boiler and replace it with a heat pump”. At the same time, the manifesto highlights the government’s progress on upgrading households, stating that almost half of the homes in England now have energy efficiency Band C (compared to just one in seven homes in 2010). Indeed, it was a Conservative government that introduced the MEES (Minimum Energy Efficiency Standards) in 2018, requiring all rented properties to have an EPC certificate rating of C or above by 2029.
• Commitment to reduce green levies on energy bills: the Conservative Party’s manifesto promises to ensure that annual policy costs and levies on household energy bills are lower in each year of the next Parliament than they were in 2023.
• Reforming the Climate Change Committee: providing an explicit mandate for the Climate Change Committee to consider costs to households and UK energy security in its future climate advice.
• Cutting waiting times to get a grid connection: the manifesto pledges to implement the recommendations of the Windsor Review, ensuring that networks are able to “buy forward with confidence” and “cutting waiting times to get a grid connection” to deliver savings to households and opening up the market for more solar and wind schemes. 
• Democratic consent for onshore wind and support for solar in the “right places”: acknowledging the need to find the balance between energy security and the views of local communities. The manifesto notes that updates have been made to the National Planning Policy Framework which seek to ensure local areas that host onshore wind directly benefit, including potentially through energy bill discounts. There is also an acknowledgement that planning rules have been changed to make it easier for solar to be located on brownfield sites and rooftops, and prevent multiple solar farms being clustered in one area. The Conservatives also pledge to treble Britain’s offshore wind capacity.
• Nuclear Power: the Conservatives propose to “scale up” nuclear power (in a direct contradiction to the pledges by the Green Party), building on the work establishing Great British Nuclear, approving 2 new fleets of Small Modular Reactors, delivering a new gigawatt power plant at Wylfa (North Wales) and working with the industry to deliver existing projects at Hinkley Point and Sizewell.

While the focus on reducing energy bills will be welcomed by many households, what is seemingly lacking from the Conservative Party’s manifesto, is how it will address the wider picture of achieving net zero. Their proposals to reduce electricity bills and energy levies (mostly put on electricity bills) may disincentivise the transition to heat pumps and heat networks, a key action to deliver the government’s strategy to decarbonise heat. We have written extensively on this aspect of the green transition, including on the insights the UK could glean from looking at similar approaches in the US, Germany and the Netherlands (DLA Piper, February 2024).

 

THE LIBERAL DEMOCRAT MANIFESTO

While the Liberal Democrat party are unlikely to win an outright majority, their manifesto is clear that renewable energy is a priority. The Liberal Democratic Party’s manifesto commits to a “fair deal on the environment”, noting the “existential threat” posed by climate change. Their headline pledge is their goal to cut greenhouse gas emissions to net zero by 2045 at the latest (bringing the timeline forward from the UK’s current projected 2050 target).

Key initiatives will:

• Require all new homes and non-domestic buildings to be built to a zero-carbon standard.
• Reduce carbon emissions by implementing the Carbon Border Adjustment Mechanism for high-emission products. The Liberal Democrats would also support carbon capture and storage, the development of regional industrial clusters for zero-carbon innovation and increase the Industrial Energy Transformation Fund.
• Turn water companies into US-style “public benefit companies”; and scrap Ofwat and replace it with a “tough new regulator” with powers to prevent sewage dumps.
• Invest in renewables so that 90% of the nation’s electricity comes from renewable sources by the end of the decade.
• Cut travel emissions, including by lowering VAT on electric vehicles to 4% and requiring every new car and small van produced from 2030 to generate zero emissions. They would shift the tax burden on international flights towards frequent flyers (a stark contrast to the Conservatives who have confirmed there will be no frequent flyer charge).
• Require pension funds to comply with the climate change goals in the Paris Agreement.

 

THE SCOTTISH NATIONAL PARTY MANIFESTO

Scotland is an energy rich nation. It is therefore no surprise that their manifesto contains a strong focus on how best to utilise their vast renewable energy sources.

The SNP would demand the devolution of powers over energy regulation, pricing and production. With devolved powers, the SNP would seek to make changes to the grid system, including by seeking to reduce fees for Scottish producers to connect.

It is important to note here that much of the SNP Party’s manifesto is relatively light on detail. Until their demand for the full devolution of powers is granted, the SNP’s manifesto calls for the following from the UK government:

• To invest at least GBP28 billion a year in the “green economy” and strengthen the clean energy industry’s domestic supply chain. The SNP also proposes that the UK Government should seek an equity stake in future energy projects – an interesting comparison to Labour’s proposal for Great British Energy.
• To take an “evidence-based” approach to oil and gas licences. The SNP want decisions to be made on a case-by-case basis, evidence-led and through a robust climate compatibility assessment.
• To rule out any new nuclear power plants in Scotland.
• To unlock the nation’s green hydrogen potential by securing a direct interconnection between Scotland and the continent. Hydrogen has a role to play in the decarbonisation of heat as it is currently being touted as a low-carbon alternative to natural gas (although whether this is the case remains to be seen). 

 

THE GREEN PARTY MANIFESTO

It comes as no surprise that the Green Party have made some of the boldest commitments out of all the major political parties. Given their position and likely electoral fortunes, their policies are worded as commitments to “push the next government” to take action. In contrasting their approach against that of the current Government, they have drawn a clear dividing line emphasising that “it’s possible to decarbonise the energy system before 2030” and push the government to transition to a zero-carbon society by 2040 at the latest (by comparison, the Conservatives and Labour both aim to achieve net zero by 2050, and the Liberal Democrats and SNP have set a target for 2045).

The Green Party is looking to invest GBP200 billion in the green transition over the course of the next parliament, projecting to spend GBP50 billion on clean energy, GBP50 billion on retro-fitting buildings and GBP42 billion on nationalising energy and water companies and investing in their infrastructure.

As part of their wider commitment to achieve a “decarbonised economy” the Green Party’s policies include phasing out fossil fuels, bringing the energy sector under local democratic control, increasing the UK’s wind and solar by a combined 223GW of power and supporting emerging renewable energy technologies (with the exception of nuclear power).

The Green Party’s manifesto promises to lower carbon emissions from the built environment. They would mandate that:

• All new-built homes maximise their use of solar panels and heat pumps (or equivalent low carbon technologies).
• All planning applications include whole-life carbon and energy calculations (covering construction, maintenance and operational use).

The Green Party represent the most interventionist approach to the energy and natural resources sector in its aims to “transition to a zero-carbon economy”. Their extensive programme of transformation contrasts significantly with the manifesto of Reform UK, which promises to “scrap net zero and related subsidies” to save the public sector over GBP30 billion per year.

The Institute for Fiscal Studies has analysed the economic credentials of the policies proposed by both political parties – with the Greens setting out plans for an unprecedented increase in public spending, and Reform UK advocating for an unprecedented reduction in the size of the state. The IFS comes to the conclusion that neither could be implemented in the form outlined in the manifestos without “real economic cost” (IFS, June 2024). As such, it is best to view each of these proposals as illustrating the parameters of the political debate, rather than as a workable agenda for government.

 

NEXT STEPS: 4 JULY AND BEYOND

Polling day is Thursday 4 July. On 9 July, parliament returns for the election of the Speaker. The State Opening of Parliament is set for 17 July, when the King’s Speech will set out the new government’s proposed legislation for the coming session.

Before the election was called, the House of Commons was scheduled to break for summer recess on 23 July. But if the Labour Party wins the general election, it may extend the sitting of parliament until early August to keep momentum up to implement its legislative priorities (FT, June 2024).

The first hundred days of a new government is a critical period of time. Whichever party wins the election, new Secretaries of State and their Special Advisors will be entering government departments with the ambition and momentum of a recently elected administration.

With campaigning behind them, ministers will have to get up to speed with the regulatory and legislative complexities of government.

Both of the major political parties have signalled their openness to working with the private sector to broaden their understanding of the issues concerned.

Businesses have an important contribution to make to the development and implementation of effective policy, targeted at specific outcomes and minimising any unintended consequences that could unduly affect their commercial interests.

 

HOW WE CAN HELP

DLA Piper has a deep understanding of the challenges facing energy and natural resources, with unparalleled experience in renewables and a strong reputation amongst all businesses in the sector.

James Carter leads the UK Energy and Natural Resources team, along with Natasha Luther-Jones, International Head of Sustainability and ESG and Energy and Natural Resources Global Co-Chair. Their work supports the full spectrum of a company’s legal requirements, advising on developments, investments, financings, refinancings, acquisitions, disposals and all key project documentations as well as complex commercial arbritration and litigation.

Working together with Energy and Natural Resources sector specialists, our Government Affairs team supports clients to take a proactive approach to addressing the risks and opportunities arising from political change.

Unlike government affairs agencies, we combine political, legal and regulatory knowledge with an in-depth understanding of the workings of Westminster and Whitehall. As regulated Consultant Lobbyists, we’re experienced in supporting you in executing sophisticated engagement and advocacy strategies.

Our clients also benefit from the insights and understanding of our Strategic Consultants Lord David Blunkett, Lord Edward Garnier, Lord Gavin Barwell and Lord Andrew Tyrie.

Please contact Paul Hardy, James Carter and Natasha Luther-Jones for further information on how we can support you to navigate the opportunities arising from a new government in the UK.